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UNITED STATES
  SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-KSB

x ANNUAL REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the year ended December 31, 2003

 ̈ TRANSITION REPORT
  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from to

Commission file number 000-21753

ULTRAGUARD WATER SYSTEMS CORP.
  Name of Small Business Issuer in Its Charter

|NEVADA                                 | 88-0263701        
|-------------------------------------- | ------------------
|State of Incorporation                 | I.R.S. Employer   
|                                       | Identification No.
|                                       |                   
|914 SHERWOOD AVENUE                    |                   
|COQUITLAM B.C.CANADA                   | V3K 1A6           
|Address of Principal Executive Offices | Zip code          

604-540-8282
  Issuer's Telephone Number

Securities registered under Section 12(b) of the Act:

NONE

Securities registered under Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.001 PER SHARE Title of class

Check whether the issuer: (1) filed all reports required to
  be filed by Section13 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
   ̈

Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation SB is not contained in this form, and no disclosure
  will be contained, to the best of registrants knowledge, in definitive
  proxy or information statements incorporated by reference in Part III of this
  Form 10-KSB or any amendments to this Form 10-KSB  ̈

The issuers revenues for its most recent fiscal year
  were $32,669

The aggregate market value of the voting and non voting common
  equity held by non-affiliates of the issuer amounting to in aggregate 17,153,570
  computed by reference to the price at which the common equity was sold, or the
  average bid and asked price of such common equity, on April 8,2004 was $ 1,243,643.
  The number of shares outstanding of the issuer's only class of Common Stock
  $.001 par value was 23,553,570 on April 12, 2004.

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THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
  WITH THE COMPANYS FINANCIAL STATEMENTS AND NOTES THERETO. INFORMATION
  DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS
  OR THE FINANCIAL PERFORMANCE OF THE COMPANY, AND IS SUBJECT TO A NUMBER OF RISKS
  AND OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY
  FROM THOSE CONTAINED IN ANY FORWARD LOOKING STATEMENTS. AMONG SUCH FACTORS ARE:
  GENERAL BUSINESS AND ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR
  THE COMPANYS PRODUCTS; THE COMPANYS OVERALL ABILITY TO DESIGN, TEST
  AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED
  BY THE COMPANYS PRODUCTS; AND OTHER RISK FACTORS LISTED FROM TIME TO TIME
  IN DOCUMENTS FILED BY THE COMPANY WITH THE SEC.

PART I

ITEM 1. 	DESCRIPTION OF BUSINESS

Vancouver-based UltraGuard Water System Corp (Company),
  (formerly Service Systems International, Ltd.), through its previously owned
  subsidiary UV Systems Technology, Inc. ("UVS") are committed to a legacy of
  a healthy planet for future generations through the development and commercialization
  of superior, cost-effective, environmentally friendly, ultraviolet-based water
  treatment products and systems. For the period up to February 2002 we were the
  manufacturer and marketer of state of the art ultraviolet disinfection systems
  for wastewater disinfection with additional application possibilities in potable
  water. During fiscal 2002 the Companys business changed from a focus on
  wastewater disinfection to the purification of potable water using ultraviolet
  and filtration. In December 2002 we entered an additional business segment;
  the manufacturing and marketing of a primary, alternative and emergency power
  generating Magnesium-Air power cell.

In fiscal 2002 our Company discontinued manufacturing of the
  wastewater products and entered into various agreements to change it business
  focus. The wastewater business was licensed to Clearwater Industries Ltd (See
  details in ITEM 6  MANAGEMENTS DISCUSSIONS). The emphasis of our business
  remained in ultraviolet disinfection, however we now target drinking water with
  systems developed for low-flow drinking water application. The products currently
  developed and under development are used to disinfect and filter water. The
  systems identified are, Point of Entry (POE) purification system, which is installed
  where the water enters the home, and Point of Use (POU) purification system,
  which is located at the faucet. In addition, in late December 2002, our Company
  obtained an option to manufacture and market a magnesium air fuel cell to power
  the POU and POE purifications systems and for ancillary uses such as lighting,
  radio and other low energy electrical needs.

Our offices were relocated to 2nd Floor - 6753
  - 203A Street, Langley BC, Canada, V3A 1W7 on January 26th, 2002.
  In September 2003 we relocated to 914 Sherwood Avenue, Coquitlam British Columbia,
  Canada, V3K 1A6, our telephone number is (604) 540-8282 and the facsimile number
  is (604) 540-8289. References in this document to we, us, our, and the company
  include its consolidated wholly-owned subsidiary, Innovative Fuel Cell Technologies
  Inc and UltraGuard Water Systems GmbH, unless the context otherwise requires.
  ULTRA GUARDR and "WAVY LINES & DESIGNS" logo are our registered
  trademarks. Any other trademarks or trade names referred to in this document
  are the property of their respective owners. All monetary figures in the document
  are in United States dollars except Canadian dollars which are indicated as
  "C$.

COMPANYS BACKGROUND

Our company was incorporated in Nevada in August 1990 and
  was inactive until eight Canadian and European individuals acquired it in July
  1995. The investors intent was to develop the company into the United
  States marketing arm of UV Systems Technology Inc., which was incorporated in
  British Columbia, Canada in 1993. Our company issued 1,600,000 shares of its
  restricted common stock ("Common Stock") to certain individual stockholders
  and one of our officers, as repayment of cash paid to others for expenses related
  to the acquisition.

To further advance our marketing objectives, in September
  1995, we entered into a marketing distribution agreement (embodying an earlier
  oral agreement) with UV Systems Technology Inc., for marketing rights for the
  UltraGuardR system in eight Western states. In July 1996 we entered
  into a funding agreement with UVS. During this period, we structured an agreement
  with two principals and certain minority shareholders and exchanged common stock
  to acquire 50.69% of UVS. Under subsequent agreement dated February 14, 2000
  with the two principal shareholders Working Opportunity Fund and MDS Ventures
  Pacific, Inc., (49.39%) we acquired the remaining 49.31% of common stock and
  all outstanding preferred stock of UVS.

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On December 30, 2002 the Company acquired 100 % of Innovative
  Fuel Cell Technologies Inc, a Nevada Incorporated company, the holder of an
  option to purchase a worldwide license from MagPower Systems Inc (MagPower)
  for their air magnesium fuel cell technology. The purchase price in the option
  agreement was C$100,000 and 400,000 shares of the Companys common stock.
  Once the option is exercised, MagPower is to provide to the Company with the
  technical information necessary for the manufacture and sale of the air fuel
  cell battery (Fuel Cell). The Fuel Cell will provide the necessary power to
  operate ultraviolet disinfection systems, lighting and radio in areas of the
  world where no other forms of electrical power is unavailable. The product has
  applications in remote areas of all countries worldwide.

Applications in developing countries such as Africa, some
  of the Middle East countries and China, where large numbers of the population
  are not serviced by an electrical grid and do not have a safe water supply,
  are market areas. The Company issued six million shares of its common stock
  to the shareholders of Innovative Fuel Cell Technologies Inc (Innovative)
  for 100% of Innovative. Included in the Innovative assets was the Austrian Company,
  UltraGuard Water Systems GmbH (GmbH). The incorporation of GmbH was made
  by Innovative in contemplation of its sale of Innovative to the Company. GmbH
  was set up to manufacture and market Point of Use UV produces in Germany and
  the European Union Countries (EU) to exploit the EU and other European
  markets potential. The market potential was increased when the European Commission
  recently brought in strict guidelines (EU Water Framework Directive).
  Effective January 2004 member states must ensure that drinking water meets stringent
  guidelines to protect the quality of the water (both hot and cold) that consumers
  receive from their taps; the Point of Use. In addition GmbH will manufacture
  the Fuel Cell products for the various world markets.

On March 14, 2003 the Company exercised the license for the
  Fuel Cell. The license agreement was signed between MagPower and the Companys
  wholly owned subsidiary, Innovative Fuel Cell Technologies Inc. The Company
  will pay C$102,500, and issue five hundred shares of the Companys common
  stock. Payments terms were modified to reflect the delivery of technical information
  necessary to enable the Company to manufacture the Fuel Cell and additional
  rights of use. The terms of the signed license agreement included additional
  rights of use of the fuel cell for ancillary services to power items such as
  lighting and radio for which Innovative increased the cash payable by C$2,500
  to a total amount of Cnd$102,500 and increased the number of Company shares
  that would be paid by 100,000 to a total of 500,000. On signing, Innovative
  paid C$5,000 and delivered 200,000 common shares of UltraGuard. The balance
  of the license fee was to be paid, C$5,000 on April 1, 2003; this payment was
  made on March 21, 2003 and 100,000 common shares of the Company due on May 1,
  2003 were delivered. Payments due in the amount of C$7,500 on the first of each
  month thereafter until MagPower delivers the technical drawings and information
  for manufacturing were not paid, leaving a balance of C$88,800 unpaid. Subsequent
  to December 31, 2003 the Company and MagPower executed an amendment to the license
  agreement providing for the forgiveness of the outstanding balance owed to MagPower
  amounting to C$88,800 and delivery to MagPower of the remaining 200,000 shares
  of the Companys stock in exchange for the granting of a sublicense to
  MagPower to purchase and sell the Companys ultraviolet water purification
  systems in combination with the Fuel Cell. The territory covered by this amendment
  includes Africa, India, China, Afghanistan, Kazakhstan, Bangladesh, Pakistan,
  Malaya, Singapore, South Korea and Japan. The amendment includes the right for
  the Company to enter into any of these countries and appoint sub-licensee if
  MagPower has not previously appointed sub-licensees.

Under the original license, minimum annual quantities of 2000
  Fuel Cell units must be sold and a royalties of C$25.00 per Fuel Cell will be
  paid to MagPower based on number of units sold. Additional details of these
  acquisition transactions were filed with the SEC on Form 8-K on January 14,
  2003.

During 2002, the Company was unable to raise the additional
  funds necessary to continue the operations of UVS and with UVS liabilities exceeding
  assets by a significant amount, the board of directors and investors determined
  that by selling UVS the Company could continue viable operations pursuing a
  new product focus (see Our Products). On December 31, 2002 the Company entered
  into various agreements for the disposition of UVS and the removal of the UVS
  debt and receivable carried on the Companys financial statements. The
  reader should refer to the Companys financial statements attached hereto
  for a complete understanding. Manufacturing and marketing of the UVS technology
  had been discontinued by the Company and was licensed to Clearwater Industries
  in February 2002. The purchaser of UVS was 659999 BC Ltd, a corporation controlled
  by two officers and directors of the Company. Terms of the sale included the
  transfer by UVS to the Company of all current and future revenue that may accrue
  as a result of the UVS technology, which was all revenue the Company could have
  accrued had it not sold UVS. The intent of 659999 BC Ltd is to keep UVS inactive.
  Full details of these agreements are available on Form 8K filed with the SEC
  on January 15, 2003.

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OUR PRODUCTS

POINT OF USE AND POINT OF ENTRY

Our Point of Use (POU) and Point of Entry (POE) ultraviolet
  purification systems with or without filtration are used for the drinking water
  and water for human contact. The POE is attached to the water supply line at
  its entry point into a building; the POU is attached under a sink directly in
  advance of the faucet. These products will meet the needs and requirements of
  the population of the North American marketplace. In Europe our Austrian company
  UltraGuard Water Systems GmbH is developing a POU product for the specific and
  demanding requirements of the European market.

MAGNESIUM-AIR FUEL CELLS

In December 2002 we acquired the rights to a magnesium-air
  fuel cell system developed by MagPower Systems Inc. The magnesium air fuel cells
  will be manufactured to the specifications and technical data to be furnished
  by the developer MagPower Systems Inc. The magnesium air fuel cells provide
  greater safety and cost savings over the better-known hydrogen fuel cells. Both
  cell produce electricity through an electrochemical reaction but magnesium-based
  fuel cells are more environmentally friendly, easier to recycle, more versatile
  and more efficient because they are simpler and safer.

Magnesium-Air Fuel Cells are cleaner; they support the global
  push for a sustainable environment. They are easily recycled, clean and consume
  no fossil fuels, produce no toxic emissions, thus reducing harmful greenhouse
  effects. To recharge the cell, you basically remove the spent magnesium core,
  replace it with a new core and add salt or seawater electrolyte.

Magnesium-Air Fuel Cells are safer; the simple magnesium anode
  and natural electrolyte make this cell less combustible than a hydrogen fuel
  cell. Unlike hydrogen fuel cells, which use pure hydrogen, with magnesium-based
  fuel cells, no safety sealed fuel storage is required, its fuel can be magnesium
  or magnesium-alloy. No special safety permits are required for transportation
  by plane. The magnesium-based fuel cell has an indefinite shelf life because
  the electrolyte can be removed before storing the cell. When power is needed,
  the electrolyte is poured back into the cell. Electrolyte in a non-magnesium
  fuel cell, power generator or battery cannot be removed, stored and reused by
  the consumer. This sustainability provides a reliable source of power for emergency
  situations.

The magnesium air fuel cell will be packaged with the UV POU
  and POE purification systems to provide a permanent or portable purification
  system for either temporary service application, emergency stand-by or for remote
  dwellings or villages where electrical power is unavailable.

WASTERWATER SYSTEMS

In fiscal 2002, the wastewater products were licensed to Clearwater
  Industries and the Company will collect royalties on each systems sold. The
  UV disinfection system is sold under its registered trademark, UltraGuard®
  SLR UltraFlow System. The UltraGuard® system incorporates: 1)
  low-pressure, high intensity, high efficiency UV lamps, 2) infinitely variable
  ultraviolet lamp controllers, 3) a patented high-performance reactor module,
  4) patented flow-balanced weirs, and 5) an automatic quartz sheath cleaning
  system. Currently this product is primarily sold for municipal wastewater disinfection.
  However, our UV technology can be applied to many treatment needs. These include
  industrial process water disinfection, potable water disinfection, and other
  fluid and air disinfection. In December the Company

MARKETING.

