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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION** Washington, 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, 2004**

 ̈  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 CO**RP****.**
  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 $15,035

The aggregate market value of the voting and non voting common
  equity held by non-affiliates of the 
  issuer amounting to, in aggregate 29,120,240 shares, 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 13, 2005 
  was $844,847. The number of shares outstanding of the issuer's only class
  of $.001 par value Common 
  Stock was 34,996,565 on April 14, 2005.

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TABLE OF CONTENTS

|             | Page                                                                                                
|------------ | ----------------------------------------------------------------------------------------------------
|PART I       |                                                                                                     
|             |                                                                                                     
|             |                                                                                                     
|Risk Factors | 3                                                                                                   
|             |                                                                                                     
|Item 1.      | Description of Business                                                                             
|             |                                                                                                     
|Item 2.      | Description of Property                                                                             
|             |                                                                                                     
|             |                                                                                                     
|Item 3.      | Legal Procedures                                                                                    
|             |                                                                                                     
|Item 4.      | Submission of Matters to a Vote of Security
      Holders                                           
|             |                                                                                                     
|             |                                                                                                     
|PART II      |                                                                                                     
|             |                                                                                                     
|             |                                                                                                     
|Item 5.      | Market for Common Equity and Related Stockholder
      Matters                                      
|             |                                                                                                     
|Item 6.      | Management's Discussion and Analysis or
      Plan of Operation                                     
|             |                                                                                                     
|Item 7.      | Financial Statements                                                                                
|             |                                                                                                     
|Item 8.      | Changes in and Disagreements with Accountants
      on Accounting and Financial Disclosure          
|             |                                                                                                     
|             |                                                                                                     
|Item 8A.     | Controls and Procedures                                                                             
|             |                                                                                                     
|             |                                                                                                     
|PART III     |                                                                                                     
|             |                                                                                                     
|             |                                                                                                     
|Item 9.      | Directors, Executive Officers, Promoters,
      and Control Persons                                 
|             |                                                                                                     
|Item 10.     | Executive Compensation                                                                              
|             |                                                                                                     
|             |                                                                                                     
|Item 11.     | Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters
|             |                                                                                                     
|Item 12.     | Certain Relationships and Related Transactions                                                      
|             |                                                                                                     
|Item 13.     | Exhibits and Reports on Form 8-K                                                                    
|             |                                                                                                     
|Item 14.     | Principal Accountant Fees and Services                                                              

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PART I

RISK FACTORS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
  WITH "SELECTED FINANCIAL DATA" AND ULTRAGUARDS’ 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.

Investment in our common stock involves a high degree of
  risk. Prospective investors should carefully consider the following risk factors
  in addition to other information in this annual report before purchasing our
  common stock.

We have generated no profits to date and have accumulated
  losses to December 31, 2004 fiscal year end amounting to $1,533,189 and
  a working capital deficit of $998,470. We cannot assure that we will become
  profitable at any time in the foreseeable future.

We have never earned substantial operating revenue. We have
  been dependent on equity financing to pay operating costs and to cover operating
  losses. If we are unable to do so, we face a risk of insolvency.

The auditors' report on our December 31, 2004 consolidated
  financial statements includes an additional paragraph that identifies conditions
  which raise substantial doubt about our ability to continue as a going concern.
  The financial statements do not include any adjustments that might result from
  the outcome of this uncertainty.

Because of our limited operating and sales history, we
  cannot make reliable projections of our future revenues and operating costs.

If we are able to generate sales, we may have to hire additional
  personnel to service our customers and to continue development of our technology.
  We may also have to incur additional marketing and overhead expenses. As a result
  of our lack of historical sales, we cannot make reliable projections of the
  number of additional personnel we will require, the cost of employing those
  personnel, or the level of marketing and overhead expenses we will incur. We
  thus have no assurance that any revenue we earn will be sufficient to cover
  the cost of earning that revenue, or to generate operating profits.

Because our work force is small, with only 2 full time
  people and 1 part time, employed either as officers, employees or contractors,
  we are vulnerable to the loss of key people or to rapid expansion.

We employ only 2 full time people and one part time, either
  as officers, employees or contractors. We try to employ people with skill sets
  that match the specific fields important to our business. As a result, the departure
  of a single person could materially adversely affect our business. We do not
  have key man insurance on any of the people we employ.

Qualified technical personnel are in great demand in all high
  technology industries. Accordingly, it may be difficult for us to replace people
  who depart, or to hire additional people we may

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require if we are able to generate substantial sales.

Because the market price of our common stock has been particularly
  volatile, purchasers of our common stock face a high degree of market risk.

The market price of our common stock has experienced extreme
  fluctuations. We believe that the fluctuations in our stock price have resulted
  primarily from market perceptions of the speculative value of our business opportunities.
  The susceptibility of our stock price to fluctuation exposes purchasers of our
  stock to a high degree of risk.

Because we have generated no profits from inception to December
  31, 2004, and our business has not been profitable with accumulated losses of
  $1,533,189 from inception to December 31, 2004, we may not be able to raise
  the additional capital we need.

We will require additional capital to continue the development
  of our products, to pay the costs of marketing those products, or to cover operating
  losses until we are able to become profitable. As we have never generated operating
  profits or significant sales revenue, we may not be able to raise the amount
  of capital we require.

Several other factors may also hinder our efforts to raise
  capital. They include the following:

| | • | Our share price has been highly volatile
        during 2003 and 2004. The volatility of our share price may deter potential
        investors.                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                     
| | • | Subsequent to the beginning of 2000,
        many technology companies have experienced financial difficulties and
        rapidly declining share prices. As a result, potential investors may be
        less willing to invest in technology companies generally.
| |   |                                                                                                                                                                                                                                                                     
| | • | Subsequent to the beginning of 2000,
        capital markets have become tighter generally, with less financing available
        for technology companies.                                                                                                         
| |   |                                                                                                                                                                                                                                                                     
| | • | Capital markets have become tighter due
        to international tensions beginning on September 11, 2001.                                                                                                                                                          

Because we will have to raise additional capital through
  equity sales and in payment of expense and services, the interests of shareholders
  may be diluted.

To raise additional capital we may have to issue additional
  shares, which may dilute the interests of existing shareholders substantially.
  Alternatively, we may have to borrow large sums, and assume obligations to make
  substantial interest and capital payments. We may also have to sell significant
  interests in some or all of our products. If we are able to raise additional
  capital, we cannot assure that it will be on terms that enhance the value of
  our common shares.

Because our stock may be subject to "low price stock" rules,
  the market for our stock may be limited.

The Securities and Exchange Commission has adopted regulations
  which generally define a "penny stock" to be any equity security that has a
  market price less than $5.00. Our stock is presently covered by those rules,
  and may continue to be so. The penny stock rules require broker-dealers to make
  a special suitability determination before selling our stock to investors who
  are not either regular customers or accredited investors. As a result, the potential
  market for our stock may be limited.

**ITEM 1.            DESCRIPTION
  OF BUSINESS**

Our financial statements are presented in United States dollars,
  and dollar figures stated in this annual report refer to United States dollars
  (except where specified otherwise). As our head office is in Canada, many of
  our transactions are completed in Canadian dollars ("C$"). For purposes
  of this annual report, other than amounts extracted from our financial statements,
  Canadian dollar amounts have been converted to United States dollars at an exchange
  rate of

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Cdn$1.00 = US$0.8310 being the exchange rate at December
  31, 2004.

Business Development

Vancouver-based UltraGuard Water System Corp (“UltraGuard”)
  or (“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 designer, 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 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 December 2002 we entered an additional business segment;
  the manufacturing and marketing of a primary, alternative and emergency power
  generating Magnesium-Air power cell. Through a reverse acquisition concluded
  on December 31, 2002 UltraGuard Water Systems Corp. (“UltraGuard”)
  acquired all of the outstanding stock of Innovative Fuels Cell Technologies
  Inc (“IFCT”). UltraGuard issued 6,000,000 common shares to the shareholders
  of IFCT to acquire IFCT and its wholly owned Austrian incorporated subsidiary
  UltraGuard Water Systems GmbH (“UG GmbH”). For accounting purposes
  the acquisition was treated as the acquisition of UltraGuard by IFCT with IFCT
  as the accounting acquirer (reverse acquisition). As a result, the historical
  financial statements prior to the acquisition date are those of IFCT from September
  30, 2002 (date of inception of IFCT). UltraGuard and IFCT, as at December 31,
  2002, reverted to being a development stage Company.

IFCT is a Nevada corporation incorporated on September 30,
  2002. IFCT was the holder of an option (“the Option Agreement”)
  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 UltraGuard’s Point of Use Ultraviolet Water Purification
  System and for ancillary uses such as lighting, radio and other low energy electrical
  needs.

As a condition of the Option Agreement, IFCT 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 focus on product sale. Using the services of strategically
  located consultants within developing countries have we have concentrated on
  product awareness.

COMPANY’S BACKGROUND

The Company was incorporated in Nevada in August 1990 under
  the name Service Systems International Ltd 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.
  The 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. On October 15,2002
  the Company changed its name to UltraGuard Water Systems Corp.

Our offices are located at 914 Sherwood Avenue, Coquitlam
  British Columbia, Canada, V3K 1A6, our telephone number is (604) 540-8282 and
  our Internet website address is www.ultraguard.com.
  References in this document to we, us, our, and the company include 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$”.

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To advance our marketing objectives in wastewater disinfection
  using ultraviolet, in September 1995 we entered into a marketing distribution
  agreement (embodying an earlier oral agreement) with UV Systems Technology Inc
  (UVS), for marketing rights for the UltraGuardR system in eight US
  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 with the two principal shareholders Working Opportunity Fund and MDS
  Ventures Pacific, Inc, (49.39%), dated February 14, 2000 we acquired the remaining
  49.31% of common stock and all outstanding preferred stock of UVS.

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. 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.

On December 31, 2002 the Company acquired through a reverse
  acquisition, 100 % of Innovative Fuel Cell Technologies Inc (“IFCT”),
  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 for use with the Company’s point of use ultraviolet disinfection
  equipment. 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 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 ancillary equipment in areas of the world where no other forms
  of electrical power is available. 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 IFCT for 100% of IFCT. Included in the IFCT assets was
  the Austrian Company, UltraGuard Water Systems GmbH (“GmbH). The incorporation
  of GmbH was made by IFCT in contemplation of its sale of IFCT 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, IFCT. The Company will pay C$102,500, and issue
  five hundred thousand 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
  other ancillary uses for which IFCT 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, the Company
  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

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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.

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

The UV disinfection system is sold under its registered trademark,
  UltraGuard® SLR 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. 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.

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 for new
  UV projects. This agreement included Clearwater’s requirements to supply
  these products to our Strategic Alliance partner, USFilter and to adhere to
  the terms and conditions contained within the USFilter Strategic Alliance Agreement.
  AS well, 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. Clearwater failed to live
  up to its commitment, failed to pay the Company funds owed and generally failed
  to perform its

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commitments under the USFilter Strategic Alliance Agreement.
  In August 2003 USFilter terminated the Alliance Agreement (and associated agreements).

On July 23, 2003 UVS issued writ against Clearwater for recovery
  of amounts owing.

DRINKING WATER DISPENSERS

During the year ended 12/31/04, the Company commenced business
  in the bottled water industry sector. Working with The Water Clinic, a 20 year
  old company located in Winnipeg, Manitoba, Canada, the Company has purchased
  and installed its first bottled water-dispensing unit, the AquaPure system.
  The AquaPure system dispenses pure and safe drinking water, treated by reverse
  osmosis and disinfected by ultraviolet. The unit is coin operated and configured
  to refill 4.9 -gallon water bottles. The AquaPure system will be leased to and
  placed in convenience stores, gas bars, car washes, and other location, which
  offer ready access for the public. Revenues from the sales are split between
  the Company and the Leasor; 70% for the Company, 30% to the Leasor. During the
  current year we continued to test market at the first installation site. Using
  direct mailing marketing and local newspaper advertising, we contacted households
  in the immediate area of the installation, providing discounted pricing and
  free refills. To date results have been running at about 50% of expected sales.
  The program will continue until the end of December 2004 after which a decision
  will be taken on whether to go forward with additional units or change our approach
  to the market. Assuming the program generates reasonable revenues, the Company
  will sign up other locations that have approached the Company for AquaPure system
  leases.

EBAY MARKETING

In June 2004, the Company instituted a marketing program for
  its filtration products including point of use reverse osmosis units and various
  other water treatment systems and components. Using eBay Canada (eBay) as the
  marketing venue, sales have occurred and are slowly increasing. eBay was chosen
  as the marketing means to provide wide exposure of the Company's products for
  the general consumer and to provide an opportunity to the Company's shareholder
  base, to have direct access to these products. After reviewing the results of
  the past months, we have determined that this venue better suits a company without
  facilities, working from a home base with low overhead expenses, and in November,
  discontinued this method of marketing.

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. 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. In addition, UltraCell products will be marketed through MagPower,
  under a recently amended license agreement (on February 4, 2004), and by the
  Company through distributors to be setup in the various countries. Setting up
  the representative and distributor network for the UltraFlo and UltraCell products
  will be 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 becomes market ready in mid to late 2005 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 approached to market the UltraFlo products.

In Korea, Vitzrosys has a license from UV Systems to manufactures
  exclusively for the Korean and non-exclusively for the Asian Market. All license
  fees, if any are payable to the Company.

CUSTOMERS

The POE and POU UltraFlo UV purification system will be sold
  world wide, to a population, which has become very 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 as well as 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

8

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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 both hot and cold
  water 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, 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.

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, 2004, the Company had two (2) full time
  employees engaged in management and operational activities. Part time employees
  are used when required, for accounting and general office activities.

**ITEM 2.           DESCRIPTION
  OF PROPERTY**

During the period January 1, 2003 to August 31, 2003 our Company
  was domiciled at 2nd Floor – 5763 – 203 A Street in Langley,
  B.C. During this period we rented our premises on a month-to-month basis and
  incurred rental expenses of $3,448.56. 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. No
  rent was payable for the period September 1, 2003 to December 31, 2003. Commencing
  in January 1, 2004, the Company incurred monthly rentals of $475.00. The
  space is leased on a month-to-month basis. No Insurance plans cover the contents.

**ITEM 3.           LEGAL
  PROCEEDINGS**

Company. The plaintiff alleges that in April of 1996, he purchased
  common shares of the Company based on a representation that they would be free
  trading in 40 days of "the filing of a prospectus." The plaintiff further alleges
  that in On October 20, 1998 a suit was filed in the Supreme Court of British
  Columbia by an original shareholder (“the plaintiff”) against the
  Company’s President and Director, and a former Director and Vice President
  of the September of 1996 he purchased additional common shares of the Company
  based on the representation that the shares would be free trading within 40
  days of the common shares becoming free trading and that the representation
  was a warranty and was incorrect. The plaintiff further alleges that he suffered
  a loss because the share price decreased while he was holding the shares and
  is seeking 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 continue to actively defend the suit.
  The suit has remained inactive since early 1999. There has been no loss provision
  accrued pursuant to this action against the Company as the probability of incurring
  a material loss is remote.

On April 25, 2003, Chelverton Fund Limited filed a suit in
  the Supreme Court of British Columbia against UltraGuard for non-payment of
  debt in the amount of $155,000. UltraGuard entered an appearance and filed
  a

9

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defense against this claim and attempted to negotiate a settlement.
  Chelverton filed additional information that supported their claim and UltraGuard
  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 the Supreme Court of British Columbia
  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 with a requirement that UltraGuard provide additional
  detailed financial information. This information has now been provided. No further
  action has occurred.

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’s 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’s 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 to the Company’s officers and others. On June 24, 2003,
  in discussions between legal counsel for plaintiff, respondent and the hearing
  Judge, 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 the TRO hearing Judge
  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 the Company’s counsel. The plaintiff responded on July 18,
  2003 and the Company’s 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 of the lawyer on two of the four cases.
  By April 29, 2004, the Plaintiff and the Defendant were required to file a proposed
  pre-trial order with the Federal Court. During this quarter the Company and
  the Plaintiff requested and received an extension to August 26, 2004 to settle
  this matter or file the pre-trial order, which upon approval, the Court will
  set down for trial. On October 28, 2004 the Company jointly filed a pre-trial
  notice and on November 15, 2004 in a conference call with the sitting Judge
  a trial date was set for February 22, 2005. In the interim, the parties to this
  dispute have reached a settlement on all matters. (Refer to Note 12 on Subsequent
  Event). The Company has made a provision for a loss of $27,000 in a lawsuit
  made by a former employee for wrongful dismissal. This amount represents the
  total probable loss of the lawsuit and has been recorded as an accrued liability
  as of December 31, 2004 and 2003.

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. A
  writ of summons was issued against Clearwater in July 2003 in specific amounts
  totalling C$774,366 plus additional amounts for failure to perform, demand
  for return of leased equipment and cancellation of the Joint Venture Agreements.
  The case is at the stage of production of documents. UVS has confirmed its intention
  to pursue the case vigorously. Clearwater has filed a defence against all claims.

**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.OB". 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. All figures
  shown in the fiscal year ended December 31, 2004 are

10

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actual values reported by the OTC-BB.

|FISCAL YEAR 2002                       | LOW  | HIGH | 
|-------------------------------------- | ---- | ---- | 
|Quarter ended March 31,
      2002     | 0.04 | 0.15 | 
|Quarter ended June 30,
      2002      | 0.02 | 0.05 | 
|Quarter ended September
      30, 2002 | 0.02 | 0.04 | 
|Quarter ended December
      31, 2002  | 0.30 | 1.00 | 
|                                       |      |      | 
|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 | 
|                                       |      |      | 
|                                       |      |      | 
|FISCAL YEAR 2004                       |      |      | 
|Quarter ended March 31,
      2004     | 0.01 | 0.04 | 
|Quarter ended June 30,
      2004      | 0.01 | 0.04 | 
|Quarter ended September
      30, 2004 | 0.02 | 0.10 | 
|Quarter ended December
      31, 2004  | 0.07 | 0.13 | 

As of December 31, 2004 here were approximately 175 folders
  of record of the common stock.