The Companys UV POU and POE purification systems will
  be marketed under the brand name UltraFlo and the fuel cell system will be brand
  named UltraCell. In North America our UltraFlo products will be sold through
  distributor companies and directly through our website. An E-commerce marketing
  section to be setup within our website will permit retail users to purchase
  products and components directly. UltraCell products will be marketed through
  MagPower under the recently amended license agreement, and by the Company through
  distributors to be setup in the various countries where this product has application.
  Setting up the representative and distributor network for the UltraFlo and UltraCell
  products is an ongoing process. Until MagPowers development program on
  the fuel cell is complete, the signing up of distributors has been delayed.
  Until the fuel cell product become market ready in mid to late 2004 the Companys
  focus will be on identifying future distributors and promoting awareness of
  the UltraCell product through consultants in strategic market locations. Strategic
  partners will be identified with whom we will form alliances. As well, home
  name brand distributors, large plumbing contractors, building developers, etc
  will be approach market the UltraFlow products for us.

Effective February 2002 the Companys wastewater product
  was being manufactured by Clearwater to supply the needs of USFilter in its
  Territory. Under terms of the agreement with Clearwater the Company was to receive
  certain payments, which were not forthcoming. On July 23, 2003 UVS issued writ
  against Clearwater for recovering of amounts owing. In August US Filter cancelled
  the Strategic Alliance for ongoing defaults of the various agreements

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In Korea, our wastewater product Licensee Vitzrosys manufactures
  exclusively for the Korean and non-exclusively for the Asian Market.

UV disinfection systems have none of the safety issues with
  which chlorination systems must deal. UV has the advantage of being relatively
  simple to operate and maintain. UV disinfection is a physical, rather than chemical
  process, using UV radiation to permeate bacterial and viral cell walls and prevent
  the cells from replicating.

CUSTOMERS

The POE and POU UltraFlo UV purification system will be sold
  to all people concerned about the safety of the water they consume. Water quality
  is generally deteriorating worldwide. The UNESCO World Water Development Report
  states disinfection at the point of use is consistently the most cost-effective
  intervention. With outbreaks of e-coli and other bacteria occurring in
  the municipal water supply (Walkerton, Ontario), surface water and the aquifer,
  the population is becoming increasingly concerned that water needs special handling
  to make it safe. The occurrence of contaminates in the water supply (Giardia,
  and Cryptosporidium cysts), which cannot be deactivated by chlorine give people
  cause for concern. Ultraviolet and filtration can deactivate or remove these
  cysts, bacteria and virus from drinking water, making it safe for consumption.
  Concerns about the drinking water supply even in areas with municipal water
  treatments facilities has driven consumers to bottled water, delivery water
  and home filtration. We believe these consumers are potential clients for the
  POE and POU UltraFlo UV purification systems. UltraGuard Water Systems GmbH
  (now discontinued operations) was set up to manufacture the POU UltraFlo UV
  produces in Germany and market it the European Union Countries (EU)
  to exploit the EU and other European markets potential. The market potential
  was increased when the European Commission recently brought in strict guidelines
  (EU Water Framework Directive). Effective January 2004 member states
  must ensure that drinking water meets stringent guidelines to protect the quality
  of the water (both hot and cold) that consumers receive from their taps; the
  Point of Use.

In areas where electrical power is unavailable, the Magnesium-Air
  Power Cell (UltraCell) will provide a source of power to the population of the
  worlds most remote areas. On the African continent, in countries such
  as South Africa the UltraFlo POU purification systems in combination with the
  UltraCell we can provide safe and clean drinking water. In addition, the UltraCell
  will supply power to those remote areas for lighting and basic services such
  as radio, television and even computers. Any area in the countries of the world
  where a reliably, full time electrical supply is unavailable or where natural
  or human caused disasters may interrupt the electrical power supply can use
  the UltraCell as a full time or emergency stand-by power source.

Royalty Income. On January 26, 2001, we entered into
  a Strategic Alliance Agreement (and associated agreements) with US Filters
  Wallace and Tiernan Products group (USFilter ) to market our Ultra Guard®
  wastewater UV System in North, South and Central America and the Caribbean,
  filed with the SEC on Form 8-K on February 27, 2001. On February 5, 2002 we
  signed an agreement with Clearwater Technologies Inc wherein Clearwater agreed
  to assume the manufacturing of new UV projects and to supply these to our Strategic
  Alliance partner, USFilter. Clearwater was required to provide warranty services
  on previously delivered UV products. The Company was to be paid a royalty on
  sales, the percentage scaled upward as the total sale volume increases. As a
  result of the failure of Clearwater to live up to its commitment under the agreements
  signed with the Company on February 5, 2002, which included the requirements
  contained in the Strategic Alliance Agreement, in August 2003 USFilter terminated
  the Alliance Agreement (and associated agreements).

Stock Purchase Warrants. Concurrently with the execution
  of the Strategic Alliance Agreement, granted three Stock Purchase Warrants to
  U.S. Filter/Wallace & Tiernan for an aggregate of 3,000,000 (60,000) shares
  of the Companys common stock, as follows. The numbers enclosed in brackets
  present the effect of post reverse split that occurred in fiscal 2002.

- 1,000,000 (20,000) shares at an exercise price equal
      to the lower of $0.97 ($48.50) per share or the "Fair Market Value" of the
      common stock as of April 25, 2001;
- 1,000,000 (20,000) shares at an exercise price of $1.00 ($50.00) per share;
    and
- 1,000,000 (20,000) shares at an exercise price of $2.00 ($100.00) per share.

As a term of a subsequent Funding Agreement, the exercise
  prices on the 3,000,000 (60,000) warrants was reduced to $0.24 ($12.00) per
  share. In addition, 5,105,000 (102,100) Class A warrants (the Additional Warrants)
  were issued as a result of this Funding Agreement. All warrants issued to USFilter

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were exerciseable until October 10, 2010; however, as a result
  of the cancellation of the Strategic Alliance Agreement by USFilter, for convenience,
  the warrants will expire on the second anniversary of the effective date of
  the termination for convenience (September 2005). In summary as result of the
  1:50 reverse split USFilter now holds 162,100 Class A warrant exercise price
  of $12.00.

COMPETITION

The Company competes with many other producers of UV equipment
  and other water treatment technologies, many of which are more established and
  have significantly greater resources. We compete with technologies currently
  in use, including chlorination, ozonation, reverse osmosis and micro filtration.
  Competitive factors include system effectiveness, safety regulation costs, operational
  cost and practicality of application and potential adverse health effects. We
  are not unaware of any competing technologies using fuel cells in conjunction
  with UV; nor are we aware of any magnesium air fuel cells in use to power ultraviolet
  systems, lighting and related services.

REGULATORY MATTERS

Our business is conducted from British Columbia, Canada. We
  are not subject to any special regulatory requirements above those that are
  applicable to businesses in general in Canada and the United States.

We are not aware of any regulations that would adversely affect
  our ability to market our products

EMPLOYEES

As of December 31, 2003, the Company had three (3) full time
  employees. Two (2) of the full-time employees are engaged in management activities,
  and one (1) is engaged in office services.

RISK FACTORS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
  WITH "SELECTED FINANCIAL DATA" AND SERVICE SYSTEMS CONSOLIDATED FINANCIAL
  STATEMENTS AND NOTES THERETO. INFORMATION DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING
  STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE
  COMPANY'S, AND ARE SUBJECT TO A NUMBER OF RISKS AND OTHER FACTORS WHICH COULD
  CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
  STATEMENTS. AMONG THESE FACTORS ARE: GENERAL BUSINESS AND ECONOMIC CONDITIONS;
  CUSTOMER ACCEPTANCE AND DEMAND FOR THE COMPANYS PRODUCTS; THE COMPANYS
  OVERALL AVILITY TO DESIGN, TEST AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS;
  THE NATURE OF THE MARKETS ADDRESSED BY THE COMPANYS PRODUCTS; AND OTHER
  RESK FACTORS LISTED FROM TIME TO TIME IN DOCUMENTS FILED BY THE COMPANY WITH
  THE SEC.

WE ARE SUBJECT TO THE RISKS, EXPENSES, PROBLEMS AND DIFFICULTIES
  FREQUENTLY ENCOUNTERED IN THE ESTABLISHMENT OF A RESTRUCTURED BUSINESS, ESPECIALLY
  IN THE CONTINUALLY EVOLVING, INTENSELY COMPETITIVE, POTABLE WATER TREATMENT
  INDUSTRY.

We have generated no profits to date and have accumulated
  losses to December 31, 2003 fiscal yearend amounting to $11,037,711. We cannot
  assure that we will become profitable at any time in the foreseeable future.

ITEM 2. DESCRIPTION OF PROPERTY

In September 2003, The Companys executive offices were
  relocated to 914 Sherwood Avenue, Coquitlam, British Columbia. The premises
  have approx. 400 square feet of executive offices. Currently the company is
  leasing the existing space on a month to month basis. No Insurance plans cover
  the contents.

ITEM 3. LEGAL PROCEEDINGS

On October 20, 1998 a suit was filed in the Supreme Court
  of British Columbia by Thomas OFlynn against Service Systems, Kenneth
  Fielding (Service Systems President and Director), and Charles P Nield
  (a former Director and Vice President of the Company). OFlynn alleges
  that in April of 1996, he purchased shares of Service Systems common stock
  based on a representation that they would be free trading in 40 days of the
  filing of a prospectus. He further alleges that, in September of 1996,
  he purchased additional shares of

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common stock based on the representation that the shares would
  be free trading within 40 days of the common stock becoming free trading. OFlynn
  alleges that the representation was a warranty and was incorrect. He further
  alleges that he suffered a loss because the share price decreased while he was
  holding the shares. He seeks damages for breach of warranty, negligence, misrepresentation
  and breach of fiduciary duty. The amount claimed is not specified. The Company
  filed an answer denying the claims and continues to actively defend the suit.
  Examination for discovery of Charles P Nield was conducted in June 1999, since
  then there has been no further activity.

On April 25, 2003, Chelverton Fund Limited filed a suit in
  the Supreme Court of British Columbia against the Company for non-payment of
  debt in the amount of $155,000. The Company entered an appearance and filed
  a defense against this claim and attempted to negotiate a settlement. Chelverton
  filed additional information that supported their claim and the Company responded
  with a no defines position and judgment was issued in the amount
  of $193,944 (C$234,642) including interest and legal costs On April 5, 2004
  the Company appeared in Supreme Court to provide to Chelverton and the court,
  specific information pertaining to the Companys assets and its ability
  to pay the judgment including interest. The hearing was adjourned; the Company
  will be required to provide additional detailed financial information.

On June 6th, 2003 a group of shareholders consisting
  of the original owners of Innovative Fuel Cell Technologies Inc (Shareholder
  Group) filed a consent resolution, which among other things elected a new slate
  of directors and revised the company by-laws. The Company refused to accept
  the consent resolution or by-laws as in the opinion of the Companys legal
  counsel, the consent resolutions were not in accordance with Nevada Statutes
  or the filing requirements of Security and Exchange Commission. At a directors
  meeting held June 9th, 2003, the Company elected two additional directors;
  Edward a White and Erin Strench to the Company board, bringing the total number
  of directors to five. On June 16, 2003the Shareholder Group filed for and obtained
  a temporary restraining order (TRO) against the Company and its five director
  prohibiting the Company from among other things, issuing stock, transferring
  assets, changing management and other actions that would affect the status
  quo of the Company. In addition two shareholders issued writs against the
  four directors, alleging breach of fiduciary duty in respect of the issue of
  certain common shares to John Gaetz, Ken Fielding and others. On June 24, 2003,
  in discussions between legal counsel for plaintiff, respondent and the hearing
  Judge; Judge Adams, the TRO was vacated and a date of July 2, 2003 was set for
  a new TRO hearing to be held in Reno, Nevada. At the July 2, 2003 TRO hearing
  Judge Adams did not grant a TRO and requested the plaintiff and respondent file
  a series of three briefs outlining their position. The first brief was filed
  on July 11, 2003 by our counsel. The plaintiff responded on July 18, 2003 and
  our counsel filed the final brief on July 25, 2003. The Companys counsel
  has responded to the various other suits filed against the Company and its directors.
  The Company had attempted during the second quarter to have these cases moved
  from Nevada State court to federal court and in the third quarter we were advised
  that these cases would be heard in federal court. In March 2004 the Companys
  legal counsel filed to withdraw from the action as a result of non-payment of
  legal fees. The court approved the withdrawal. By April 29, 2004, the Plaintiff
  and the Defendant must file a proposed pre-trial order with the Federal Court,
  which upon approval, the Court will set down for trial. In the interim the parties
  to this dispute are attempting to reach a settlement in all matters. The Company
  and the Directors has been attempting to settle this matter out of court and
  continues to make progress in that regard, expecting that early in the second
  quarter the matter should be settled.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys common stock is traded in the over-the-counter
  market and is listed on the Over the Counter Bulletin Board under the symbol
  "UGRD". The following table sets forth for the periods indicated the high and
  low bid prices of our common stock as reported by the OTC-BB during each quarter.
  The quotations reflect inter-dealer prices, without retail mark-up, markdown
  or commission, and may not represent actual transactions. The period from Fiscal
  Year 2001 up to September 30 of the fiscal year 2002 shows share values before
  effect of a 1:50 reverse split, the last numbers in brackets shows values after
  effect of the 1:50 reverse split. All figures shown in the fiscal year ended
  December 31, 2003 are in actual values reported by the OTC-BB.

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|FISCAL YEAR 2001                 |              |              |  
|-------------------------------- | ------------ | ------------ | -
|Quarter ended March 31, 2001     | 0.33 (16.50) | 0.71 (35.50) |  
|Quarter ended June 30, 2001      | 0.155 (7.75) | 0.40 (20.00) |  
|Quarter ended September 30, 2001 | 0.12 (6.00)  | 0.27 (13.50) |  
|Quarter ended December 31, 2001  | 0.95 (47.50) | 0.22 (11.00) |  
|                                 |              |              |  
|FISCAL YEAR 2002                 |              |              |  
|Quarter ended March 31, 2002     | 0.04 (2.00)  | 0.15 (7.50)  |  
|Quarter ended June 30, 2002      | 0.02 (1.00)  | 0.05 (2.50)  |  
|Quarter ended September 30, 2002 | 0.02 (1.00)  | 0.04 (2.00)  |  
|*Quarter ended December 31, 2002 | (0.30        | (1.00        | )
|*Post reverse split              |              |              |  
|                                 |              |              |  
|FISCAL YEAR 2003                 |              |              |  
|Quarter ended March 31, 2003     | 0.20         | 1.06         |  
|Quarter ended June 30, 2003      | 0.07         | 0.70         |  
|Quarter ended September 30, 2003 | 0.06         | 0.17         |  
|Quarter ended December 31, 2003  | 0.06         | 0.16         |  

As of December 31, 2001 there were approximately 175 holders
  of record of the common stock.