COMMON STOCK

Our authorized capital stock consists of 100,000,000 shares
  of common stock with a par vale of $0.001 per share. On December 31, 2004
  there were 33,358,565 shares issued and outstanding. The holders of outstanding
  shares of our common stock are entitled to receive dividends out of assets legally
  available at times and in amounts as the board of directors may from time to
  time determine. Holders of common stock are entitled to one vote per share on
  all matters on which the holders of common stock are entitled to vote. The common
  stock is not entitled to preemptive rights and may not be redeemed or converted.
  Upon liquidation, dissolution or winding up, the assets legally available for
  distribution to our shareholders are divided among the holders of the common
  stock in proportion to the number of shares of common stock held by each of
  them, after payments of all of our debts and liabilities.

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 COMMON STOCK SALES

During the year ended December 31, 2004 the Company issued
  the following shares for the listed consideration

|Date | Shares | Residency | Consideration | Exemption | Citizenship | Valued at
|---- | ------ | --------- | ------------- | --------- | ----------- | ---------

|Balance Outstanding January 1, 2003 | 10,852,565 |            |                  |        
|----------------------------------- | ---------- | ---------- | ---------------- | -------
|                                    |            |            |                  |        
|Feb 05/04                           | 100,000    | CAN        | License Purchase | Reg 144
|                                    |            |            |                  |        
|Feb 24/04                           | 775,000    | China      | Consulting       | S-8*   
|                                    |            |            |                  |        
|Balance Outstanding March 31, 2004  | 23,328,565 |            |                  |        
|                                    |            |            |                  |        
|Apr 26/04                           | 200,000    | CAN        | Legal Services   | S-8*   
|                                    |            |            |                  |        
|June 07/04                          | 525,000    | China      | Consulting       | S-8*   
|                                    |            |            |                  |        
|June 07/04                          | 525,000    | Costa Rica | Consulting       | S-8*   
|                                    |            |            |                  |        
|June 07/04                          | 950,000    | Panama     | Consulting       | S-8*   
|                                    |            |            |                  |        
|Balance Outstanding March 31, 2004  | 25.528,565 |            |                  |        

---

|Nov 17/04 | 600,000   | CAN       | Services     | S-8** | CAN        | $6,000 
|--------- | --------- | --------- | ------------ | ----- | ---------- | -------
|          |           |           |              |       |            |        
|Nov 24/04 | 1,000,000 | CAN       | Services     | S-8** | CAN        | $10,000
|          |           |           |              |       |            |        
|Nov 24/04 | 650,000   | CAN       | Services     | S-8** | CAN        | $6,500 
|          |           |           |              |       |            |        
|Dec 23/04 | 1,320,000 | Sri Lanka | Consulting   | S-8** | Sri Lankan | $13,200
|          |           |           |              |       |            |        
|Dec 01/04 | 250,000   | CAN       | Compensation | 144   | CAN        | $2,500 
|          |           |           |              |       |            |        
|Dec 01/04 | 250,000   | CAN       | Compensation | 144   | CAN        | $2,500 
|          |           |           |              |       |            |        
|Dec 23/04 | 150,000   | USA       | Services     | S-8** | American   | $1,500 
|          |           |           |              |       |            |        
|Dec 23/04 | 1,200,000 | USA       | Consulting   | 144   | American   | $12,000
|          |           |           |              |       |            |        
|Dec 23/04 | 1,080,000 | Taiwan    | Consulting   | S-8** | Chinese    | $10,800
|          |           |           |              |       |            |        
|Dec 23/04 | 1,080,000 | Taiwan    | Consulting   | S-8** | Chinese    | $10,800
|          |           |           |              |       |            |        
|Dec 23/04 | 175,000   | CAN       | Services     | S-8** | CAN        | $1,750 
|          |           |           |              |       |            |        
|Dec 23/04 | 75,000    | CAN       | Services     | S-8** | CAN        | $750   

|*  | 2003 incentive plan registered on S-8 on Dec 1, 2003       
|-- | -----------------------------------------------------------
|** | Incentive & Consulting plan registered on December 21, 2004

|Balance Outstanding December 31, 2004            33,358,565 |  |  |  | 
|----------------------------------------------------------- |  |  |  | 

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

The following discussion and analysis should be read in conjunction
  with our consolidated financial statements and notes and the information included
  under the caption "Risk Factors" included elsewhere in this document. Except
  for historical information, the following discussion contains forward-looking
  statements that involve risks and uncertainties, such as statements of our plans,
  objectives, expectations and intentions and our current beliefs regarding revenues
  we might earn if we are successful in implementing our business strategies.
  See "Special Note Regarding Forward-Looking Statements" for further information
  regarding forward-looking statements. Our actual results may differ materially
  from the results discussed in the forward-looking statements as a result of
  a number of factors, many of which are beyond our control, including those factors
  discussed under "Risk Factors" and other headings in this document, which could,
  among other things, cause the price of our common stock to fluctuate substantially.

Overview

As a result of the reverse takeover of Innovative Fuel Cell
  Technologies Inc. on December 31, 2003, the Company’s status changed to
  that of a development stage company. Therefore consolidated balance sheets of
  UltraGuard Water Systems Corp and the related consolidated statements of operations
  and cash flows and stockholders’ equity, include operations for the period
  from September 30, 2002 (Date of Inception) to December 31, 2004. As a development
  stage company, we have generated total revenue since inception to December 31,
  2004 of $47,704. This amount was received for royalty and UV component sales,
  unrelated to the fuel cell acquisition.

We have incurred aggregate net losses of approximately $1,533,189
  during the period from our inception on September 30, 2002 to December 31, 2004.
  We will likely continue to incur significant additional operating losses as
  marketing efforts continue. Operating losses may fluctuate from quarter to quarter
  as a result of differences in the timing of expenses incurred and when revenue
  is recognized.

PLAN OF OPERATION

During fiscal 2004, we plan to continue product awareness
  marketing of the UltraGuard® fuel cell technology with the point of use
  and point of entry ultraviolet disinfection systems and filtration products.
  We expect, based on presentations from MagPower that magnesium air fuel

12

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cell product will be available for sale in the third quarter
  of fiscal 2005. When it is apparent that product will in fact be available,
  our intention is to locate and engage contracted marketing representatives to
  identify sales opportunities in developing countries and sales of systems for
  disaster relief. This marketing will be financed through the sale of equity
  shares and with common stock issued for services. In addition we intend to identify
  and explore strategic alliances or joint venture opportunities that may enhance
  shareholder value.

BASIS OF PRESENTATION

The financial statements include accounts of Ultraguard Water
  Systems Corp,and Innovative Fuel Cell Technologies Inc.

MANAGEMENT'S DISCUSSION

Critical Accounting Policies and Changes to Existing Accounting
  Policies

On December 12, 2001, the Securities and Exchange Commission
  issued cautionary advice regarding the disclosure of critical accounting policies.
  Critical accounting policies are those that our management believes are both
  most important to the portrayal of our financial condition and results, and
  that require difficult, subjective, or complex judgments, often as a result
  of the need to make estimates about the effects of matters that involve uncertainty.

We believe the "critical" accounting policies we use in preparation
  of our financial statements are as follows:

Revenue Recognition. Product sales are recognized at
  the time goods are shipped to customers. System and project revenue are recognized
  utilizing the percentage of completion method based upon materials installed
  and labour costs incurred. All related costs including any contract revisions
  or changes are recognized in the period in which they occur.

UltraGuard recognizes revenue in accordance with Securities
  and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB 104”),
  “Revenue Recognition.” 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.

Foreign currency 
  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.

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.

Quantitative and Qualitative Disclosures about Market Risk

As at December 31, 2004 we have not entered into or acquired
  financial instruments that have a material market risk. We have no financial
  instruments for trading or other purposes or derivative or other financial instruments
  with off balance sheet risk. All financial assets and

13

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liabilities are due within the next twelve months and are
  classified as current assets or liabilities in the consolidated balance sheet
  provided with this annual report.

To December 31, 2004, the majority of cash transactions have
  been realized or incurred in Canadian dollars. To date we have not entered into
  foreign currency contracts to hedge against foreign currency risks between the
  Canadian dollar or other foreign currencies and our reporting currency, the
  United States dollar.

TWELVE-MONTH PERIOD - DECEMBER 31, 2004 COMPARED DECEMBER
  31, 2003.

Revenues.For fiscal 2004, we reported revenues of $15,035, compared to $32,669
  revenue in the comparable period of fiscal 2003, an decrease of $17,634,
  or 54%. The decrease was as a result of reduced part sales to our Licensees
  offset partly by license revenues of $12,500.

Direct
  Project Costs.For fiscal 2004, we reported project costs of $728 a
  decrease of $33,240 from $33,968 in the comparable period of the prior
  year. The decrease of project costs incurred as a result of reduced sales generally
  and the effect of license revenues, which have no associated direct costs.

Gross
  Profit.For fiscal 2004, we reported gross profit of $14,307, an increase
  of $15,606 from the comparable period of fiscal 2003.

General
  and Administrative Expense.For fiscal 2004, we reported S &A expenses
  of $751,644, an increase of $155,723, or 26% from $595,921 in the
  comparable period of fiscal 2003 The increase was largely due to increased consulting
  services of approximately $181000.