The Company has never had profits and has never paid cash
  dividends on its common stock. It is our intention to retain future earnings,
  if any, to provide funds for business operations and, accordingly, we do not
  anticipate paying any cash dividends on our common stock in the foreseeable
  future. However, we are under no restriction as to the payment of dividends.

OTHER SALES

During the quarter ended December 31, 2003 the Company issued
  the following shares for the listed consideration

|Date                            | Shares | Residency/  | Consideration | Exemption |     
|------------------------------- | ------ | ----------- | ------------- | --------- | ----
|                                |        | Citizenship | Valued at     |           |     
|Dec 4/03                        |        | 400,000     | US            | $40,000   | S-8*
|Dec 5/03                        |        | 1,050,000   | Taiwan        | $105,000  | S-8*
|*Registered on December 2, 2003 |        |             |              

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS AND FINANCIAL CONDITION.

The following discussion and analysis should be read in conjunction
  with our Financial Statements and the Notes attached. Information discussed
  in this report may include forward-looking statements regarding events or our
  financial performance and are subject to a number of risks and other factors,
  which could cause the actual results to differ materially from those, contained
  in the forward-looking statements. Among such factors are, 1) general
  business and economic conditions, 2) customer acceptance and demand for
  our products, 3) our overall ability to design, test and introduce new
  products on a timely basis,4) the nature of the markets addressed
  by our products, and, 5) other risk factors listed from time to time
  in documents filed by our Company with the SEC.

BASIS OF PRESENTATION

The financial statements include accounts of Ultraguard Water
  Systems Corp. and its 100% owned subsidiary, Innovative Fuel Cell Technologies
  Inc.

MANAGEMENT'S DISCUSSION

Our company was incorporated in Nevada in August 1990 and
  was inactive until eight Canadian and European individuals acquired it in July
  1995. The investors intent was to develop the company into the United
  States marketing arm of UV Systems Technology Inc., which was incorporated in
  British Columbia, Canada in 1993. Our company issued 1,600,000 shares of its
  restricted common stock ("Common Stock") to certain individual stockholders
  and one of our officers, as repayment of cash paid to others for expenses related
  to the acquisition.

8

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In an effort to further advance our marketing objective, in
  September 1995, we entered into a marketing distribution agreement (embodying
  an earlier oral agreement) with UV Systems Technology Inc., for marketing rights
  for the UltraGuard® system in eight Western states. In July 1996
  we entered into a funding agreement with UVS. During this period, we structured
  an agreement with two principals and certain minority shareholders and exchanged
  common stock to acquire 50.69% of UVS. Under subsequent agreement dated February
  14, 2000 with the two principal shareholders Working Opportunity Fund and MDS
  Ventures Pacific, Inc., (49.39%) we acquired the remaining 49.31% of common
  stock and all outstanding preferred stock of UVS.

During the year ended August 31, 1999, the Company entered
  into a development to reconfigure its UV system. In the quarter ended February
  29, 2000, the Company produced the prototype of a new UV product line, the Ultra-Flow
  SLR. This product, with a designed disinfection capacity of up to 1.0 million
  gallons per day per lamp, will incorporate the Companys patented flow
  reactor chamber, the proprietary low pressure, high intensity UV lamp and the
  patented flow balanced weir. It encompasses layout flexibility; infinite automatic
  flow control and monitoring, future expansion can be easily accomplished. The
  client can monitor system and component performance locally or remotely. Additional
  features include full password- protected, Internet-based, web-monitored, microprocessor
  control, which will permit monitoring of the Ultra-Flow SLR UV system from the
  Company s plant or from any location equipped with an Internet connection.

On January 26, 2001 the Company entered into a Strategic Alliance
  Agreement, and related agreement with US Filters Wallace Tiernan Products
  Group, under which US Filter has the exclusive right to market the Companys
  Ultra Guard®UV system in North, South and Central America, and
  the Caribbean. See Our Products: Customers

In September 2001 we licensed the Korean company, VITROSYS,
  the exclusive rights to manufacture and sell our SLR Ultraviolet disinfection
  systems within the Republic of Korea and a non-exclusive right to manufacture
  for sale into other territories not currently represented by the Companys
  agents.

VITROSYS will pay a royalty on each UV system sold. The royalty
  fee is variable, dependant on the selling price of the UV system. Under the
  License Agreement, the Company provided full manufacturing drawings, software
  technology and expertise, and a specified number of hours of training at the
  Companys facilities. As a requirement of the License Agreement, VITROSYS
  will be required to purchase from the Company, a key component for each SLR
  system. This key component is defined as the royalty verification component.
  Its purchase will trigger a sale and resultant royalty payment liability. The
  Korean market for UV is expected to increase as a result of legislation that
  will require all municipal and Industrial wastewater to be disinfected.

In September 1999 the formal order for a project in Toronto,
  Canada was secured for about C$ 685,000 (approximately $466,000). The project
  is now delivered and operating on demand. As this system is used only when high
  rainfall and storm runoff occurs, demand for it's operating is infrequent. Since
  installation, we are informed of two storm events, which required the UV system
  to be activated. This UV system delivered to Toronto is part of a C$50 million
  combined storm overflows (CSO) project (the world largest submersible CSO pumping
  station) and is used for disinfection of CSO before discharge into Lake Ontario.
  During this quarter, at the request of the customer Clearwater Industries (our
  product manufacturing licensee) replaced the computer operating system with
  a Programmable Logic Controller (PLC). This decision was taken to permit service
  of the UV System to be performed by a number of service companies versed in
  maintaining PLC control systems. This action provides the customer more flexibility
  and available service options and reflects the direction being taken by Clearwater
  on new system sales. Clearwater Industries reports that the UV System remedial
  work is complete. Final testing will not be conducted until spring 2003 as this
  site operates only during summer storm events. Tests conducted during 2002 were
  not successful, as effluent delivered to the UV system did not meet the design
  standards. The client requested an undertaking by Clearwater Industries to provide
  assurance of long-term support services. Clearwater was not prepared to provide
  those assurances although this was a requirement of the Joint Venture Agreements
  signed by the Company and Clearwater. As a result of that failure, the Client
  had the UV systems removed from the site.

After successful PDU testing in September & October 1998
  at the City of Peterborough wastewater treatment plant, we received an order
  in March 1999 valued at over C$1,100,000 (approximately $748,000.). The UV system
  will disinfect effluent flow in excess of 36 million gallons per day. The UV
  system delivery was completed in January 2002 and installed during February
  and March for operation starting May 15, 2002. Problems were encountered with
  the field wiring which affected the operating software. As well, problems were
  encountered with the installation of some of the structural components. In the
  second quarter, four of the five channels (48 of the 60 lamps) had been operated
  for about 30 days using the non-flow paced computer system. Clearwater reported
  that during this period, performance requirements were being met. Negotiation
  of the work and guarantees required by the customer to complete the balance
  of the system was being conducted between the City of Peterborough, Clearwater,
  our product-manufacturing licensee and with USFilter and Clearwaterr. These
  negotiations have been unsuccessful. In November we received notification that
  the City of Peterborough was canceling our UV system contract. We have advised
  the City that we do not accept this cancellation and will strenuously

9

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defend our rights under the contract purchased order. We have
  made the appropriate loss provisions in our financial statements to reflect
  this cancellation.

Purchase orders for two additional UV systems valued at approximately
  C$150,000 approximately were produced during the 2000-2001 period and delivered
  into the Province of Ontario. The system in Ontario was removed from the site
  as a result of the failure of Clearwater to provide the required support and
  warranty services. Additional orders for shipment to Louisiana and Virginia
  were received, with an aggregate value of about $258,000. These two systems
  were delivered in 2001 as part of the USFilter Strategic Alliance. Maintenance
  and warranty was the responsibility of USFilter and was performed by USFilter.
  These two systems were tested, accepted and remain in place and in full operation.

During the first quarter of 2002 the Company took actions
  to reduce its overheads. Having completed the delivery of the UV systems that
  were produced during 2000 and up to January 26, 2002, we searched for a partner
  to work with for production of future UV systems orders. The Company identified
  Clearwater Technologies Inc., based in Langley, B.C. Canada (Clearwater)
  to perform these and other activities. Clearwater is engaged in the water industry,
  targeting the treatment of potable water for smaller towns to which they provide
  complete packaged treatment plants. Clearwater agreed to assume the manufacturing
  of any new UV project sold to our Strategic Alliance partner, USFilter. Clearwater
  was also required to provide warranty services on the previously delivered UV
  products discussed in the preceding. The Company was to be paid a royalty on
  sales, the percentage scaled upward as the total sale volume increases. This
  association with Clearwater as our manufacturing partner permitted the company
  to move from its factory and reduce staff level in production, engineering
  and support. A number of key production staff moved to the Clearwater facility
  to assist in setting up for this manufacturing responsibility. The remaining
  staff at the Company works in a liaison and support role between USFilter and
  Clearwater.

This change of manufacturing strategy in the first quarter
  of 2002 significantly reduced our monthly operational costs. UVS became inactive
  with no further operations. Activities of UVS were limited to accounting functions,
  recording of accounts receivable collections and advising Clearwater and USFilter
  on project completion activities.

The Strategic Alliance Agreement with USFilter referred to
  above, and various other agreements were entered into on January 25, 2001 with
  US Filter/Wallace & Tiernan, Inc ("USFilter "). In general, the Strategic
  Alliance Agreement provides that U.S. Filter will market, offer and sell the
  Companys UltraGuard®ultraviolet disinfection systems (the
  "Systems"), including aftermarket components and spare parts, on an exclusive
  basis for ten years throughout a territory consisting of North America, Central
  America (including the Caribbean Zone) and South America (the "Territory").
  To insure adequate understanding of this Alliance, reference should be made
  to the various agreements filed on Form 8-K, February 27, 2001, which provide
  full details of these agreements.

On October 1, 2002 the directors mandated a debt and corporate
  restructuring of the Company. This mandate included the disposing of UVS and
  its associated debt, and the reduction of all other debt carried by the Company.
  Given the Companys inability to raise the additional funds necessary to
  continue the operations of UVS and with UVS liabilities exceeding assets by
  a significant amount, the board of directors and investors determined that by
  selling UVS the Company could continue viable operations pursuing a new product
  focus (see Our Products). On December 31, 2002 the Company entered into various
  agreements to complete the disposition of UVS and to remove of the excessive
  UVS liabilities carried on the Companys financial statements. The reader
  should refer to the Companys financial statements attached hereto for
  a complete understanding. Manufacturing and marketing of the UVS technology
  had been discontinued by the Company and was licensed to Clearwater Industries
  in early 2002. The purchasers of UVS were 659999 BC Ltd a corporation controlled
  by two officers and directors of UltraGuard. Terms of the sale included the
  transfer by UVS to the Company of all current and future revenue that may accrue
  as a result of the UVS technology, which was all revenue the Company could have
  accrued had it not sold UVS. The intent of 659999 BC Ltd is to keep UVS inactive.
  Full details of these agreements are available on Form 8K filed with the SEC
  on January 15, 2003.

On December 20, 2002 the Company negotiated the repayment
  of debt in the amount of $593,077 owed to the Elco Bank Clients in exchange
  for 593,077 common shares.

On August 27, 2003, prior to the expiration of the three year
  Termination Period, USFilter advised the Company they were terminating the Agreement,
  alleging that the Company had breached the Agreement in signing a manufacturing
  Agreement with Clearwater Technologies Inc and had failed to deliver Trust documents
  related to the manufacturing technology for the UV system as was required by
  the Agreements. The Company is reviewing these allegations and has had verbal
  communication on the matter with USFilter principals. As Clearwater is responsibility
  for manufacturing and sale of product worldwide and USFilter became Clearwaters
  marketing agent, the effect of this termination should be minimum as sales through
  USFilter have been significantly lower then was anticipated at the time of signing
  the Strategic Marketing Agreement in January 2001

10

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Future revenue was expected from the wastewater technology
  through royalties expected from Clearwater, as a result of sales made to USFilter
  and sales of the UV systems made to others. As a result of the failure of Clearwater
  to perform in accordance with its contractual requirements, which resulted in
  USFilter canceling our Strategic Alliance, royalties will not be received through
  this venue. However, royalty revenues will be received for any UV system sold
  by Vitzrosys under a license agreement signed in September 2001.

Recent US and world events as well as the worldwide requirement
  for a higher quality of water will accelerate the use of ultraviolet products
  for use in drinking water applications and air treatment, both for surface and
  ventilation. To capitalize on this market opportunity, our Company changed its
  market focus moving away from the wastewater products, which were now fully
  marketed by others, to drinking water UV products. During the year 2002 we completed
  the development of a UV product to be used in drinking water applications. UV
  units for the drinking water market will target application such as point of
  entry (POE) and point of use (POU). POE UV systems will treat water at the entry
  point into residences, industry or any location requiring safe drinking water.
  POU systems will treat water at selected points within the home or establishment,
  using a system installed at the water faucet. Both POE and POU may be sold as
  stand-alone units or in combinations with various filters. Ultraviolet will
  not penetrate the envelope or the wrappings to disinfect the contents of the
  package but is applicable to external surface disinfection. Independent testing
  of the POU UV System, including CSA and UL approval is yet to accomplished.
  Test tests are to be conducted over the following months subject to availability
  of adequate resources.

On December 30, 2002. the Company issued six million shares
  of its common stock to the shareholders of Innovative Fuel Cell Technologies
  Inc (Innovative) for 100% of Innovative, a Nevada Incorporated company,
  the holder of an option to purchase a worldwide license from MagPower Systems
  Inc (MagPower) for their air magnesium fuel cell technology (Fuel Cell). The
  purchase price in the option agreement was C$100,000,and 400,000 shares of the
  Companys common stock, increased respectively in March 2003 to C$102,500
  and 500,000 shares of the Companys common stock at which time a worldwide
  License Agreement was signed for the manufacture and sale of the Fuel Cell .
  The increase in the price and the number of shares of common stock was as a
  result of negotiations to extend the use right to include ancillary uses among
  other things lighting and radio in areas where a UV disinfection systems has
  been installed. The Fuel Cell will provide the necessary power to operate ultraviolet
  disinfection systems, lighting and radio in areas of the world where no other
  forms of electrical power is unavailable. The product has applications in remote
  areas of all countries worldwide. Applications in developing countries such
  as Africa, some of the Middle East countries and China, where large numbers
  of the population are not serviced by an electrical grid and do not have a safe
  water supply, are market areas. As a requirement of the License Agreement, MagPower
  was to provide the manufacturing technology for then Fuel Cell. Due to delays
  in MagPowers development program, this information was incomplete, which
  curtailed any opportunity the Company may have had to market the products. By
  the end of 2003 the company had paid a portion of the License fee, leaving C$88,800
  remaining unpaid and 200,000 common share not delivered.

On February 2, 2004, the Company and MagPower entered into
  a amendment to the License Agreement. Under the amendment the Company agreed
  to sublicense the Companys ultraviolet products to MagPower for Africa
  and the countries of Asia including; India, China, Afghanistan, Kazakhstan,
  Bangladesh, Indonesia, Malaysia, Singapore, South Korea and Japan (Territory),
  for sale and use by MagPower (or its sublicenses) with MagPowers magnesium
  fuel cell. The amendment provided the Company the right to enter into sublicensing
  agreements in any country within the Territory if MagPower had not previously
  signed an agreement in that country. As well, the February 2nd, 2004
  amendment provided for issuance and delivery of the remaining 200,000 common
  shares (100,000 common shares from trust and 100,000 common shares from treasury),
  and cancellation by MagPower of the remaining C$88,800 owing by the Company
  to MagPower.

Included in the Innovative assets was the Austrian Company,
  UltraGuard Water Systems GmbH (GmbH). The incorporation of GmbH was made
  by Innovative in contemplation of its sale of Innovative to the Company. GmbH
  is set up to manufacture and market Point of Use UV produces in Germany and
  the European Union Countries (EU) to exploit the EU and other European
  markets potential. In the third quarter of 2003 the Company closed its GmbH
  operation and wrote off its investment due to the inability to raise sufficient
  capital to continue funding the GmbH operations.

RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER
  31, 2003

The following selected financial data for the years ended
  December 31, 2001 through December 31, 2003 have been derived from the Companys
  audited consolidated financial statements. This information is provided to assist
  the reader in understanding the discussion, which follows. For full information,
  the reader should refer to the audited consolidated financial statements and
  related notes for the periods discussed.

11

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|                                     | 2003      |           | 2002      |   | 2001      |  
|------------------------------------ | --------- | --------- | --------- | - | --------- | -
|                                     | (Audited) |           | (Audited) |   | (Audited) |  
|                                     |           |           |           |   |           |  
|Project revenue                      | $         | 32,699    |           | $ | 24,747-   |  
|Project costs                        |           | 33,968    |           |   | 18,073-   |  
|Gross profit from projects           |           | (1,299    | )         |   | 6,674-    |  
|General and administrative           |           | 583,630   |           |   | 351,837   |  
|Imputed Interest                     |           | -         |           |   | 31,928-   |  
|Provision for lawsuit losses         |           | 27,000    |           |   | -         |  
|Interest, net of interest income and |           |           |           |   |           |  
|interest recovered                   |           | 54,117    |           |   | 134,216   |  
|Stock based compensation             |           | 113,470   |           |   | -         |  
|Loss on discontinued operations      |           | 40,957    |           |   | 905,459   |  
|Gain on Disposal of UV Systems       |           | -         |           |   | (759,149  | )
|Net loss for the year                |           | 840,573   |           |   | 657,617   |  
|Loss per common and common           |           |           |           |   |           |  
|equivalent share*                    | $         | (0.05     | )         | $ | (0.06     | )
|                                     |           |           |           |   |           |  
|Total assets                         |           | 1,173,474 |           |   | 1,088,990 |  
|Long-term debt                       |           | -         |           |   | -         |  
|Total liabilities                    |           | 765,596   |           |   | 635,655   |  
|Total stockholders equity (deficit) |           | 407,878   |           |   | 453,335   |  

* Loss per share was recalculated based on weighted average number of outstanding shares after giving retroactive effect to a 1:50 consolidation of shares in fiscal 2002.

TWELVE-MONTH PERIOD - DECEMBER 31, 2003 COMPARED DECEMBER 31, 2002.

Revenues.For fiscal 2003, we reported revenues of
  $32,669, compared to $24,747 revenue in the comparable period of fiscal 2002,
  an increase of $7,922, or 32%. The increase resulted from increased sales of
  printed circuit boards for product Licensees.

Direct Project Costs.For fiscal 2003, we reported
  project costs of $33,968, an increase of $15,895 or 88%, from $18,073 in the
  comparable period of the prior year. The increase of project costs incurred
  as a result of a provision for obsolescence amounting to $7,157 in the inventory
  accounts and increased sales revenues.

Gross Profit.For fiscal 2003, we reported gross loss
  of $1,299, an decrease of $7,973, or 119%, from the gross profit amounting to
  $6,674 reported in the comparable period of fiscal 2002.

General and Administrative Expense.For fiscal 2003,
  we reported expenses of $583,630, an increase of $239,863, or 69% from $343.767
  in the comparable period of fiscal 2002 The increase was due primarily to increased
  legal fees and consulting services.

Stock Based Compensation:

Imputed Interest.For fiscal 2003, we reported imputed
  interest of nil, compared to $31,928 in the comparable period of fiscal 2002.
  There was no imputed interest recorded in fiscal 2003.

Interest, Net of Interest Income.For fiscal 2003,
  we reported interest, net of interest income, $54,117, compared to $134,216
  in the comparable period of fiscal 2002, a decrease of $80,099 or 60%. The decrease
  was due mainly to a repayment of interest bearing debt by conversion to shares
  in late 2002, the sale of UVS and its related debt removed from the Companys
  statements, which included the forgiveness of amounts owing to related parties.

Net Loss for the Period.For fiscal 2003, we reported
  a net loss of $840,573, a increase of

12

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$182,956, or 28% compared to $657,617 reported in the comparable
  period of the prior fiscal year. The increase in net loss was due primarily
  to increased legal fees, increased consulting services, and provision for loss
  due to lawsuits.

Net Loss per Share.For fiscal 2003, we reported a
  net loss per share of ($0.05) a decrease of $0.01 or 16%, from ($0.06) in the
  comparable period of the prior year. The decrease in the net loss per share
  was due mainly to the allocation of the net loss over an increased number of
  outstanding shares and share equivalents in fiscal 2003.

TWELVE-MONTH PERIOD - DECEMBER 31, 2002 COMPARED TO DECEMBER
  31, 2001.

Revenues.For fiscal 2002, we reported revenues of
  $24,747, compared to nil revenue in the comparable period of fiscal 2001, an
  increase of $24,747, or 100%. The increase resulted from the sale of special
  manufacturing test equipment and a single lamp reactor.

Direct Project Costs.For fiscal 2002, we reported
  project costs of $18,073, an increase of $18,073 or 100%, from nil in the comparable
  period of the prior year. The increase of project costs incurred resulted from
  the costs of sales of the special manufacturing test equipment and a single
  lamp reactor.

Gross Profit.For fiscal 2002, we reported gross profit
  of $6,674, an increase of $6,674, or 100%, from nil in the comparable period
  of fiscal 2001.

General and Administrative Expense.For fiscal 2002,
  we reported general and administrative expense of $351,837, a decrease of $225,114,
  or 39%, from $576,951 in the comparable period of fiscal 2001. The decrease
  in net loss was due primarily to decreased administrative management, decreased
  legal fees, decreased finders fees paid to fund raisers, and decreased investor
  relations expenses, although consulting increased.

Imputed Interest.For fiscal 2002, we reported imputed
  interest of $31,928, compared to nil in the comparable period of fiscal 2001.
  The increase was due to the recording as donated capital the interest costs
  on amounts owing to related parties in fiscal 2002.

Interest, Net of Interest Income.For fiscal 2002,
  we reported interest, net of interest income, of $134,216, compared to $90,534
  in the comparable period of fiscal 2001, an increase of $43,682 or 48%. The
  increase was due mainly to accrual of interest costs on accounts payable and
  on amounts owing to related parties.

Loss on UV Systems Operations.For fiscal 2002, we
  reported $905,459 loss on UV Systems Operations, a decrease of $258,757 or 22%
  from $1,164,216 in the prior year. (See Note 3 of the Financial Statements for
  additional information).

Gain on Disposal of UV Systems.For fiscal 2002, we
  reported gain on the disposal of UV Systems of $759,149 compared to nil in the
  comparable period of fiscal 2001, an increase of $759,149 or 100%. (See Note
  9 of the Financial Statements for additional information).

Net Loss for the Period.For fiscal 2002, we reported
  a net loss of $657,617, a decrease of $1,174,084, or 64%, compared to $1,831,701
  reported in the comparable period of the prior fiscal year. The decrease in
  net loss was due primarily to increased revenue, decreased administrative management,
  decreased legal fees, decreased finders fees paid to fund raisers, decreased
  investor relations expenses, decreased loss of operations of UV Systems and
  a gain on the disposal of UV Systems and an increase in consulting expenses.

Net Loss per Share.For fiscal 2002, we reported a
  net loss per share of ($0.06) a decrease of $3.72 or 98%, from ($3.78) in the
  comparable period of the prior year. The decrease in the net loss per share
  was due mainly to the decrease of the net loss for fiscal 2002 and the allocation
  of the net loss over an increased number of outstanding shares and share equivalents
  in fiscal 2002.

LIQUIDITY

The nature of our business may be expected to include a normal
  lag time between the incurring of operating expenses and the collection of contract
  receivables. In addition, we are dependent on sales by licensees for any royalty
  revenue and will depend on sales from distributors, licensees and sales agents
  for product sales. For these and other reasons, we may experience periods of
  limited working capital and may be expected to require financing for working
  capital during those periods.

In addition, we will require financing over and above our
  current resources to sustain our operations and expand our marketing efforts.
  We cannot assure that the additional financing can be obtained on a timely basis,
  on terms that are acceptable or if at all.

13

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TWELVE MONTH PERIOD - DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002

Our cash position at December 31, 2003 was $1,834. A decrease
  of $38,372. During the year we received $128,472 from loans and advances from
  related parties. We spent $160,608 for operating activities and $6,776 for additional
  costs in acquiring the manufacturing technology. During the year ended December
  31, 2003, current assets increased $6,589 as compared to the fiscal year ended
  December 31, 2002. The net increase was due primarily to the decrease in short-term
  investments of $38,372 an increase in accounts receivable of $2,025, a decrease
  in inventory of $6,638 due to provision for obsolescence, offset by a increase
  in prepaid expenses and deposits of $49,574. Long-term assets increased during
  the fiscal year ended December 31, 2003 by $77,976, as compared to the fiscal
  year ended December 31, 2002, due primarily to additional assets acquired related
  to Innovative Fuel Cell Technologies Inc.s manufacturing technology.

Current liabilities increased during the year ended December
  31, 2003 by $129,941 as compared to the fiscal year ended December 31, 2002.
  The increase was as a result of an increase in accounts payable of $70,133,
  an increase in amounts owing to related parties of $183,136, an increase in
  wages and vacations payable by $1,383, an increase in accrued liabilities of
  $15,590, partially offset by decreases in loans payable of $128,582 and customer
  deposits of $11,719.

We expect that, during fiscal 2004, as and if sales increase,
  we will continue to depend on receipt of additional funds through public or
  private equity or debt sales or other lender financing to fund the subcontract
  manufacturing of products sold, and general operational and sales expenses.
  Except as previously indicated, no arrangements are currently in place to raise
  funds, although we actively continue to seek sources. Failure to receive these
  funds may be expected to have a material adverse effect on our company.

TWELVE MONTH PERIOD - DECEMBER 31, 2002 COMPARED TO DECEMBER
  31, 2001

During the year ended December 31, 2002, current assets decreased
  $1,783,820 as compared to the fiscal year ended December 31, 2001. The decrease,
  net of increase, was due primarily to the decrease of short-term investments-restricted
  of $244,599, the decrease in accounts receivable of $1,115,799, decrease in
  inventory of $247,516, decrease in prepaid expenses and deposits of $216,112,
  offset by the increase of cash of $40,206. Long-term assets increased, net of
  decreases, during the fiscal year ended December 31, 2002 by $802,644, as compared
  to the fiscal year ended December 31, 2001, due to the acquisition of manufacturing
  technology of $1,026,876, offset by the reduction of capital assets of $118,338
  and patents and trademarks of $105,894. The net decrease in the total assets
  is due mainly to the disposal of the UV Systems Technology Inc. (See Note 1
  of the Financial Statements) and offset by the acquisition of Innovative Fuel
  Cell Technologies Inc.s manufacturing technology.

Current liabilities decreased during the year ended December
  31, 2002 by $2,423,978 as compared to the fiscal year ended December 31, 2001.
  The decrease as detailed on the financial statements was due to decreases in
  cheques issued in excess of funds on deposit of $4,539, accounts payable of
  $1,006,625, accrued liabilities of $90,517, wages and vacation payable of $68,945,
  customer deposits of $109,677, loans payable of $637,295 and amounts owing to
  related parties of $506,380.

During 2002 we financed our operations in part, from proceeds
  of sales of restricted common stock and loans from related parties and shareholders
  of UVS.

14

---

Item 7. Consolidated Financial Statements

Index to Consolidated Financial Statements

Independent Auditors Report

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

15

---




Independent Auditors Report

To the Board of Directors and Stockholders of 
  UltraGuard Water Systems Corp.

We have audited the accompanying consolidated balance sheets
  of UltraGuard Water Systems Corp. as of December 31, 2003 and 2002, and the
  related consolidated statements of operations and deficit and cash flows for
  the years ended December 31, 2003 and 2002. These consolidated financial statements
  are the responsibility of the Companys management. Our responsibility
  is to express an opinion on these consolidated financial statements based on
  our audits.

We conducted our audits in accordance with generally accepted
  auditing standards used in the United States of America. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  UltraGuard Water Systems Corp. as of December 31, 2003 and 2002, and the results
  of its operations and its cash flows for the years ended December 31, 2003 and
  2002 in conformity with generally accepted accounting principles used in the
  United States of America.

The accompanying consolidated financial statements have been
  prepared assuming the Company will continue as a going concern. As discussed
  in Note 1 to the financial statements, the Company has not generated profitable
  operations since inception and has a working capital deficit of $697,178 as
  at December 31, 2003. These factors raise substantial doubt about the Companys
  ability to continue as a going concern. Managements plans in regard to
  these matters are also discussed in Note 1. These financial statements do not
  include any adjustments, which might result from the outcome of this uncertainty.