Net
  Loss for the Period.For fiscal 2004, we reported a net loss of $793,795,
  a increase of $95,358, or 14% compared to $698,437 net loss from operation
  (before discontinued operations cost of $40,957) reported in the comparable
  period of the prior fiscal year. The increase in net loss was due primarily
  to increased consulting services, audit and accounting, advertising and equipment
  leasing offset partly by reduced legal fees and travel costs.

Net
  Loss per Share.For fiscal 2004, we reported a net loss per share of ($0.03)
  a decrease of $0.02 or 40%, from ($0.05) 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 in
  fiscal 2004.

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.

We had cash and cash equivalents of $1,877 as of December
  31, 2004.

On February 3, 2005 we received $18,000 and on March 30,
  2005, $10,000 from related parties. The loans are due on demand and at 10%
  interest. On March 11, 2005 we received from Elco Bank & Trust Company a
  $10,000 unsecured, due on demand loan, 10% interest loan.

We expect that, during 2005 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.

During 2004 we financed our operations in part, from loans
  from others, and loans from related parties and shareholders of the Company.

14

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**Item 7.           Consolidated
  Financial Statements**

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statement of Stockholders’ Equity (Deficit)

Notes to the Consolidated Financial Statements



15

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| | Report of Independent Registered Public
        Accounting Firm
      To the Board of Directors and Stockholders of 
        UltraGuard Water Systems Corp. (A Development Stage Company)
      We have audited the accompanying consolidated balance
        sheets of UltraGuard Water Systems Corp. (A Development Stage Company)
        as of December 31, 2004 and 2003, and the related consolidated statements
        of operations and cash flows and stockholders’ equity for the years
        ended December 31, 2004 and 2003 and accumulated for the period from September
        30, 2002 (Date of Inception) to December 31, 2004. 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 the Standards
        of the Public Company Accounting Oversight Board (United States). Those
        standards require that we plan and perform the audits 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. (A Development Stage Company)
        as of December 31, 2004 and 2003, and the results of its operations and
        its cash flows and stockholders’ equity for the years ended December
        31, 2004 and 2003 and accumulated for the period from September 30, 2002
        (Date of Inception) to December 31, 2004 in conformity with accounting
        principles generally accepted in the United States.
      As discussed in Note 11, the Company changed its method
        of recording the acquisition of Innovative Fuel Cells Technologies Inc.
      The accompanying consolidated financial statements have
        been prepared assuming UltraGuard Water Systems Corp. will continue as
        a going concern. As discussed in Note 1 to the financial statements, UltraGuard
        Water Systems Corp. has not generated profitable operations since inception
        and has a working capital deficiency as at December 31, 2004. These factors
        raise substantial doubt about UltraGuard Water Systems Corp.’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.
      Manning Elliott
      Chartered Accountants
      Vancouver, Canada
      April 11, 2005 | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



---

UltraGuard Water Systems Corp.
  (A Development Stage Company)
  Consolidated Balance Sheets
  (Expressed in US dollars)

|                                                                     |              |   | (Restated – Note 11) |  
|-------------------------------------------------------------------- | ------------ | - | -------------------- | -
|                                                                     | December 31, |   | December 31,         |  
|                                                                     | 2004         |   | 2003                 |  
|                                                                     | $            |   | $                    |  
|ASSETS                                                               |              |   |                      |  
|Current Assets                                                       |              |   |                      |  
|Cash and short-term investments                                      | 1,877        |   | 1,834                |  
|Accounts receivable                                                  | 4,645        |   | 2,971                |  
|Prepaid expenses and deposits                                        | 1,268        |   | 63,613               |  
|Total Current Assets                                                 | 7,790        |   | 68,418               |  
|Property and Equipment (Note 4)                                      | 140          |   | 204                  |  
|Other Assets                                                         |              |   |                      |  
|Manufacturing Technology (Note 1)                                    | 83,161       |   | 79,561               |  
|Total Assets                                                         | 91,091       |   | 148,183              |  
|                                                                     |              |   |                      |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                       |              |   |                      |  
|Current Liabilities                                                  |              |   |                      |  
|Accounts payable                                                     | 208,937      |   | 194,080              |  
|Accrued liabilities (Note 9(d))                                      | 60,793       |   | 58,751               |  
|Loans payable (Note 5)                                               | 389,265      |   | 310,542              |  
|Amounts owing to related parties
      (Note 6)                      | 347,265      |   | 202,223              |  
|Total Current Liabilities                                            | 1,006,260    |   | 765,596              |  
|                                                                     |              |   |                      |  
|Commitments and Contingencies (Notes 1 and 9)                        |              |   |                      |  
|Stockholders’ Equity (Deficit)                                       |              |   |                      |  
|Common stock, $.001 par value, 100,000,000 shares
      authorized,  |              |   |                      |  
|33,358,565 and 22,453,565 issued
      and outstanding, respectively | 33,359       |   | 22,454               |  
|Additional paid-in capital                                           | 640,578      |   | 420,227              |  
|Deferred compensation (Note
      7(e))                              | (55,917      | ) | (320,700             | )
|Deficit Accumulated During the Development Stage                     | (1,533,189   | ) | (739,394             | )
|Total Stockholders’ Equity (Deficit)                                 | (915,169     | ) | (617,413             | )
|Total Liabilities and Stockholders’ Equity
      (Deficit)           | 91,091       |   | 148,183              |  

(See Accompanying Notes to the Consolidated Financial Statements)

2

---

UltraGuard Water Systems Corp.
  (A Development Stage Company) 
  Consolidated Statements of Operations
  (Expressed in US dollars)

|                                                                    | Accumulated from    |  |                    |   |                      |  
|------------------------------------------------------------------- | ------------------- |  | ------------------ | - | -------------------- | -
|                                                                    | September 30, 2002  |  |                    |   |                      |  
|                                                                    | (Date of Inception) |  |                    |   | (Restated – Note 11) |  
|                                                                    | to December 31,     |  | For the year ended |   | For the year ended   |  
|                                                                    | 2004                |  | December 31, 2004  |   | December 31, 2003    |  
|                                                                    | $                   |  | $                  |   | $                    |  
|Project Revenue                                                     | 47,704              |  | 15,035             |   | 32,669               |  
|                                                                    |                     |  |                    |   |                      |  
|Project Costs                                                       | 34,696              |  | 728                |   | 33,968               |  
|                                                                    |                     |  |                    |   |                      |  
|Total Gross Profit (Loss)                                           | 13,008              |  | 14,307             |   | (1,299               | )
|                                                                    |                     |  |                    |   |                      |  
|Expenses                                                            |                     |  |                    |   |                      |  
|                                                                    |                     |  |                    |   |                      |  
|Foreign exchange loss                                               | 29,020              |  | 8,920              |   | 20,100               |  
|General and administrative                                          | 1,347,565           |  | 751,644            |   | 595,921              |  
|Interest                                                            | 101,655             |  | 47,538             |   | 54,117               |  
|Provision for lawsuit
      (Note 9(d))                             | 27,000              |  | –                  |   | 27,000               |  
|                                                                    |                     |  |                    |   |                      |  
|Total Expenses                                                      | 1,505,240           |  | 808,102            |   | 697,138              |  
|                                                                    |                     |  |                    |   |                      |  
|Net Loss from Operations                                            | 1,492,232           |  | 793,795            |   | 698,437              |  
|                                                                    |                     |  |                    |   |                      |  
|Loss from Discontinued Operations (Note
      1)                    | 40,957              |  | –                  |   | 40,957               |  
|                                                                    |                     |  |                    |   |                      |  
|Net Loss for the Year                                               | 1,533,189           |  | 793,795            |   | 739,394              |  
|                                                                    |                     |  |                    |   |                      |  
|Net Loss per Share – Basic and
      Diluted                        |                     |  | (0.03              | ) | (0.05                | )
|                                                                    |                     |  |                    |   |                      |  
|Weighted Average Number of Shares Outstanding after                 |                     |  |                    |   |                      |  
|giving retroactive effect
      to the reverse acquisition (Note 1) |                     |  | 25,289,000         |   | 15,863,000           |  

See Accompanying Notes to the Consolidated Financial Statements)

3

---

UltraGuard Water Systems Corp.
  (A Development Stage Company)
  Consolidated Statements of Cash Flows
  (Expressed in US dollars)

|                                                   | Accumulated from    |   |                    |   |                      |  
|-------------------------------------------------- | ------------------- | - | ------------------ | - | -------------------- | -
|                                                   | September 30, 2002  |   |                    |   |                      |  
|                                                   | (Date of Inception) |   |                    |   | (Restated – Note 11) |  
|                                                   | to December 31,     |   | For the Year ended |   | For the year ended   |  
|                                                   | 2004                |   | December 31, 2004  |   | December 31, 2003    |  
|                                                   | $                   |   | $                  |   | $                    |  
|                                                   |                     |   |                    |   |                      |  
|Cash Flows From Operating Activities               |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Net Loss                                           | (1,533,189          | ) | (793,795           | ) | (739,394             | )
|                                                   |                     |   |                    |   |                      |  
|Adjustments to reconcile net
      loss to cash    |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Depreciation                                       | 146                 |   | 64                 |   | 82                   |  
|Shares
      issued to settle debt and expenses    | 454,404             |   | 487,439            |   | 392,162              |  
|Shares
      issued for related party compensation | 86,120              |   | 5,000              |   | 81,120               |  
|                                                   |                     |   |                    |   |                      |  
|Change in operating assets and
      liabilities   |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|(Increase)
      in accounts receivable            | (4,645              | ) | (12,674            | ) | (2,037               | )
|Decrease
      in inventory and contract work in   |                     |   |                    |   |                      |  
|progress                                           | –                   |   | –                  |   | 6,638                |  
|(Increase)
      decrease in prepaid expenses and  |                     |   |                    |   |                      |  
|deposits                                           | (1,268              | ) | 62,345             |   | (39,574              | )
|Increase
      in accounts payable and accruals    | 269,730             |   | 16,899             |   | 187,286              |  
|                                                   |                     |   |                    |   |                      |  
|Net Cash From (Used in) Operating Activities       | (728,702            | ) | (234,722           | ) | (113,717             | )
|                                                   |                     |   |                    |   |                      |  
|Cash Flows Used in Investing Activities            |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Manufacturing technology acquired                  | (8,361              | ) | –                  |   | (8,361               | )
|                                                   |                     |   |                    |   |                      |  
|Net Cash Used in Investing Activities              | (8,361              | ) | –                  |   | (8,361               | )
|                                                   |                     |   |                    |   |                      |  
|Cash Flows From Financing Activities               |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Proceeds from subscribed shares                    | –                   |   | 11,000             |   | –                    |  
|Cash received in reverse acquisition               | 2,410               |   | –                  |   | 2,410                |  
|Increase in loans from unrelated
      parties     | 389,265             |   | 78,723             |   | 121,502              |  
|Increase in advances from related
      parties    | 347,265             |   | 145,042            |   | –                    |  
|                                                   |                     |   |                    |   |                      |  
|Net Cash Provided by Financing Activities          | 738,940             |   | 234,765            |   | 123,912              |  
|                                                   |                     |   |                    |   |                      |  
|Increase in Cash                                   | 1,877               |   | 43                 |   | 1,834                |  
|                                                   |                     |   |                    |   |                      |  
|Cash – Beginning of the Period                     | –                   |   | 1,834              |   | –                    |  
|                                                   |                     |   |                    |   |                      |  
|Cash – End of the Period                           | 1,877               |   | 1,877              |   | 1,834                |  
|                                                   |                     |   |                    |   |                      |  
|Non-Cash Investing and Financing Activities:       |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Shares issued for manufacturing
      technology   | 74,800              |   | 3,600              |   | 71,200               |  
|Shares issued to settle debt
      and expenses    | 540,524             |   | 227,656            |   | 137,163              |  
|Shares issued for note receivable                  | –                   |   | –                  |   | 11,000               |  
|                                                   |                     |   |                    |   |                      |  
|Supplementary Information                          |                     |   |                    |   |                      |  
|                                                   |                     |   |                    |   |                      |  
|Cash paid for interest                             | 4,991               |   | –                  |   | 4,991                |  
|Cash paid for income taxes                         | –                   |   | –                  |   | –                    |  

(See Accompanying Notes to the Consolidated Financial Statements)

4

---

UltraGuard Water Systems Corp.
  (A Development Stage Company) 
  Consolidated Statement of Stockholders’ Equity (Deficit) 
  From September 30, 2002 (Date of Inception) to December 31, 2004 
  (Expressed in US dollars)

|                                                    |            |   |        |   |            |   |              |   | Deficit     |   |          |  
|--------------------------------------------------- | ---------- | - | ------ | - | ---------- | - | ------------ | - | ----------- | - | -------- | -
|                                                    |            |   |        |   |            |   |              |   | Accumulated |   |          |  
|                                                    |            |   |        |   | Additional |   |              |   | During the  |   |          |  
|                                                    | Issued     |   | Common |   | Paid In    |   | Deferred     |   | Development |   |          |  
|                                                    | Shares     |   | Stock  |   | Capital    |   | Compensation |   | Stage       |   | Total    |  
|                                                    | #          |   | $      |   | $          |   | $            |   | $           |   | $        |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Balance – September 30, 2002 (Date of  Inception)   | –          |   | –      |   | –          |   | –            |   | –           |   | –        |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Stock issued for subscription                       | 6,000,000  |   | 6,000  |   | (6,000     | ) | –            |   | –           |   | –        |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Adjustments for reverse acquisition (Note 1)        |            |   |        |   |            |   |              |   |             |   |          |  
|- elimination of shares of Innovative Fuel Cell     |            |   |        |   |            |   |              |   |             |   |          |  
|Technologies, Inc. (“IFCT”)                         | (6,000,000 | ) | (6,000 | ) | 6,000      |   | –            |   | –           |   | –        |  
|- add shares issued to shareholders of IFCT         |            |   |        |   |            |   |              |   |             |   |          |  
|to effect reverse acquisition                       | 6,000,000  |   | 6,000  |   | –          |   | –            |   | –           |   | 6,000    |  
|- add issued shares of UltraGuard Water Systems     |            |   |        |   |            |   |              |   |             |   |          |  
|Corp. for the net liabilities assumed
      by IFCT |            |   |        |   |            |   |              |   |             |   |          |  
|at net book value                                   | 4,852,565  |   | 4,853  |   | (570,517   | ) | –            |   | –           |   | (565,664 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Net loss for the period                             | –          |   | –      |   | –          |   | –            |   | (12,292     | ) | (12,292  | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Balance – December 31, 2002                         | 10,852,565 |   | 10,853 |   | (570,517   | ) | –            |   | (12,292     | ) | (571,956 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for MagPower License             |            |   |        |   |            |   |              |   |             |   |          |  
|Agreement                                           | 400,000    |   | 400    |   | 70,800     |   | –            |   | –           |   | 71,200   |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for consulting expenses          | 5,575,000  |   | 5,575  |   | 639,287    |   | –            |   | –           |   | 644,862  |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for legal expenses               | 600,000    |   | 600    |   | 67,400     |   | –            |   | –           |   | 68,000   |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for related party compensation   | 2,400,000  |   | 2,400  |   | 78,720     |   | –            |   | –           |   | 81,120   |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for debt                         | 70,000     |   | 70     |   | 6,383      |   | –            |   | –           |   | 6,453    |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for West Peak Security Loss      | 1,556,000  |   | 1,556  |   | 129,154    |   | –            |   | –           |   | 130,710  |  
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for notes receivable             | 1,000,000  |   | 1,000  |   | 99,000     |   | –            |   | –           |   | 100,000  |  
|Less: funds not yet received                        | –          |   | –      |   | (100,000   | ) | –            |   | –           |   | (100,000 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Deferred compensation                               | –          |   | –      |   | –          |   | (320,700     | ) | –           |   | (320,700 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Net loss for the year                               | –          |   | –      |   | –          |   | –            |   | (727,102    | ) | (727,102 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Balance, December 31, 2003 (Restated – Note 11)     | 22,453,565 |   | 22,454 |   | 420,227    |   | (320,700     | ) | (739,394    | ) | (617,413 | )
|                                                    |            |   |        |   |            |   |              |   |             |   |          |  
|Issuance of shares for consulting expenses          | 10,105,000 |   | 10,105 |   | 198,551    |   | –            |   | –           |   | 213,656  |  
|Issuance of shares for related party compensation   | 500,000    |   | 500    |   | 4,500      |   | –            |   | –           |   | –        |  
|Issuance of shares for legal expenses               | 200,000    |   | 200    |   | 13,800     |   | –            |   | –           |   | 14,000   |  
|Issuance of shares for asset acquisition            | 100,000    |   | 100    |   | 3,500      |   | –            |   | –           |   | 3,600    |  
|Deferred compensation                               | –          |   | –      |   | –          |   | 264,783      |   | –           |   | 264,783  |  
|Net loss for the year                               | –          |   | –      |   | –          |   | –            |   | (798,174    | ) | (798,174 | )
|Balance, December 31, 2004                          | 33,358,565 |   | 33,359 |   | 640,578    |   | (55,917      | ) | (1,537,568  | ) | (919,548 | )

See Accompanying Notes to the Consolidated Financial Statements)