Chartered Accountants

Vancouver, Canada

April 8, 2004

---

|UltraGuard Water Systems Corp.                                |              |   |              |  
|------------------------------------------------------------- | ------------ | - | ------------ | -
|Consolidated Balance Sheets                                   |              |   |              |  
|(Expressed in US dollars)                                     |              |   |              |  
|                                                              |              |   |              |  
|                                                              | December 31, |   | December 31, |  
|                                                              | 2003         |   | 2002         |  
|                                                              | $            |   | $            |  
|ASSETS                                                        |              |   |              |  
|Current Assets                                                |              |   |              |  
|Cash and short-term investments                               | 1,834        |   | 40,206       |  
|Accounts receivable                                           | 2,971        |   | 945          |  
|Inventory and contract work in progress                       |             |   | 6,638        |  
|Prepaid expenses and deposits                                 | 63,613       |   | 14,039       |  
|Total Current Assets                                          | 68,418       |   | 61,828       |  
|Property and Equipment (Note 5)                               | 204          |   | 286          |  
|Other Assets                                                  |              |   |              |  
|Manufacturing Technology (Note 4)                             | 1,104,852    |   | 1,026,876    |  
|Total Assets                                                  | 1,173,474    |   | 1,088,990    |  
|LIABILITIES AND STOCKHOLDERS EQUITY                          |              |   |              |  
|Current Liabilities                                           |              |   |              |  
|Accounts payable                                              | 194,080      |   | 123,947      |  
|Accrued liabilities                                           | 55,747       |   | 40,157       |  
|Wages and vacation pay payable                                | 3,004        |   | 1,621        |  
|Customer deposits                                             |             |   | 11,719       |  
|Loans payable (Note 6)                                        | 310,542      |   | 439,124      |  
|Amounts owing to related parties (Note 7)                     | 202,223      |   | 19,087       |  
|Total Current Liabilities                                     | 765,596      |   | 635,655      |  
|Stockholders Equity                                          |              |   |              |  
|Common stock, (Note 8) $.001 par value,                       |              |   |              |  
|100,000,000 shares authorized,                                |              |   |              |  
|22,453,565 and 10,852,565 issued and outstanding respectively | 22,454       |   | 10,853       |  
|Additional paid-in capital                                    | 11,212,638   |   | 10,221,893   |  
|Donated capital                                               | 31,928       |   | 31,928       |  
|Stock based compensation                                      | 499,269      |   | 385,799      |  
|Deferred compensation                                         | (320,700     | ) |             |  
|Deficit                                                       | (11,037,711  | ) | (10,197,138  | )
|Total Stockholders Equity                                    | 407,878      |   | 453,335      |  
|Total Liabilities and Stockholders Equity                    | 1,173,474    |   | 1,088,990    |  
|                                                              |              |   |              |  
|Contingencies (Notes 1 and 10)                                |              |   |              |  
|Subsequent Events (Note 11)                                   |              |   |              |  

(See Accompanying Notes to the Consolidated Financial Statements)

---

|UltraGuard Water Systems Corp.                                |                    |   |                    |  
|------------------------------------------------------------- | ------------------ | - | ------------------ | -
|Consolidated Statements of Operations and Deficit             |                    |   |                    |  
|(Expressed in US dollars)                                     |                    |   |                    |  
|                                                              |                    |   |                    |  
|                                                              | For the Year Ended |   | For the Year Ended |  
|                                                              | December 31,       |   | December 31,       |  
|                                                              | 2003               |   | 2002               |  
|                                                              | $                  |   | $                  |  
|                                                              |                    |   |                    |  
|Project Revenue                                               | 32,669             |   | 24,747             |  
|Project Costs                                                 | 33,968             |   | 18,073             |  
|Total Gross Profit (Loss)                                     | (1,299             | ) | 6,674              |  
|Expenses                                                      |                    |   |                    |  
|Foreign exchange loss                                         | 20,100             |   |                   |  
|General and administrative                                    | 583,630            |   | 351,837            |  
|Imputed interest                                              |                   |   | 31,928             |  
|Interest                                                      | 54,117             |   | 134,216            |  
|Provision for lawsuit                                         | 27,000             |   |                   |  
|Stock based compensation expense                              | 113,470            |   |                   |  
|Total Expenses                                                | 798,317            |   | 517,981            |  
|Net Loss from Operations                                      | 799,616            |   | 511,307            |  
|Other:                                                        |                    |   |                    |  
|Loss from discontinued operations (Note 3)                    | 40,957             |   | 905,459            |  
|Gain on disposal of UV Systems Technology Inc. (Note
      3) | -                  |   | (759,149           | )
|                                                              | 40,957             |   | 146,310            |  
|Net Loss for the Year                                         | 840,573            |   | 657,617            |  
|                                                              |                    |   |                    |  
|Net Loss per Share                                            | (0.05              | ) | (0.06              | )
|                                                              |                    |   |                    |  
|                                                              |                    |   |                    |  
|Weighted Average Number of Shares Outstanding after giving    |                    |   |                    |  
|retroactive effect to a 1:50 consolidation of shares          | 15,863,411         |   | 10,852,565         |  

(Diluted loss per share has not been presented as the result is anti-dilutive.)

(See Accompanying Notes to the Consolidated Financial Statements)

---

|UltraGuard Water Systems Corp.                                          |              |   |              |  
|----------------------------------------------------------------------- | ------------ | - | ------------ | -
|Consolidated Statements of Cash Flows                                   |              |   |              |  
|(Expressed in US dollars)                                               |              |   |              |  
|                                                                        |              |   |              |  
|                                                                        | For the Year |   | For the Year |  
|                                                                        | Ended        |   | Ended        |  
|                                                                        | December 31, |   | December 31, |  
|                                                                        | 2003         |   | 2002         |  
|                                                                        | $            |   | $            |  
|Cash Flows to Operating Activities                                      |              |   |              |  
|Net Loss                                                                | (840,573     | ) | (657,617     | )
|Adjustments to reconcile net loss to cash                               |              |   |              |  
|Depreciation and amortization                                           | 82           |   | 41,172       |  
|Foreign exchange                                                        | 20,100       |   |             |  
|Common stock issued for expenses, net of cancellations                  | 473,281      |   | (52,601      | )
|Accrual of interest                                                     | 38,681       |   | 63,626       |  
|Imputed interest                                                        |             |   | 31,928       |  
|Stock based compensation                                                | 113,470      |   | 129,924      |  
|Change in non-cash working capital items                                |              |   |              |  
|(Increase) decrease in accounts receivable                              | (2,025       | ) | 1,098,799    |  
|(Increase) decrease in inventory and contract work in progress          | 6,638        |   | 247,516      |  
|(Increase) decrease in prepaid expenses and deposits                    | (49,574      | ) | 216,112      |  
|Increase (decrease) in accounts payable, accrued liabilities, wages and |              |   |              |  
|vacation pay payable and customers deposits                            | 79,852       |   | (1,275,765   | )
|Net Cash Used in Operating Activities                                   | (160,068     | ) | (156,906     | )
|Cash Flows (to) from Investing Activities                               |              |   |              |  
|Proceeds from short-term investment - restricted                        |             |   | 244,599      |  
|Acquisition of manufacturing technology                                 | (6,776       | ) | (13,876      | )
|Reduction to patents and trademarks                                     |             |   | 99,980       |  
|Reduction of capital assets                                             |             |   | 83,080       |  
|Net Cash Provided by (Used in) Investing Activities                     | (6,776       | ) | 413,783      |  
|Cash Flows from (to) Financing Activities                               |              |   |              |  
|Common stock issued                                                     |             |   | 253,791      |  
|Increase in loans payable                                               | 93,151       |   | 27,943       |  
|Increase (decrease) in amounts owing to related parties                 | 35,321       |   | (493,866     | )
|Net Cash Provided by (Used in) Financing Activities                     | 128,472      |   | (212,132     | )
|Increase (Decrease) in Cash                                             | (38,372      | ) | 44,745       |  
|Cash - Beginning of the Year                                            | 40,206       |   | (4,539       | )
|Cash - End of the Year                                                  | 1,834        |   | 40,206       |  
|Non-Cash Financing Activities:                                          |              |   |              |  
|Shares were issued for asset purchase                                   | 71,200       |   | 1,013,00     |  
|Shares were issued for expenses                                         | 783,982      |   | 40,613       |  
|Shares were issued to settle debts                                      | 137,164      |   | 697,733      |  
|Shares were issued for notes receivable and expenses                    | 110,000      |   |             |  
|Shares cancelled originally issued for expenses                         |             |   | (66,600      | )
|Supplementary Information                                               |              |   |              |  
|Cash paid for interest                                                  | 4,991        |   | 856          |  
|Cash paid for income taxes                                              |             |   |             |  

(See Accompanying Notes to the Consolidated Financial Statements)

---

|1. | Nature of Operations and Continuance of Business
      Up to February 2002 the Company focused its activities
        on the manufacturing and marketing of its Ultra GuardU ultra violet based
        patented water treatment system through its wholly owned Canadian subsidiary,
        UV Systems Technology Inc. (UVS). These products and systems
        are sold primarily for municipal waste disinfection, treatment.
      During the period from acquiring UVS in August 1996
        to February 2002, operating activities had not generated profitability.
        These consolidated financial statements have been prepared in accordance
        with United States generally accepted accounting principles, on a going
        concern basis, which contemplates the realization of assets and the satisfaction
        of liabilities and commitments in the normal course of business. As at
        December 31, 2003, the Company has not recognized significant revenue,
        has a working capital deficit of $716,789, and has accumulated operating
        losses of $10,977,201 since its inception. The continuation of the Company
        is dependent upon the continuing financial support of creditors and stockholders
        and obtaining short-term and long-term financing, the completion of product
        development of its newly acquired technology and achieving profitability.
        These conditions raise substantial doubt about the Company's ability to
        continue as a going concern. These financial statements do not include
        any adjustments that might arise from this uncertainty. On February 5,
        2002, the Company reached an agreement with the Clearwater Group (Clearwater)
        to assume the UVS manufacturing responsibilities of any new Ultra GuardU
        water treatment systems to be supplied to UVSs strategic alliance
        partner, US Filter. Clearwater would also provide warranty services on
        any previously sold UltraGuardU water treatment systems. In January 2001
        the Company ceased manufacturing operations, reduced level of staff in
        production, engineering and support and moved its offices to Langley.
        In December 2002, UVS was sold.
      At a special meeting held on November 15, 2002 the Company
        reorganized. Its shares were consolidated on a 1:50 basis, the authorized
        capital increased to 100,000,000 shares and the name of the Company was
        changed to UltraGuard Water Systems Corp. In December 2002, the Company
        divested itself of the UVS operations (see Note 3) while retaining any
        royalty or other revenues that may be received from the sale or use of
        the UVS patented Ultra GuardU technology.
      During fiscal 2002, the Company commenced designing
        and developing the home use Point of Use and Point of Entry UV disinfection
        systems for drinking water. Point of Use systems are installed under a
        sink; Point of Entry units are installed at the water supply entry into
        the building. This UV product may include dual filtration cartridges in
        advance of the UV system.
      In December 2002, the Company purchased Innovative Fuel
        Cell Technologies Inc. (IFCT) (see Note 4), the holder of
        an option to purchase worldwide rights to manufacture and market a Magnesium
        Air Fuel Cell to power UV drinking water and ancillary systems. IFTC owns
        100% of the shares of an Austrian company, UltraGuard Water Systems GmbH
        (UG GmbH). UG GmbH was to be the manufacturer and marketer
        the UV and Fuel Cell products for the European and African market. During
        the fiscal 2003 period, due to lack of finances, the Company discontinued
        its operation in Europe and closed UG GmbH and will concentrate its efforts
        on the North American market where its UV products and fuel cell products
        will be manufactured through subcontractors and will be marketed in North
        America through the Internet, wholesalers and sales representatives.
      Funds were provided to the Company on February 19, 2003
        through an agreement entered into with a Germany resident. Under the agreement
        the German resident provided a US$50,000 loan bearing interest at 10%,
        payable within 6 months or convertible into the Companys common
        stock at $0.30 per share. This loan has not been repaid and remains outstanding
        at the end of 2003.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|2. | Significant Accounting Policies
      Consolidated financial statements
      These financial statements include the accounts of the
        Company; its wholly owned Nevada based subsidiary and Innovative Fuel
        Cell Technologies Inc. The Companys Austrian based UltraGuard Water
        Systems GmbH (UG GmbH) operations have been discontinued. All significant
        intercompany transactions and balances have been eliminated and costs
        of the closing of UG GmbH have been recorded
      Cash and cash equivalents
      Cash and cash equivalents include cash on hand, in banks
        and all highly liquid investments with maturity of three months or less
        when purchased. Cash equivalents are stated at cost, which approximates
        market.
      Property, plant, and equipment
      Property, Plant, and Equipment are recorded at cost.
        Depreciation is computed on a straight-line method using an estimated
        useful life of five years.
      Revenue recognition
      Product sales are recognized at the time goods are shipped.
        System and project revenue are recognized utilizing the percentage of
        completion method that recognizes project revenue and profit during construction
        based on expected total profit and estimated progress towards completion
        during the reporting period. All related costs are recognized in the period
        in which they occur.
      The Company will recognize revenue in accordance with
        Securities and Exchange Commission Staff Accounting Bulletin No. 101 (SAB
        101), Revenue Recognition in Financial Statements. Revenue
        will be recognized only when the price is fixed or determinable, persuasive
        evidence of an arrangement exists, the service is performed, and collectibility
        is reasonably assured.
      Estimates and assumptions
      The preparation of financial statements in conformity
        with generally accepted accounting principles requires management to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities in the financial statements and accompanying notes. Actual
        results could differ from these estimates.
      Foreign currency
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|i)  | Translation of foreign currency
        transactions and balances:                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Revenue, expenses and non-monetary
        balance sheet items in foreign currencies are translated into US dollars
        at the rate of exchange prevailing on the transaction dates. Monetary
        balance sheet items are translated at the rate prevailing at the balance
        sheet date. The resulting exchange gain or loss is included in general
        and administration expenses.                                                                                                             
|ii) | Translation of foreign subsidiary
        balances:                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Monetary balance sheet items
        of IFCT and UG GmbH are translated into US dollars at the rate of exchange
        on the balance sheet date. Non-monetary balance sheet items are translated
        into US dollars at the rate of exchange prevailing on the transaction
        dates. The foreign subsidiarys operating results are translated
        into US dollars using the average exchange rate for the year with any
        translation gain or loss and are included separately in operations.