5

---

|1. | Reverse Acquisition, Nature of Operations and Continuance
        of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | On December 31, 2002 (“the acquisition date”),
        UltraGuard Water Systems Corp. (“UltraGuard”) acquired all
        of the outstanding stock of Innovative Fuels Cell Technologies Inc (“IFCT”).
        UltraGuard issued 5,000,000 common shares to the shareholders of IFCT
        to acquire IFCT and its wholly-owned Austrian incorporated subsidiary
        UltraGuard Water Systems GmbH (“UG GmbH”). UltraGuard also
        issued 1,000,000 common shares to UG GmbH as part of the transaction.
        These shares are considered treasury shares and are not outstanding. For
        accounting purposes the acquisition was treated as the acquisition of
        UltraGuard by IFCT with IFCT as the accounting acquirer (reverse acquisition).
        As a result, the historical financial statements prior to the acquisition
        date are those of IFCT from September 30, 2002 (date of inception of IFCT).
        See Note 3 for Operations of UltraGuard prior to the reverse acquisition.
        UltraGuard and IFCT, as at December 31, 2002, reverted back to being a
        development stage Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | IFCT is a Nevada corporation incorporated on September
        30, 2002. IFCT is the holder of an option (“the Option Agreement”)
        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 UltraGuard’s Point of Use Ultraviolet Water Purification
        System and for ancillary uses. IFCT was assigned the Option Agreement
        on October 1, 2002 from a related party. The only cost incurred by the
        related party was a Cnd$2,500 down payment for the Option Agreement.
        A balance owing of Cnd$97,500 is payable and 400,000 shares of UltraGuard
        is to be issued to complete the Option Agreement. On March 14, 2003, a
        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 of UltraGuard
        to be issued to 500,000. On March 6, 2003, UltraGuard 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 of UltraGuard
        to the vendors of MagPower. 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 of UltraGuard was made on May 1, 2003. The remaining balance
        is due on the first of each month thereafter until MagPower delivers the
        technical drawings at a rate of Cnd$7,500 per month; 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 of UltraGuard 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 at December 31, 2003. On February 2, 2004, UltraGuard
        and MagPower amended the agreement to sublicense to MagPower, in certain
        countries in the world, UltraGuard’s ultraviolet products for sale
        and use by MagPower (or its sublicenses) with MagPower’s magnesium
        fuel cell. As well, the February 2, 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 UltraGuard and IFCT
        as a condition of the License Agreement.
|  
|   | As a condition of the Option Agreement, IFCT was
        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. The license will be amortized on a straight-
        line basis over five years once the option agreement has been completed.
        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, 2004 was $83,161, which includes the value of 500,000
        common shares being $74,800.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | During fiscal 2003, due to lack of finances, UltraGuard
        and IFCT 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. A loss from discontinued operations of $40,957
        was charged to operations during the period ended December 31, 2003. Included
        in this loss is a write off of an intercompany loan between UltraGuard
        and UG GmbH of $11,230. There were no other assets or liabilities
        included in the loss from discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | On February 2, 2004, the Company and MagPower amended
        the License Agreement. MagPower now has sublicense rights in certain countries
        to the Company’s ultraviolet products for sale and use by MagPower
        (or its sublicenses) with MagPower’s magnesium fuel cell. In addition,
        the amended License 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 any
        remaining amount owing by the Company as a condition of the original License
        Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | 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, 2004, the Company has not recognized
        significant revenue, has a working capital deficit of $998,470, and
        has accumulated operating losses of $1,533,189 since 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

---

|2. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Consolidated financial statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | These financial statements include the
        accounts of UltraGuard and IFCT (a Nevada Corporation). The operations
        of IFCT’s Austrian were discontinued during fiscal 2003. All significant
        intercompany transactions and balances have been eliminated and costs
        of the closing of UG GmbH have been recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | On December 31, 2002 (“the acquisition
        date”), UltraGuard Water Systems Corp. (“UltraGuard”)
        acquired all of the outstanding stock of Innovative Fuels Cell Technologies
        Inc (“IFCT”). For accounting purposes the acquisition was
        treated as the acquisition of UltraGuard by IFCT with IFCT as the accounting
        acquirer (reverse acquisition). As a result, the historical financial
        statements prior to the acquisition date are those of IFCT from September
        30, 2002 (date of inception of IFCT). See Note 3 for Operations of UltraGuard
        prior to the reverse acquisition.                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | Property 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 by customers. System and project revenue are recognized
        utilizing the percentage of completion method based upon materials installed
        and labour costs incurred. All related costs including any contract revisions
        or changes are recognized in the period in which they occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | The Company recognizes revenue in accordance
        with Securities and Exchange Commission Staff Accounting Bulletin No.
        104 (“SAB 104”), “Revenue Recognition.” 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 used in the
        United States 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | 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.

---

|2. | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 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, 2004
        and 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 and advances
        from related and non-related parties. 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.
      Recent Accounting Pronouncements
      In December 2004, the Financial Accounting Standards
        Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
        No. 123R, “Share Based Payment”. SFAS 123R is a revision
        of SFAS No. 123 “Accounting for Stock-Based Compensation”,
        and supersedes APB Opinion No. 25, “Accounting for Stock Issued
        to Employees” and its related implementation guidance. SFAS
        123R establishes standards for the accounting for transactions in which
        an entity exchanges its equity instruments for goods or services. It also
        addresses transactions in which an entity incurs liabilities in exchange
        for goods or services that are based on the fair value of the entity’s
        equity instruments or that may be settled by the issuance of those equity
        instruments. SFAS 123R focuses primarily on accounting for transactions
        in which an entity obtains employee services in share-based payment transactions.
        SFAS 123R does not change the accounting guidance for share-based payment
        transactions with parties other than employees provided in SFAS 123 as
        originally issued and Emerging Issues Task Force Issue No. 96-18, “Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or in Conjunction with Selling, Goods or Services”. SFAS 123R
        does not address the accounting for employee share ownership plans, which
        are subject to AICPA Statement of Position 93-6, “Employers’
        Accounting for Employee Stock Ownership Plans”. SFAS 123R requires
        a public entity to measure the cost of employee services received in exchange
        for an award of equity instruments based on the grant-date fair value
        of the award (with limited exceptions). That cost will be recognized over
        the period during which an employee is required to provide service in
        exchange for the award – the requisite service period (usually the
        vesting period). SFAS 123R requires that the compensation cost relating
        to share-based payment transactions be recognized in financial statements.
        That cost will be measured based on the fair value of the equity or liability
        instruments issued. The scope of SFAS 123R includes a wide range of share-based
        compensation arrangements including share options, restricted share plans,
        performance-based awards, share appreciation rights, and employee share
        purchase plans. Public entities (other than those filing as small business
        issuers) will be required to apply SFAS 123R as of the first interim or
        annual reporting period that begins after June 15, 2005. Public entities
        that file as small business issuers will be required to apply SFAS 123R
        in the first interim or annual reporting period that begins after December
        15, 2005. For nonpublic entities, SFAS 123R must be applied as of the
        beginning of the first annual reporting period beginning after December
        15, 2005. The adoption of this standard is not expected to have a material
        effect on the Company’s results of operations or financial position.

---

|2. | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Recent Accounting Pronouncements(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | In December 2004, FASB issued SFAS No. 153, “Exchanges
        of Nonmonetary Assets - An Amendment of APB Opinion No. 29”.
        The guidance in APB Opinion No. 29, “Accounting for Nonmonetary
        Transactions”, is based on the principle that exchanges of nonmonetary
        assets should be measured based on the fair value of the assets exchanged.
        The guidance in that Opinion, however, included certain exceptions to
        that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception
        for nonmonetary exchanges of similar productive assets and replaces it
        with a general exception for exchanges of nonmonetary assets that do not
        have commercial substance. A nonmonetary exchange has commercial substance
        if the future cash flows of the entity are expected to change significantly
        as a result of the exchange. The provisions of SFAS No. 153 are effective
        for nonmonetary asset exchanges occurring in fiscal periods beginning
        after June 15, 2005. Early application is permitted and companies must
        apply the standard prospectively. The adoption of this standard is not
        expected to have a material effect on the Company’s results of operations
        or financial position.
|  
|   | Loss Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | The Company estimates a loss contingency in accordance
        with Statement of Financial Accounting Standards (“SFAS” No.
        5 “Accounting for Contingencies”. The Company accrues the
        loss by a charge to income when there is information available that it
        is probable that an asset has been impaired or a liability has been incurred
        and the amount of the loss can be reasonably estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | Goodwill and Other Intangibles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | In July 2001, the Financial Accounting Standards
        Board ("FASB") issued statement of Financial Accounting Standards No.
        142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
        for fiscal years beginning after December 15, 2001. SFAS 142 prohibits
        the amortization of goodwill and intangible assets with indefinite useful
        lives but requires that these assets be reviewed for impairment at least
        annually or on an interim basis if an event occurs or circumstances change
        that could indicate that their value has diminished or been impaired.
        Other intangible assets will continue to be amortized over their estimated
        useful lives. In addition, the standard includes provisions for the reclassification
        of certain existing recognized intangibles as goodwill, reassessment of
        the useful lives of existing recognized intangibles, reclassification
        of certain intangibles out of previously reported goodwill and the identification
        of reporting units for purposes of assessing potential future impairments
        of goodwill.                                                                                                                                          
|  
|   | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | Potential benefits of income tax losses are not
        recognized in the accounts until realization is more likely than not.
        The Company has adopted SFAS No. 109 “Accounting for Income Taxes”
        as of its inception. Pursuant to SFAS No. 109 the Company is required
        to compute tax asset benefits for net operating losses carried forward.
        Potential benefit of net operating losses have not been recognized in
        these financial statements because the Company cannot be assured it is
        more likely than not it will utilize the net operating losses carried
        forward in future years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | Certain reclassifications have been made to the
        prior year’s financial statements to conform to the current period’s
        presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | Up to February 2002, UltraGuard focused its activities
        on the manufacturing and marketing of its Ultra Guard® ultra violet
        based patented water treatment system through its wholly owned Canadian
        subsidiary, UV Systems Technology Inc. (“UVS”). These products
        and systems were 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | On February 5, 2002, UltraGuard reached an agreement
        with the Clearwater Group (“Clearwater”) to assume the UVS
        manufacturing responsibilities of any new Ultra Guard® water treatment
        systems to be supplied to UVS’s strategic alliance partner, US Filter.
        Clearwater would also provide warranty services on any previously sold
        Ultra Guard® water treatment systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | During fiscal 2002, UltraGuard 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | At a special meeting held on November 15, 2002,
        UltraGuard reorganized. Its shares were consolidated on a 1:50 basis;
        the authorized capital increased to 100,000,000 shares and the name was
        changed to UltraGuard. In December 2002, UltraGuard divested itself of
        the UVS operations while retaining any royalty or other revenues that
        may be received from the sale or use of the UVS patented Ultra Guard®
        technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