---

|2. | Significant Accounting Policies (continued)
      Basic and Diluted Net Income (Loss) Per Share
      The Company computes net income (loss) per share in
        accordance with SFAS No. 128, "Earnings per Share". This statement requires
        presentation of both basic and diluted earnings per share (EPS) on the
        face of the income statement. Basic EPS is computed by dividing net income
        (loss) available to common shareholders (numerator) by the weighted average
        number of common shares outstanding (denominator) during the period. Diluted
        EPS gives effect to all dilutive potential common shares outstanding during
        the period including stock options, using the treasury stock method, and
        convertible preferred stock, using the if-converted method. In computing
        Diluted EPS, the average stock price for the period is used in determining
        the number of shares assumed to be purchased from the exercise of stock
        options or warrants. Diluted EPS excludes all dilutive potential common
        shares if their effect is anti dilutive.
      Accounting for Stock-Based Compensation
      The Company accounts for stock based compensation in
        accordance with SFAS No. 123, Accounting for Stock-Based Compensation.
        This statement requires that stock awards granted subsequent to January
        1, 1995, be recognized as compensation expense based on their fair value
        at the date of grant. Alternatively, a company may account for granted
        stock awards under Accounting Principles Board Opinion (APB) No. 25, Accounting
        for Stock Issued to Employees, and disclose pro forma income amounts
        which would have resulted from recognizing such awards at their fair value.
        The Company has elected to account for stock-based compensation for employees
        under APB No. 25 and make the required pro forma disclosures for compensation
        expense in accordance with SFAS No. 123. The Company accounts for stock
        issued for services to non-employees in accordance with SFAS No. 123.
        Compensation expense is based on the fair market value of the stock award
        or fair market value of the goods and services received whichever is more
        reliably measurable.
      Comprehensive Loss
      SFAS No. 130, Reporting Comprehensive Income,
        establishes standards for the reporting and display of comprehensive loss
        and its components in the financial statements. As at December 31, 2003,
        the Company has no items that represent comprehensive loss and, therefore,
        has not included a schedule of comprehensive loss in the financial statements.
      Long-Lived Assets
      SFAS No. 144, Accounting for the Impairment or
        Disposal of Long-Lived Assets establishes a single accounting model
        for long-lived assets to be disposed of by sale including discontinued
        operations. SFAS 144 requires that these long-lived assets be measured
        at the lower of the carrying amount or fair value less cost to sell, whether
        reported in continuing operations or discontinued operations.
      Financial Instruments
      The Companys financial instruments consist of
        cash, prepaid expenses, accounts payable, accrued liabilities, advances
        from related and non-related parties. Unless otherwise noted, it is managements
        opinion that the Company is not exposed to significant interest, currency
        or credit risks arising from these financial instruments. The fair value
        of cash, accounts payable and accrued liabilities, advances from related
        parties and other advances approximates their carrying value due to the
        immediate or short-term maturity of these financial instruments.
      Concentration of Credit Risk
      Financial instruments that potentially subject the company
        to credit risk consist principally of cash. Cash was deposited with a
        high credit quality institution.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|2. | Significant Accounting Policies (continued)
      Recent Accounting Pronouncements
      In December 2003, the United States Securities and Exchange
        Commission issued Staff Accounting Bulletin No. 104, "Revenue Recognition"
        (SAB 104), which supersedes SAB 101, "Revenue Recognition in Financial
        Statements." The primary purpose of SAB 104 is to rescind accounting guidance
        contained in SAB 101 related to multiple element revenue arrangements,
        which was superseded as a result of the issuance of EITF 00-21, "Accounting
        for Revenue Arrangements with Multiple Deliverables." While the wording
        of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue
        recognition principles of SAB 101 remain largely unchanged by the issuance
        of SAB 104. The adoption of SAB 104 did not have a material impact on
        the Company's financial statements.
      In May 2003, the FASB issued SFAS No. 150, "Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and Equity". SFAS No. 150 establishes standards for how an issuer classifies
        and measures certain financial instruments with characteristics of both
        liabilities and equity. It requires that an issuer classify a financial
        instrument that is within its scope as a liability (or an asset in some
        circumstances). The requirements of SFAS No. 150 apply to issuers' classification
        and measurement of freestanding financial instruments, including those
        that comprise more than one option or forward contract. SFAS No. 150 does
        not apply to features that are embedded in a financial instrument that
        is not a derivative in its entirety. SFAS No. 150 is effective for financial
        instruments entered into or modified after May 31, 2003, and otherwise
        is effective at the beginning of the first interim period beginning after
        June 15, 2003, except for mandatory redeemable financial instruments of
        non-public entities. It is to be implemented by reporting the cumulative
        effect of a change in an accounting principle for financial instruments
        created before the issuance date of SFAS No. 150 and still existing at
        the beginning of the interim period of adoption. Restatement is not permitted.
        The adoption of this standard is not expected to have a material effect
        on the Company's results of operations or financial position.
      Income Taxes
      The Company has adopted the provisions of FASBs
        SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires
        that deferred taxes reflect the tax consequences on future years of differences
        between the tax bases of assets and liabilities and their financial reporting
        amounts. At the date of adoption of SFAS 109, there was no material effect
        on the Companys financial statements. As of December 31, 2003 the
        Company has accumulated net operating losses in Canada and the United
        States available to offset future taxable income as scheduled below
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Losses    |  | Expiration | 
| | --------- |  | ---------- | 
| | $         |  | Date       | 
| | 240,000   |  | 2011       | 
| | 202,000   |  | 2012       | 
| | 650,000   |  | 2013       | 
| | 152,000   |  | 2014       | 
| | 444,000   |  | 2015       | 
| | 517,000   |  | 2016       | 
| | 688,000   |  | 2017       | 
| | 479,000   |  | 2018       | 
| | 3,372,000 |  |            | 

|   | Pursuant to SFAS 109 the Company is required to compute
        tax asset benefits for net operating losses carried forward. If total
        losses were recognized, the Company would receive a tax benefit of $1,146,000.
        The potential benefit of net operating losses has not been recognized
        in the financial statements because the Company cannot be assured that
        it is more likely than not that it will utilize the net operating losses
        in future years, therefore, a valuation allowance of $1,146,000 has been
        recognized. The tax asset and valuation allowance was $163,000 in 2002
        (2001 -$234,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Discontinued Operations
      At a meeting of the Board of Directors on October 1,
        2002 the Company set out a reorganization and restructuring plan, which
        included the disposal of UV Systems Technology Inc (UVS). The debt load
        being carried by the Company as a result of the UVS operations were impairing
        the Companys ability to obtain investment funds or make any other
        financing arrangements. On December 30, 2002, the Company disposed of
        its 100% owned asset, UVS. Under the terms of these agreements, the Company
        sold 100% of the shares of UVS to 659999 BC Ltd, a Canadian private company
        in exchange for the transfer and assignment to the Company of all outstanding
        and future royalties from Clearwater Technologies Inc (Clearwater)
        and any other rights UVS may have under the License Agreement, which covered
        the UltraGuard® patents and technology. UVS entered into
        this Licence Agreement with Clearwater on February 5, 2002. No value was
        placed on this agreement. Full details of these Agreements between UVS
        and 659999 BC Ltd were filed with the Securities and Exchange Commission
        on Form 8-K dated January 15, 2003. Clearwater has failed to pay funds
        due under the various agreements, which they signed and had refused to
        pay any of the required payments. A writ of summons was issued against
        Clearwater in July 2003 in specific amounts totalling C$774,366.25 plus
        addition amounts for failure to perform, demand for return of leased equipment
        and cancellation of the Joint Venture Agreements. Clearwater has filed
        a defence against all claims. The Company is continuing to pursue the
        action.
      During the year the Company discontinued its Austrian
        based UG GmbH operations due to the inability to obtain sufficient funds
        to support its operations.

---

|4. | Acquisition of License  Technology
      On December 31, 2002, the Company acquired 100% of the
        shares of Innovative Fuels Cell Technologies Inc (IFCT). The Company issued
        5,000,000 common shares of the Companys common stock to the shareholders
        of IFCT to acquire IFCT and its wholly owned Austrian incorporated subsidiary
        UltraGuard Water Systems GmbH (UG GmbH). These shares were
        valued at $1,007,000. The Company also issued 1,000,000 common shares
        of the Company to UG GmbH as part of the transaction. These shares are
        considered treasury shares and are not outstanding. The value placed on
        these shares was $201,400 which amount has been recorded as a reduction
        of shareholders equity. IFCT is a Nevada corporation incorporated
        on September 30, 2002. IFCT is the holder of an option to purchase worldwide
        manufacturing and marketing rights to a 12-volt Magnesium-Air Semi Fuel
        Cell (Fuel Cell) from MagPower Systems Inc. (MagPower) for
        use with the Companys Point of Use Ultraviolet Water Purification
        System and for ancillary uses. IFCT was assigned this option on October
        1, 2002 from a related party. IFCT had paid Cnd$2,500 as a down payment
        for the option with Cnd$97,500 payable and 400,000 shares of the Company
        were to be issued. On March 14, 2003, the License Agreement was executed
        between MagPower and IFCT. The terms of the License Agreement included
        additional rights to use the Fuel Cell for ancillary services to power
        items such as lighting and radio. As consideration for the additional
        rights IFCT increased the option payments to be made to Cnd$100,000 and
        increased the number of common shares to be issued to 500,000. On March
        6, 2003, the company issued 400,000 shares into trust subject to certain
        criteria. On signing of the License Agreement IFCT paid Cnd$5,000 and
        delivered 200,000 common shares to the vendors. An additional Cnd$5,000
        was paid on March 21, 2003 for the payment due on April 1, 2003. Commencing
        on May 1, 2003, Cnd$7,500 was due and unpaid, however delivery of additional
        100,000 common shares was made on May 1, 2003. The remaining balance is
        due Cnd$7,500 on the first of each month thereafter until MagPower delivers
        the technical drawings; and Cnd$15,000 per month thereafter until the
        full amount has been paid. Concurrent with the receipt of the technical
        drawings from the vendor, the remaining 200,000 common shares will be
        delivered (100,000 common shares from trust and 100,000 common shares
        from treasury). The payments due from May 1, 2003 monthly through September
        30, 2003 amounting to Cnd$25,000 were not paid as December 31, 2003. On
        February 2, 2004, the Company and MagPower amended the agreement to sublicense
        to MagPower in certain countries on the world, the Companys ultraviolet
        products for sale and use by MagPower (or its sublicenses) with MagPowers
        magnesium fuel cell. As well, the February 2nd, 2004 agreement
        provided for issuance and delivery of the remaining 200,000 common shares
        (100,000 common shares from trust and 100,000 common shares from treasury),
        and cancellation by MagPower of the remaining C$88,800 owing by the Company
        as a condition of the License Agreement.
      As a condition of the Option Agreement, the Company
        is required to sell a minimum quantity of 2000 Fuel Cell units in fiscal
        2003. The drawings and technical information due from MagPower is still
        incomplete, therefore marketing efforts have not concentrated on product
        sale but on product awareness. Royalties of C$25.00 per cell will be paid
        to MagPower based on number of units sold.
      The total consideration paid for the License Agreement
        as at December 31, 2003 was $1,104,852 which includes the Cnd$2,500 down
        payment, the 2 payments of Cnd$5,000 each, the value of 5,000,000 common
        shares of the Company, $1,007,000, the value of 400,000 common shares,
        $71,200 and certain other organizational and acquisition costs of $18,292.
        This acquisition was treated as an acquisition of an asset and not a business
        combination. The asset as at December 31, 2002 was an option to acquire
        technology and has been recorded as a long-lived asset. Once the Option
        Agreement is exercised in full, the value placed on the Option Agreement
        will transfer to the License Agreement. The License Agreement will be
        amortized over 10 years.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|5. | Property and Equipment
      Property and equipment is stated at cost less accumulated depreciation
        and reflects the residual value as at December 31, 2003.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                |       |              | December 31, | December 31,
| | ------------------------------ | ----- | ------------ | ------------ | ------------
| |                                |       |              | 2003         | 2002        
| |                                |       | Accumulated  | Net Book     | Net Book    
| |                                | Cost  | Depreciation | Value        | Value       
| |                                | $     | $            | $            | $           
| |                                |       |              |              |             
| | Office furniture and equipment | 5,533 | 5,329        | 204          | 286         
| |                                |       |              |              |             

|6. | Loans Payable
|-- | -------------
|   | a)           
|   | b)           

---

|6. | Loans Payable (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|7. | Amounts Owing to Related Parties
      These amounts, totalling $202,223, represent unpaid
        wages and consulting for two officer- directors in the amount of $68,074,
        which are due on demand, unsecured and non-interest bearing and include
        an amount of $130,712 plus accrued interest of $3,437 due to Ken Fielding
        as a result of actions taken in Note 6. Imputed interest on previous non-interest
        bearing related party loans totalled $31,928 which was recorded as donated
        capital, calculated at 10% per annum. In fiscal 2003, two officers/directors
        were issued 2,400,000 shares of common restricted stock of the Company
        at $0.0338 per share totalling $81,120 for partial payment of wages.
|8. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                   | Issued     |   | Common |   | Additional      |  
|-------------------------------------------------- | ---------- | - | ------ | - | --------------- | -
|                                                   | Shares     |   | Stock  |   | Paid-in Capital |  
|                                                   | #          |   | $      |   | $               |  
|                                                   |            |   |        |   |                 |  
|Balance, December 31, 2001                         | 26,887,601 |   | 26,888 |   | 8,266,082       |  
|Issuance of stock for expenses pursuant to the     |            |   |        |   |                 |  
|exercise of employee stock options                 | 16,564     |   | 16     |   | 1,640           |  
|Issuance of stock for expenses                     | 100,000    |   | 100    |   | 1,900           |  
|Issuance of stock for cash pursuant to private     |            |   |        |   |                 |  
|placements                                         | 4,350,000  |   | 4,350  |   | 230,650         |  
|Issuance of stock for debt settlement              | 13,800,000 |   | 13,800 |   | 124,200         |  
|Issuance of stock for expenses                     | 1,000,000  |   | 1,000  |   | 9,000           |  
|Stock returned to treasury for
      cancellation  | (330,000   | ) | (330   | ) | (83,270         | )
|Balance Pre-Reverse Split                          | 45,824,165 |   | 45,824 |   | 8,550,201       |  
|Balance Post-Reverse Split 1:50 basis              | 916,488    |   | 917    |   | 8,595,109       |  
|Issuance of shares for debt                        | 3,000,000  |   | 3,000  |   | 27,300          |  
|Issuance of shares to debt settlement              | 593,077    |   | 593    |   | 592,484         |  
|Issuance of shares for purchase of                 |            |   |        |   |                 |  
|Innovative Fuel Cell Technologies Inc.             | 5,000,000  |   | 5,000  |   | 1,007,000       |  
|Issuance of shares owned by subsidiary             | *1,000,000 |   | 1,000  |   | 201,400         |  
|Less, Treasury Stock                               |           |   |       |   | (201,400        | )
|Issuance of shares to private placement purchasers |            |   |        |   |                 |  
|with non-dilutive
      provision                  | 343,000    |   | 343    |   |                |  
|Balance, December 31, 2002                         | 10,852,565 |   | 10,853 |   | 10,221,893      |  