---

|3. | Operations of UltraGuard Prior to Reverse Acquisition
        with IFCT
      See Note 1 for IFCT’s reverse acquisition of UltraGuard.
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                       
|4. | Property and Equipment
      Property and equipment is stated at cost less accumulated
        depreciation.                          

| |                        |       |              | December 31, | December 31,
| | ---------------------- | ----- | ------------ | ------------ | ------------
| |                        |       |              | 2004         | 2003        
| |                        |       | Accumulated  | Net Book     | Net Book    
| |                        | Cost  | Depreciation | Value        | Value       
| |                        | $     | $            | $            | $           
| |                        |       |              |              |             
| | Property and equipment | 5,533 | 5,393        | 140          | 204         

|5. | Loans Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|6. | Amounts Owing to Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | Unpaid wages and consulting for two officers/directors
        in the amounts of $206,223, are due on demand, unsecured and non-interest
        bearing and includes an amount of $130,712 plus accrued interest of
        $10,330 due to the President of the Company a result of actions taken
        discussed in Note 5. 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.
|  
|7. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

---

|7. | Common Stock (continued)
|-- | ------------------------
|   |                         
|   |                         
|   |                         
|   | (b)                     
|   |                         
|   | (c)                     

| |  |                             | Shares       |  | Weighted Average |  | Weighted Average  | 
| |  | --------------------------- | ------------ |  | ---------------- |  | ----------------- | 
| |  |                             | Under Option |  | Option Price     |  | Remaining Life of | 
| |  |                             | #            |  | $                |  | Options (Months)  | 
| |  | December 31, 2003 (audited) | 125,000      |  | .13              |  | 32                | 
| |  | Granted                     | –            |  | –                |  | –                 | 
| |  | Expired                     | –            |  | –                |  | –                 | 
| |  | Cancelled                   | –            |  | –                |  | –                 | 
| |  | December 31, 2004 (audited) | 125,000      |  | .13              |  | 32                | 

| |  | The fair value of stock options 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.
      During fiscal 2003, the Company adopted the disclosure
        requirements of Statement of Financial Accounting Standards No. 148, “Accounting
        for Stock-Based Compensation – Transition and Disclosure an Amendment
        of FASB Statement No. 123” (SFAS 148), to require more prominent
        disclosures in both annual and interim financial statements regarding
        the method of accounting for stock-based employee compensation and the
        effect of the method used on reporting results. If compensation expense
        had been determined pursuant to SFAS 123, the Company’s net loss
        and net loss per share would have been as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                                     | As of        |   | As of        |  
| |  | ------------------------------------------------------------------- | ------------ | - | ------------ | -
| |  |                                                                     | December 31, |   | December 31, |  
| |  |                                                                     | 2004         |   | 2003         |  
| |  |                                                                     | $            |   | $            |  
| |  |                                                                     |              |   |              |  
| |  | Net loss                                                            |              |   |              |  
| |  | As reported                                                         | 793,795      |   | 739,394      |  
| |  | Stock Based Compensation- as
      reported                         | –            |   | –            |  
| |  | Stock Based Compensation –
      determined under fair market value | –            |   | 2,030        |  
| |  | Pro forma                                                           | 793,795      |   | 741,424      |  
| |  |                                                                     |              |   |              |  
| |  | Basic and diluted net loss per share                                |              |   |              |  
| |  | As reported                                                         | (.03         | ) | (.05         | )
| |  | Pro forma                                                           | (.03         | ) | (.05         | )

| | (d) | 2004 Consultants Incentive Plan
      On December 21, 2004 the Company registered 10,000,00
        shares on Form S-8 with the SEC and issued 5,495,000 common shares at
        $0.01.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                         
| | (e) | Valuation of Common Stock Issued for Services and Assets                                                                                                                                

---

|7 | Common Stock (continued)
|- | ------------------------
|  |                         
|  |                         

| |  |                                                          |            |  | Weighted    |  |            | 
| |  | -------------------------------------------------------- | ---------- |  | ----------- |  | ---------- | 
| |  |                                                          |            |  | Average     |  |            | 
| |  |                                                          |            |  | Fair Market |  |            | 
| |  |                                                          | Shares     |  | Value       |  | Total      | 
| |  |                                                          | Issued     |  | Per Share   |  | Fair Value | 
| |  |                                                          | #          |  | $           |  | $          | 
| |  | Consulting for services provided or to be
      provided |            |  |             |  |            | 
| |  | Pursuant to the incentive plan (Note 7(b))               | 775,000    |  | 0.10        |  | 77,500     | 
| |  | Pursuant to the incentive plan
      (Note 7(b))         | 2,000,000  |  | 0.03        |  | 60,000     | 
| |  | Pursuant to the incentive plan (Note 7(b))               | 575,000    |  | 0.01        |  | 5,750      | 
| |  | Pursuant to the incentive plan
      (Note 7(d))         | 5,495,000  |  | 0.01        |  | 55,550     | 
| |  | Legal                                                    |            |  |             |  |            | 
| |  | Pursuant to the incentive plan (Note 7(b))               | 200,000    |  | 0.07        |  | 14,000     | 
| |  | For asset acquisition and investor relations             |            |  |             |  |            | 
| |  | Not pursuant to any plan –
      144 shares              | 100,000    |  | 0.036       |  | 3,600      | 
| |  | Not pursuant to any plan – 144 shares                    | 1,200,000  |  | 0.01        |  | 12,000     | 
| |  | For directors compensation – 144 shares                  | 500,000    |  | 0.01        |  | 5,000      | 
| |  |                                                          | 10,905,000 |  |             |  | 233,400    | 

|   | The terms of some of the agreements for future services
        are in excess of one year and have various expiry dates. As a result $264,783
        has been charged to operations as consulting and legal expenses and the
        balance of $55,917 has been recorded as deferred compensation.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|8. | Segmented Information                                                                                                                                                                                                                                                                               
|  
|   | As a result of the disposition of UVS, (see Note
        3) UltraGuard and IFCT now operate in one business segment and one geographical
        area. All of the Company’s identifiable assets are located in Canada.                                                                              

| |         | Year Ended        |        | Year Ended        | 
| | ------- | ----------------- | ------ | ----------------- | 
| |         | December 31, 2004 |        | December 31, 2003 | 
| |         | North             |        |                   | 
| |         | America           | Europe | Total             | 
| |         | $                 | $      | $                 | 
| | Revenue | 15,035            | –      | 15,035            | 
| | Expense | 808,102           | –      | 808,102           | 
| | Loss    | 793,795           | –      | 793,795           | 

|9. | Legal Proceedings/Contingency Accrual
|-- | -------------------------------------
|   |                                      
|   | (a)                                  
|   |                                      
|   | (b)                                  

---

|9.  | Legal Proceedings/Contingency Accrual (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|10. | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | At December 31, 2004 and 2003, the Company
        had net operating losses to carryforward totaling approximately $3,673,000
        and $3,372,000, respectively. Because of the current uncertainty of
        realizing the benefit of these losses carried forward, a valuation allowance
        equal to the tax benefit for deferred taxes has been established. The
        full realization of the tax benefit associated with the losses carried
        forward depends upon the Company’s ability to generate taxable income
        during the carryforward period through to 2019.
|   
|    | The reconciliation of the Company’s
        effective income tax rate to the United States statutory rate is as follows
        for the years ended December 31, 2004 and 2003.                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                               | 2004  |  | 2003  | 
| | ----------------------------- | ----- |  | ----- | 
| | Federal Income Tax Rate       | (35%) |  | (35%) | 
| | Effect of Valuation Allowance | 35%   |  | 35%   | 
| | Effective Income Tax Rate     | 0%    |  | 0%    | 