---

|8. | Common Stock (continued)
|-- | ------------------------

| |                                                   | Issued     |  | Common |  | Additional      |  
| | ------------------------------------------------- | ---------- |  | ------ |  | --------------- | -
| |                                                   | Shares     |  | Stock  |  | Paid-in Capital |  
| |                                                   | #          |  | $      |  | $               |  
| |                                                   |            |  |        |  |                 |  
| | Issuance of shares for MagPower License Agreement | 400,000    |  | 400    |  | 70,800          |  
| | Issuance of shares for consulting expenses        | 6,950,000  |  | 6,950  |  | 656,900         |  
| | Issuance of shares for legal expenses             | 445,000    |  | 445    |  | 29,416          |  
| | Issuance of shares for compensation               | 2,400,000  |  | 2,400  |  | 78,720          |  
| | Issuance of shares for debt                       | 200,000    |  | 200    |  | 16,853          |  
| | Issuance of shares for West Peak Security Loss    | 1,556,000  |  | 1,566  |  | 129,155         |  
| | Issuance of shares for notes receivable           | 1,100,000  |  | 1,100  |  | 108,900         |  
| | Less: funds not yet received                      |           |  |       |  | (100,000        | )
| | Balance, December 31, 2003                        | 22,453,565 |  | 22,454 |  | 11,212,638      |  

| | *These shares are issued but owned by treasury
      therefore are not outstanding.
| | -----------------------------------------------------------------------------------
| | (a)                                                                                
| | (b)                                                                                
| |                                                                                    
| | (c)                                                                                

---

|8. | Common Stock (continued)
|-- | ------------------------
|   | (d)                     

| |                   | Shares       |  |                  |  | Weighted Average  | 
| | ----------------- | ------------ |  | ---------------- |  | ----------------- | 
| |                   | Under Option |  | Weighted Average |  | Remaining Life of | 
| |                   | #            |  | Option Price $   |  | Options (Months)  | 
| | December 31, 2002 |             |  |                 |  |                  | 
| | Granted           | 125,000      |  | .13              |  |                   | 
| | December 31, 2003 | 125,000      |  | .13              |  | 32                | 

The fair value of the employees
  purchase rights under SFAS 123 was estimated using the Black-Scholes model with
  the following assumptions on the above granted options: risk free interest rate
  was 5%, expected volatility of 100%, an expected life of 3 years and no expected
  dividends.

These options were granted for services
  provided, or to be provided, to the Company. Statement of Financial Accounting
  Standards No. 123 (SFAS 123") requires that an enterprise recognize, or
  at its option, disclose the impact of the fair value of stock options and other
  forms of stock based compensation in the determination of income. The Company
  has elected under SFAS 123 to continue to measure compensation cost on the intrinsic
  value basis set out in APB Opinion No. 25. As options are granted at exercise
  prices based on the market price of the Companys shares at the date of
  grant, no compensation cost is recognized. However, under SFAS 123, the impact
  on net income and income per share of the fair value of stock options must be
  measured and disclosed on a fair value based method on a pro forma basis.

If compensation expense had been determined
  pursuant to SFAS 123, the Companys net loss and net loss per share would
  have been as disclosed below.

---

|8. | Common Stock (continued)
|-- | ------------------------
|   | (d)                     

| |                                                                     | Year ended   |   | Year ended   |  
| | ------------------------------------------------------------------- | ------------ | - | ------------ | -
| |                                                                     | December 31, |   | December 31, |  
| |                                                                     | 2003         |   | 2002         |  
| |                                                                     | $            |   | $            |  
| |                                                                     |              |   |              |  
| | Net loss                                                            |              |   |              |  
| | As reported                                                         | (840,573     | ) | (657,617     | )
| | Stock Based Compensation  as reported                              | 113,470      |   |             |  
| | Stock Based compensation  determined under fair
      market value | (115,500     | ) |             |  
| | Pro forma                                                           | (842,603     | ) | (657,617     | )
| |                                                                     |              |   |              |  
| | Basic net loss per share                                            |              |   |              |  
| | As reported                                                         | (.05         | ) | (.06         | )
| | Pro forma                                                           | (.05         | ) | (.06         | )

| | (e) | Independent Contractor/Consulting
        Agreement Plan of UltraGuard Water Systems Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | On June 11, 2003 the Company
        registered and issued 1,500,000 shares on Form S-8 to three consultants
        for product marketing consulting expenses amounting to $195,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (f) | Long-Term Equity Incentive
        Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company has allotted
        5,000,000 shares pursuant to a Long-Term Equity Incentive Plan approved
        and registered December 17, 1999. The Plan permits the grant of Non-qualified
        Stock Options, Incentive Stock Options, Restricted Stock and Performance
        Shares. As a result of the Reverse Split at 1:50, the shares in the Long-Term
        Equity Incentive Plan have been reduced to 100,000.                                                                                                                                                                                                                                                                                                                                                                               
| | (g) | Legal Services Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Pursuant to an S-8 Registration
        Statement filed and accepted on November 19, 2001 the Company issued 3,900,000
        common shares at $0.19 per share pursuant to three separate contracts.
        Of these, a total of 2,500,000 shares were issued and were subsequently
        cancelled, as the related contract was never fully consummated. In November
        2002, the Company issued a total of 1,000,000 shares at $0.01 per share
        in settlement of all issues outstanding on this matter. As a result of
        the Reverse Split at 1:50, the shares remaining in the Long-Term Equity
        Incentive Plan have been reduced to 30,000. On March 24, 2003 the Company
        filed a Form S-8 POS with the SEC, which cancelled the Plan and all remaining
        shares.

---

|9. | Segmented Information
      The business of the Company is carried on in one industry segment (see
        Note 1).
      The Company currently operates in two geographic segments. The United
        States operations only consist of costs associated with debt and equity
        financing and being a public company. As a result of the disposition of
        UVS, (see Note 3) the Company now operates in one business segment and
        one geographical area
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | Year ended        |  | Year ended        |  
|------------------------ | ----------------- |  | ----------------- | -
|                         | December 31, 2003 |  | December 31, 2002 |  
|                         |                   |  | United            |  
|                         | Canada            |  | States            |  
|                         | $                 |  | $                 |  
|Revenue                  |                  |  | 32,669            |  
|Expense                  |                  |  | 832,285           |  
|Loss                     |                  |  | (799,616          | )
|                         |                   |  |                   |  
|                         | As of             |  | As of             |  
|                         | December 31, 2003 |  | December 31, 2002 |  
|                         |                   |  | United            |  
|                         | Canada            |  | States            |  
|                         | $                 |  | $                 |  
|Identifiable assets      |                  |  | 68,622            |  
|Goodwill, patents,       |                  |  |                   |  
|manufacturing technology |                  |  | 1,104,852         |  
|Total assets             |                   |  | 1,173,474         |  

|10. | Legal Proceedings
      On October 20, 1998 a suit was filed in the Supreme
        Court of British Columbia by Thomas OFlynn against the Company,
        Kenneth Fielding (the Company's President and Director), and Charles P.
        Nield (a former Director and Vice President of the Company), OFlynn
        alleges that in April of 1996, he purchased shares of the Common Stock
        based on a representation that they would be free trading in 40 days of
        "the filing of a prospectus." He further alleges that in September of
        1996 he purchased additional shares of Common Stock based on the representation
        that the shares would be free trading within 40 days of the Common Stock
        becoming free trading. OFlynn alleges that the representation was
        a warranty and was incorrect. He further alleges that he suffered a loss
        because the share price decreased while he was holding the shares. He
        seeks damages for breach of warranty, negligence, misrepresentation and
        breach of fiduciary duty. The amount claimed is not specified. The Company
        filed an answer denying the claims and will continues to actively defend
        the suit. The suit has remained inactive since early 1999. There has been
        no loss provision set-up pursuant to this action against the Company.
      On April 25, 2003, Chelverton Fund Limited filed a suit
        in the Supreme Court of British Columbia against the Company for non-payment
        of debt in the amount of $155,000. The Company entered an appearance and
        filed a defense against this claim and attempted to negotiate a settlement.
        Chelverton filed additional information that supported their claim and
        the Company responded with a no defines position. Judgment
        was issued in the amount of $183,944 (C$234,642) including interest and
        legal costs. On April 5, 2004 the Company appeared in Supreme Court to
        provide to Chelverton and the court, specific information pertaining to
        the Companys assets and its ability to pay the judgment including
        interest. The hearing was adjourned; the Company will be required to provide
        additional detailed financial information.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|10. | Legal Proceedings (continued)
      On June 6, 2003 a group of shareholders (Shareholder
        Group) filed a consent resolution, which among other things elected a
        new slate of directors and revised the company by-laws. The Company refused
        to accept the consent resolution or by-laws as in the opinion of the Companys
        legal counsel, the consent resolutions were not in accordance with Nevada
        Statutes or the filing requirements of the Security and Exchange Commission.
        At a directors meeting held June 9, 2003, the Company elected two additional
        directors; Edward White and Erin Strench to the Company board, bringing
        the total number of directors to five. On June 16, 2003 the Shareholder
        Group filed for and obtained a temporary restraining order (TRO) against
        the Company and its five directors prohibiting the Company from among
        other things, issuing stock, transferring assets, changing management
        and other actions that would affect the status quo of the Company.
        In addition, two shareholders issued writs against various directors,
        alleging breach of fiduciary duty in respect of the issue of certain common
        shares each to John Gaetz, Ken Fielding and others. On June 24, 2003,
        in discussions between legal counsel for plaintiff, respondent and the
        hearing Judge; Judge Adams, the TRO was vacated and a date of July 2,
        2003 was set for a new TRO hearing to be held in Reno, Nevada. At the
        July 2, 2003 TRO hearing Judge Adams did not grant a TRO and requested
        the plaintiff and respondent file a series of three briefs outlining their
        position. The first brief was filed on July 11, 2003 by our counsel. The
        plaintiff responded on July 18, 2003 and our counsel filed the final brief
        on July 25, 2003. The Judge has not made a ruling on the TRO. The Companys
        counsel has responded to the various other suits filed against the Company
        and its directors. Counsel for the Company was successful in moving these
        actions from Nevada State jurisdiction to federal jurisdiction. In March
        2004 the Companys legal counsel filed to withdraw from the action
        as a result of non-payment of legal fees. The court approved the withdrawal
        on two of the four cases. By April 29, 2004, the Plaintiff and the Defendant
        must file a proposed pre-trial order with the Federal Court, which upon
        approval, the Court will set down for trial. In the interim the parties
        to this dispute are attempting to reach a settlement on all matters.
      The Company has made a provision for a loss of $27,000
        in a lawsuit made by a former employee for wrongful dismissal.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE

None

PART III

ITEM 9. 	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The Executive Officers and Directors of the Company are as follows:

|Name                     | Position                                
|------------------------ | ----------------------------------------
|Kenneth E. Fielding      | Director, President, and President of UV
|Systems Technology, Inc. |                                         
|John R. Gaetz            | Director, Secretary-Treasurer and Vice- 
|                         | President of Finance (CFO)              
|Edward A White           | Director                                
|Erin Strench             | Director                                

Kenneth E. Fielding has served as a Director and President
  of the Company since June 1995 and as president of UVS since December 1996.
  He is also, and has been since 1976, the president of Alliance Installations
  Electrical Contractors Ltd., an inactive industrial electrical construction
  contractor which until January 1996 provided electrical systems for schools,
  hospitals, institutions, warehouses, restaurants and commercial installations.
  Mr. Fielding is devoting his full time to management and operations of Service
  Systems. In addition to the administrative position with our company, Mr. Fielding
  has overall responsibility for UVS as president. Mr. Fielding holds an Electrical
  Contractor's license with the Province of British Columbia and a journeyman
  electrician designation form the BC Institute of Technology.

John R. Gaetz has served as a Director, Secretary-Treasurer
  and Chief Financial Officer since June 15, 1997, and as a Director, Vice president,
  and Secretary of UVS since August 1995, positions he held in UVS' predecessor,
  UV Waterguard Systems Ltd. since 1990.

Edward White Mr. White is a Chartered Accountant in public
  practice until 2001 during which time he had extensive involvement with publicly
  traded companies. After sale of the accounting practice, Mr. White accepted
  a full time position as CFO, Treasurer and Director, with an OTC-BB public company

Erin Strench was appointed as a Director on June 9, 2003.
  Mr. Strench has worked as manager and owner of a number of successful electrical
  and electronic firm, currently manages a multi-branch electrical contacting
  firm.

BOARD MATTERS

The Board of Directors has no standing committees. The Board
  of Directors is responsible for nominating a proposed slate of Directors for
  each year to stand for election at the annual shareholders meeting. We have
  no provision for recommendation by shareholders of nominees for Director.

Members of the Board of Directors, by virtue of their position,
  owe a fiduciary duty to our company. However, in accordance with Nevada law,
  the Company has provided in Article XI of its Articles of Incorporation (i)
  that contracts and acts with another corporation are not affected by the fact
  that a Director has a pecuniary or other interest in or is a director or officer
  of the other corporation and (ii) that a Director may be a party to or interested
  in a contract or transaction with our company if the interest has been disclosed
  to the Board or the Board knows of the interest before a vote is taken on the
  contract or transaction. As of December 31, 2003 we had no such contracts or
  transactions with any Director or corporation in which a Director had an interest.