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|10. | Income Taxes (continued)
      Any income subject to tax in Canada will be taxed at
        essentially the same rate as that in the United States.                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Deferred tax assets and liabilities reflect the net
        tax effect of temporary differences between the carrying amount of assets
        and liabilities for financial reporting purposes and amounts used for
        income tax purposes. The approximate tax effect of each type of temporary
        difference and carryforward that gave rise to the Company’s deferred
        tax assets at December 31, 2004 and 2003 are as follows:

| |                           | 2004     |   | 2003     |  
| | ------------------------- | -------- | - | -------- | -
| |                           | $        |   | $        |  
| | Net operating loss        | 301,000  |   | 479,000  |  
| | Less: Valuation allowance | (301,000 | ) | (479,000 | )
| | Net deferred tax asset    | –        |   | –        |  

|    | The Company does not have any deferred tax liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|11. | Restatements
      It was determined that the acquisition of Innovative
        Fuel Cell Technologies, Inc. ("IFCT") on December 31, 2003 was a reverse
        acquisition of UltraGuard instead of an acquisition of IFCT by UltraGuard
        as previously reported and the Class “C” warrants were considered
        to have no value and thus annual charges of $113,470 were terminated
        as at December 31, 2002. The shareholders of IFCT gained control of UltraGuard
        on December 31, 2002. Certain disclosures and financial statement amounts
        have been restated as of December 31, 2002 and 2003. The December 31,
        2002 operating results are now those of IFCT from September 30, 2002 (Date
        of Inception) to December 31, 2002. For the year ended December 31, 2002
        net loss has been restated to decrease the loss from $657,617 to $12,292
        and net loss per share has been restated to decrease the loss per share
        from $0.06 per share to nil. For the year ended December 31, 2003
        net loss has been restated to decrease the loss from $840,573 to $727,102
        and net loss per share remained unchanged at $0.05 per share. The
        balance sheets as at December 31, 2002 and 2003 were restated to remove
        $1,025,291 of capitalized manufacturing technology and the stockholders'
        equity section was revised to eliminate the stockholders' equity of UltraGuard.
        Previously reported stockholders' equity as at December 31, 2002 of $453,335
        has been reduced by $1,025,291 to a stockholders' deficit of $571,956
        and the previously reported stockholders' equity as at December 31, 2003
        of $407,878 has been reduced by $1,025,291 to a stockholders'
        deficit of $617,413. There was no change in stockholders’ equity
        as a result of the reduced valuation of the warrants. The cash flow statement
        for the fiscal year ended December 31, 2002 was restated accordingly and
        only certain disclosures were made for the year ended December 31, 2003.
        Since IFCT was in the development stage these financial statements were
        revised to include certain required disclosures for Development Stage
        Enterprises pursuant to Statement of Financial Accounting Standard ("SFAS")
        No. 7 including accumulated from inception disclosures for the statement
        of operations and cash flows and stockholders' equity. Notes 1, 3 and
        4 have been significantly revised to reflect the reverse acquisition.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|12. | Subsequent Event
      On February 1, 2005, the parties to the June 6, 2003
        lawsuit (Shareholder Group) reached a settlement of the lawsuit, which
        cancelled all four court cases filed against the Company and the Company’s
        Directors. Under the settlement terms, all debts payable by the Company
        including accrued interest of $100,355 were cancelled. Refer to Note
        5(c) and (e) and Note 9 (c).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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

None

**ITEM 8A         CONTROLS
  AND PROCEDURES**

Evaluation of disclosure controls and procedures

As at the end of the period covered by this report, the Company's
  Chief Executive Officer and Chief Financial Officer carried out an evaluation
  of the effectiveness of the design and operation of the Company's disclosure.
  Based on the evaluation, the Chief Executive Officer and Chief Financial Officer
  concluded that, as at the end of the period covered by this report, the Company's
  disclosure controls and procedures are effective to ensure that information
  required to be disclosed in the reports that we file or submit under the Exchange
  Act is recorded, processed, summarized and reported within the time periods
  specified in the Commission’s rules and forms and to ensure that information
  required to be disclosed by us in the reports that we file or submit under the
  Exchange Act is accumulated and communicated to our management, including our
  principal executive and principal financial officer, or persons performing similar
  functions, as appropriate to allow timely decisions regarding disclosure.

**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 Innovative Fuel Cell
      Technologies Inc.
|                    |                                                                                   
|John R. Gaetz       | Director, Secretary-Treasurer and Vice-President of Finance
      (CFO)           
|                    |                                                                                   
|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.

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 and is currently acting as a consultant to companies working
  in the electrical industry.

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."

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     | All    
|Principal           |      |          |       | Annual  | Stock      | Underlying | LTIP    | Other  
|Position            |      |          |       | Compen- | Award(s)   | Options    | Payouts | Compen-
|                    |      | Salary   | Bonus | sation  |            |            |         | sation 
|                    | Year | ($)      | ($)   | ($)     | ($)        | SARs)      | ($)     | ($)    
|                    |      |          |       |         |            |            |         |        
|Ken Fielding,       |      |          |       |         |            |            |         |        
|President,          | 2002 | $36,927  |       | 0       | 0          | 0          | 0       | 0      
|CEO and             | 2003 | 75,618** | 0     | 0       | $40,560    | 25,000shrs | 0       | 0      
|President           | 2004 | $72,000* | 0     | 0       | 0          | 0          | 0       | 0      
|                    |      |          |       |         |            |            |         |        
|John R Gaetz        | 2003 | 50,851** | 0     | 0       | $40,560    | 25,000shrs | 0       | 0      
|Secretary/Treasurer | 2004 | $72,000* | 0     | 0       | 0          | 0          | 0       | 0      
|CFO                 |      |          |       |         |            |            |         |        

*Accrued and unpaid in 2004 
  ** Including restricted stock award $40,560

Twenty-five thousand (25,000) options were granted to the
  named executives 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, 2004 and December
  31, 2004 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.

|                           | DECEMBER 31, 2004 | DECEMBER 31, 2003
|-------------------------- | ----------------- | -----------------
|NAME AND ADDRESS           | SHARES            | PERCENT          
|OF BENEFICIAL              | BENEFICIALLY      | OF CLASS         
|OWNER (1)                  | OWNED (2)         |                  
|                           |                   |                  
|Kenneth E. Fielding        | 2,753,104 (1)     | 8.2%             
|John R. Gaetz              | 2,748,221 (2)     | 8.2%             
|Erin Strench               | 375,000 (3)       | .011%            
|                           |                   |                  
|All officers and directors |                   |                  
|as a group                 | 5,876,325         | 17.54%           
|                           |                   |                  

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) | 25,000 stock option shares Mr Fielding has the right
        to acquire at a price of $0.13 under an immediately exercisable option.
        All preceding warrants were cancelled by agreement with Mr. Gaetz in fiscal
        2002.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                       
| | (2) | 25,000 stock option shares Mr. Gaetz has the right
        to acquire at a price of $0.13 under an immediately exercisable option.
        All preceding warrants were cancelled by agreement with Mr. Gaetz in fiscal
        2002   
| |     |                                                                                                                                                                                                                                       
| | (3) | 25,000 stock option shares Mr. Strench has the right
        to acquire at a price of $0.13 under an immediately exercisable option                                                                                                   

**ITEM 12.          CERTAIN
  RELATIONSHIPS AND RELATED TRANSACTIONS**

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.

During the period from January 1, 2002 to December 31, 2004,
  the following Directors, Executive Officers made loans to the Company for additional
  working capital. The outstanding balances a at December 31, 2004; John R Gaetz,
  $122,971 and Ken Fielding $230,918

---

**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, 200                                                      | (10)            

---

|(10xviii) | 2003 Benefit Plan S-8                                                                          | (11)                                      
|--------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------
|          |                                                                                                |                                           
|(10xix)   | Independent Contractor/Consulting Agreement                                                    | (12)                                      
|          |                                                                                                |                                           
|(10xx)    | The Incentive Plan of UltraGuard                                                               | (13)                                      
|          |                                                                                                |                                           
|(10xxi)   | 2004 Incentive Plan of UltraGuard                                                              | (14)                                      
|          |                                                                                                |                                           
|(31.1)    | Certification of Kenneth
      Fielding pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002  | Filed herewith
      
      Electronically
|          |                                                                                                |                                           
|(31.2)    | Certification of John
      R Gaetz pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002      | Filed herewith
      
      Electronically
|          |                                                                                                |                                           
|(32.1)    | Certification of Kenneth
      Fielding pursuant Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith
      
      Electronically
|          |                                                                                                |                                           
|(32.2)    | Certification of John
      R Gaetz pursuant Section 906 of the Sarbanes-Oxley Act of 2002     | Filed Herewith
      
      Electronically

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.  
| | (14) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on December 21, 2004. 

|(b) | Reports on Form 8-K                                                      
|--- | -------------------------------------------------------------------------
|   
|    | The Company filed one reports on Form 8-K in 2004,                       
|   
|    | On November 23, 2004 reporting the resignation of Director Edward A White

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ITEM 14.          PRINCIPAL
  ACCOUNTANT FEES AND SERVICES

AUDIT FEES

The aggregate fees billed for the fiscal year ended December
  31, 2004 and December 31, 2003 for professional services rendered by our principal
  accountants for the audit of our annual financial statements, review of financial
  statements included in our Form 10-QSB filings and other services provided by
  the accountant in connection with statutory regulatory filings are approximately
  as follows: Fiscal Year Ended December 31, 2004: $16,150; Fiscal Year Ended
  December 31, 200:$12,750.

ALL OTHER ACCOUNTANT FEES

The aggregate fees billed for the fiscal year ended December
  31, 2004 and December 31, 2003 for other professional services rendered by our
  principal accountants are approximately as follows: Fiscal Year Ended December
  31, 2004: $NIL; Fiscal Year Ended December 31, 2003: $NIL.

---

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 14, 2005 | /s/ Ken Fielding      
|-------------------- | ----------------------
|                     | Ken Fielding, Director
|                     |                       
|                     |                       
|                     |                       
|Date: April 14, 2005 | /s/ John R Gaetz      
|                     | John R Gaetz, Director

---