The Company or its subsidiary Innovative Fuel Cell Technologies
  Inc employ the Executive Officers of the Company full-time. See "Executive Compensation."

32

---

Based solely upon a review of Forms 3, 4 and 5 and their amendments, furnished under Rule 16a-3(a) of the Securities Exchange Act of 1934 during our most recent fiscal year and written representations from persons required to file those Forms, all
Directors and Officers filed all reports required by Section 16(a) of the Act.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth an overview of compensation for the fiscal years ended

December 31, 1999 and 2000 and for the transition period from August 31, 2000 to December 31, 2000 to the Chief Executive Officer and each of the Companys other Executive Officers whose total compensation exceeded $100,000

SUMMARY COMPENSATION TABLE

|(a)                                                          | (b)            | (c)                          | (d)               | (e)               | (f)         | (g)            | (h)     | (i)      
|------------------------------------------------------------ | -------------- | ---------------------------- | ----------------- | ----------------- | ----------- | -------------- | ------- | ---------
|Name and                                                     |                |                              |                   | Other             | Restricted  | Securities     | All     |          
|Principal                                                    |                |                              |                   | Annual            | Stock       | Underlying     | LTIP    | Other    
|Position                                                     |                |                              |                   | Compen            | Award(s)    | Options        | Payouts | Compen   
|                                                             |                |                              |                   | sation            |             |                |         | sation   
|                                                             | Year           | Salary ($)                   | Bonus ($)         | ($)               | ($)         | SARs)          | ($)     | ($)      
|                                                             |                |                              |                   |                   |             |                |         |          
|Ken Fielding,
      President,
      CEO and
      President | 2001 2002 2003 | $112,329 * $36,927 $75,618** | 0
      0
      0 | 0
      0
      0 | 0   $40,560 | 0 0 25,000shrs | 0 0 0   | 0
      0
|                                                             |                |                              |                   |                   |             |                |         |          
|John R Gaetz Secretary/Treasurer CFO                         | 2003           | $50,851**                    | 0                 | 0                 | $40,560     | 25,000shrs     | 0       | 0        

*Accrued 87,329 
  ** Including restricted share purchases $40,560 Salaries accrued in fiscal 2001
  & 2002 were forgiven in fiscal 2002 
  Twenty-five thousand (25,000) options were granted to the named executive officer
  during the 2003 fiscal year at an exercise price of $0.13 .

COMPENSATION OF DIRECTORS

We do not compensate Directors for their service as such,
  although we do reimburse reasonable expenses incurred by them in conducting
  the Companys directors meetings.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
  ARRANGEMENTS

We have no employment agreements with our Executive Officers,
  nor do we have agreements respecting termination of employment or change-in-control.
  We expect to enter into employment agreements with Executive Officers in the
  foreseeable future, but have not begun negotiation of those agreements. Mr.
  Fielding and Mr. Gaetz are the only Executive Officers receiving compensation.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  MANAGEMENT

The following table sets forth certain information regarding
  the beneficial ownership of common stock, as of December 31, 2002 and December
  31, 2001 of (i) each person known to own beneficially more than 5% of our Common
  Stock, (ii) each Director of the Company, (iii) each of the Companys Executive
  Officers, and (iv) all Officers and Directors as a group. Except as otherwise
  noted, the Company believes that the persons listed below have sole investment
  and voting power with respect to the Common Stock owned by them.

33

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|                           | DECEMBER 31, 2003 |  | DECEMBER 31, 2002 | 
|-------------------------- | ----------------- |  | ----------------- | 
|                           |                   |  |                   | 
|NAME AND ADDRESS           | SHARES            |  | PERCENT           | 
|OF BENEFICIAL              | BENEFICIALLY      |  | OF CLASS          | 
|                           | BENEFICIALLY      |  | OF CLASS          | 
|OWNER (1)                  | OWNED (2)         |  |                   | 
|                           |                   |  |                   | 
|Kenneth E. Fielding        | 2,753,104(1)      |  | 11.7%             | 
|John R. Gaetz              | 2,748,221(2)      |  | 11.7%             | 
|Edward A White             | 125,000(3)        |  | .005%             | 
|Erin Strench               | 125,000(4)        |  | .005%             | 
|                           |                   |  |                   | 
|All officers and directors |                   |  |                   | 
|as a group                 | 5,701,325         |  | 23.41%            | 

The address for all shareholders is in care of the Company
  at 914 Sherwood Avenue Coquitlam, British Columbia, Canada V3K 1A6

A person is deemed to be the beneficial owner of securities
  that can be acquired by that person within 60 days from the date of this Annual
  Report upon exercise of options or warrants. Each beneficial owner's percentage
  ownership is determined by assuming that options or warrants that are held by
  that person and that are exercisable within 60 days from the date of this Annual
  Report have been exercised.

Post Reverse Split shares are presented in brackets

|(1) | Includes, (140) shares of these shares
        owned by Mr. Fielding's minor daughter and 25,000 stock option shares
        Mr. Fielding has the right to acquire at a price of $0.13 under immediately
        an exercisable option. All warrants previously held were cancelled by
        agreement with Mr. Fielding in fiscal 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 25,000 stock option shares Mr. Gaetz
        has the right to acquire at a price of $0.13 under immediately an exercisable
        option. All preceding warrants were cancelled by agreement with Mr. Gaetz
        in fiscal 2002.                                                                                                      
|(3) | 25,000 stock option shares Mr. White
        has the right to acquire at a price of $0.13 under immediately an exercisable
        option                                                                                                                                                                                                 
|(4) | 25,000 stock option shares Mr. Strench
        has the right to acquire at a price of $0.13 under immediately an exercisable
        option                                                                                                                                                                                               

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since the acquisition of the Company by the investor group
  in 1995 until December 31, 2001, the following Directors, Executive Officers,
  and greater than 5% shareholders, have made loans to us (including loan to UVS)
  for additional working capital; John R Gaetz, $266,618 and Ken Fielding $250,974.
  In Fiscal 2002, John R Gaetz and Ken Fielding agreed to transfer to UV Systems
  Technology Inc., all funds except $46,386.87 owed to them by the Company, prior
  to UV Systems Technology Inc.s sale in December 2002. This transfer had
  the effect of forgiving these loans to the Company.

In July 1996, John Gaetz purchased for cash 20,000(400) shares
  of Common stock and 20,000(400) warrants for Common Stock in a private offering
  at a cost of $0.75($37.50) per share. In April 1998, John Gaetz purchased for
  cash 341,037(6,821) shares of Common stock and 341,037(6,281) warrants for Common
  Stock in a private offering at a cost of $0.20($10.00) per share, the market
  price on that date was $0.18($9.00). All warrants have now expired.

In connection with UltraGuard acquisition in 1996 of UVS in
  exchange for their UVS shares, our common stock was issued to: Kenneth Fielding
  (a Director and Executive Officer) 11,257(225) shares; John Gaetz (a Director
  and Executive Officer), 600,000(12,000) shares and 600,00(12,000) warrants for
  Common Stock; In addition, common stock was issued to adult relatives of Mr.
  Gaetz: his wife, C.A. Gaetz, 33,700(674) shares; his brother, F. Gaetz, 901(18)
  shares; his brother, Jim G. Gaetz, 4,503(90) shares; and his daughter, L.L.
  Alentejano, 5,629(113) shares. All warrants have now expired.

34

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In April 1998, Ken Fielding purchased for cash 1,243,445(24,869)
  shares of Common stock and 1,243,445(24,869) warrants for Common Stock in a
  private offering at an exercise price of $0.20($10.00) per share. The market
  price on that date was $0.18(9.00). These warrants have now expired.

In April 1998, options for 150,100(2,102) shares of Common
  Stock were granted to each of Kenneth Fielding and John Gaetz, at an option
  price of $0.15($7.50). The market price on the date of grant was $0.18($9.00).
  These options have now expired

In December 2002, Ken Fielding and John Gaetz each purchased
  1,500,000 shares of Common stock at $0.101 per share. The market price on that
  date was $0.30.

In June 2003, Ken Fielding and John Gaetz were granted 1,200,000
  shares each of Common stock at $0.338 per share for partial payment salary and
  were provided options to purchase 25,000 shares each at an exercise price of
  $0.13 per share. The market price on that date was $0.13.

35

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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation SB)

|Exhibit Number | Description                                    | Method of Filing
|-------------- | ---------------------------------------------- | ----------------
|               |                                                |                 
|(3)(i)         | Articles of Incorporation                      | (1)             
|               |                                                |                 
|(3)(ii)        | Bylaws, as amended                             | (2)             
|               |                                                |                 
|(10)(iii)      | Agreement between Douglas                      |                 
|               | Sommerville and Company dated                  |                 
|               | 12/6/96                                        | (3)             
|               |                                                |                 
|(10)(iv)       | Agreement between John Gaetz                   |                 
|               | and the Company dated 12/6/96                  | (4)             
|               |                                                |                 
|(10)(v)        | Sample Agreement among minority                |                 
|               | Shareholders of UV Systems                     |                 
|               | Technology, Inc. and the Company               |                 
|               | each dated 2/28/97                             | (5)             
|               |                                                |                 
|(10)(vi)       | Marketing Distribution Agreement               |                 
|               | Between UV Systems Technology, Inc.            |                 
|               | and the Company                                | (2)             
|               |                                                |                 
|(10)(vii)      | Sales Representation Agreement                 |                 
|               | between UV Systems Technology,                 |                 
|               | Inc. and "The Representative"                  | (2)             
|               |                                                |                 
|(10)(viii)     | Exclusive Distributorship Agreement            |                 
|               | Between UV Waterguard Systems, Inc.            |                 
|               | and Chiyoda Kohan Co., Ltd., and NIMAC         |                 
|               | Corporation                                    | (2)             
|               |                                                |                 
|(10)(ix)       | 1997 Stock Option Plan                         | (4)             
|               |                                                |                 
|(10)(x)        | Interim Funding Agreement                      |                 
|               | between UVS, MDS and WOF                       | (5)             
|               |                                                |                 
|(10)(xi)       | Letter Agreement between the                   |                 
|               | Company and Elco Bank and Trust                |                 
|               | Company Limited                                | (5)             
|               |                                                |                 
|(10)(xii)      | Loan Agreement between the Company             |                 
|               | and TD Bank                                    | (6)             
|               |                                                |                 
|(10)(xiii)     | The Companys 1999 Long-Term                   |                 
|               | Equity Incentive Plan                          | (7)             
|               |                                                |                 
|(10)(xiv)      | Letter Agreement between Service               |                 
|               | Systems, UVS, MDS and WOF dated                |                 
|               | Feb 13, 2000                                   | (7)             
|               |                                                |                 
|(10)(xv)       | Lease dated October 2000 between               |                 
|               | Service Systems, UV Systems and                |                 
|               | Slough Estates Canada Limited                  | (8)             
|               |                                                |                 
|(10)(xvi)      | Legal Services Plan between Rosenfeld,         |                 
|               | Goldman & Ware, Inc                            | (9)             
|               |                                                |                 
|(10)(xvii)     | Post Effective Amendment                       |                 
|               | to Legal Services Plan filed November 19, 2001 | (10)            

36

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|(10xviii) | 2003 Benefit Plan S-8 March 24, 2004        | (11)          
|--------- | ------------------------------------------- | --------------
|          |                                             |               
|(10xix)   | Independent Contractor/Consulting Agreement | (12)          
|          |                                             |               
|(10xx)    | The Incentive Plan of UltraGuard            | (13)          
|          |                                             |               
|(11)      | Statement Regarding Computation             | Filed Herewith
|          | of Per Share Earnings                       | Electronically
|          |                                             |               
|(31.1)    | Certification Pursuant to Section 302       |               
|          |                                             |               
|(31.2)    | Certification Pursuant to Section 302       |               
|          |                                             |               
|(32.1)    | Certification Pursuant to 18 U.S.C.         | Filed Herewith
|          | Section 1350, Section 906 of the            | Electronically
|          | Sarbanes-Oxley Act of 2002.                 |               
|          |                                             |               
|(32.2)    | Certification Pursuant to 18 U.S.C.         | Filed Herewith
|          | Section 1350, Section 906 of the            | Electronically
|          | Sarbanes-Oxley Act of 2002.                 |               

Incorporated by reference to the Corporation's Form 10SB effective on January 22, 1997

| | (2)  | Incorporated by reference to the Corporation's Form S-8 filed
      with the Commission on October 6, 1997.   
| | ---- | --------------------------------------------------------------------------------------------------------------
| | (3)  | Incorporation by reference to the Corporation's Form 10Q
      for the fiscal Year ended February 28, 1997.   
| | (4)  | Incorporation by reference to the Corporation's Form 10KSB
      for the fiscal Year ended August 31, 1997.   
| | (5)  | Incorporation by reference to the Corporation's Form 10KSB
      for the fiscal Year ended August 31, 1998.   
| | (6)  | Incorporation by reference to the Corporation's Form 10KSB
      for the fiscal Year ended August 31, 1999.   
| | (7)  | Incorporation by reference to the Corporation's Form 10KSB
      for the fiscal Year ended August 31, 2000.   
| | (8)  | Incorporation by reference to the Corporation's Form 10Q
      for the fiscal Quarter ended November 30, 2000.
| | (9)  | Incorporated by reference to the Corporation's Form S-8 filed
      with the Commission on November 19, 2003. 
| | (10) | Incorporated by reference to the Corporation's S-8 POS filed
      with the Commission on March 23, 2003.     
| | (11) | Incorporated by reference to the Corporation's Form S-8 filed
      with the Commission on March 28, 2003.    
| | (12) | Incorporated by reference to the Corporation's Form S-8 filed
      with the Commission on June 11, 2003.     
| | (13) | Incorporated by reference to the Corporation's Form S-8 filed
      with the Commission on December 2, 2003.  

(b)	Reports on Form 8-K

The Company filed four reports on Form 8-K in 2003,

On January 14, 2003 reporting the acquisition by stock exchange
  agreement dated December 30, 2002 details of the purchase of Innovative Fuel
  Cell Technologies

On January 15, 2003 reporting the sale of UV Systems Technology
  Inc to 65999 BC Ltd on Dec 31, 2002.

37

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

ULTRAGUARD WATER SYSTEMS CORP

/s/ Kenneth R. Fielding
  Kenneth R. Fielding, President

Date: April 13, 2004

Ken Fielding, Director

Date: April 13, 2004

John R Gaetz, Director

38

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