SECURITIES 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 fiscal year ended June 30, 2004
                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                        COMMISSION FILE NUMBER 000-31779


                    SECURITY INTELLIGENCE TECHNOLOGIES, INC.
              Exact name of registrant as specified in its charter)



               Florida                                 65-0928369
 (State or other jurisdiction of formation)  (IRS Employer Identification No.)



                145 Huguenot Street, New Rochelle, New York 10801
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (914) 654-8700


          (Former name or former address, if changes since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

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

The Registrant's revenues for the fiscal year ended June 30, 2004 were
$3,013,332.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, was
$2,010,401 at September 29, 2004.

The number of shares of common stock $.0001 par value, of the Registrant issued
and outstanding as of September 29, 2004 was 22,413,316.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE
None


                                TABLE OF CONTENTS


                                                                         Page
                                                                        Number


PART I                                                                     3

BUSINESS                                                                   6

PROPERTIES                                                                11

LEGAL PROCEEDINGS                                                         11

SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS                        12

PART II                                                                   12

MARKET FOR RESISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
   MATTERS                                                                12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
   RESULTS OF OPERATIONS                                                  15

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                               20

CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
   ACCOUNTING AND FINANCIAL DISCLOSURE                                    20

CONTROLS AND PRODEDURES                                                   20

OTHER INFORMATION                                                         20

PART III

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
   COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT OF THE REGRISTRANT  20

EXECUTIVE COMPENSATION                                                    23


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT            24

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                            26


                                      -2-
<PAGE>


Forward-Looking Statements

     Statements in this Form 10-KSB report may be "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to, statements that
express our intentions, beliefs, expectations, strategies, predictions or any
other statements relating to our future activities or other future events or
conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by
management. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may, and probably will, differ materially
from what is expressed or forecasted in the forward-looking statements due to
numerous factors, including those described above and those risks discussed from
time to time in this Form 10-KSB report, including the risks described under
"Risk Factors" and Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in other documents which we file with the
Securities and Exchange Commission. In addition, such statements could be
affected by risks and uncertainties related to our financial condition, factors
which affect the security industry, market and customer acceptance, competition,
government regulations and requirements and pricing, as well as general industry
and market conditions and growth rates, and general economic conditions. Any
forward-looking statements speak only as of the date on which they are made, and
we do not undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this Form 10-KSB.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

     We design, assemble, market and sell security products. Our products and
services are used throughout the world by military, law enforcement and security
personnel in the public and private sectors. Our clients include governmental
agencies, multinational corporations and non-governmental organizations. Our
products include a broad range of professional, branded law enforcement and
consumer equipment such as covert audio and video intercept, electronic
countermeasures, video, photo, and optical systems, radio communication,
explosive contraband detection, armored vehicles and clothing, nuclear,
biological and chemical masks and protective clothing, voice stress analysis lie
detection, and global positioning systems ("GPS"), used for tracking, locating
and recovering vehicles and fleet management.

     Our products are marketed under Security Intelligence Technologies, Inc.
("SIT"), Homeland Security Strategies, Inc. ("HSS"), CCS International, Ltd.
("CCS"), G-Com Technologies and The Counter Spy Shops of Mayfair, London(R)
brand names and are sold primarily through a worldwide network of sales agents,
including four sales office in the United States, one sales office in Hong Kong
and one retail store/service center in London.

     Our trained, multilingual and experienced security personnel work closely
with clients to create and implement solutions to complex security problems.
These services include security planning, advice and management, security
systems integration, intellectual property asset protection, due diligence
investigations and training programs in counterintelligence, counter
surveillance, and ballistics.

     During fiscal 2004, we entered into an exclusive distribution agreement
with a European company that develops manufacturers and markets products
designed to monitor, intercept and jam radio frequency signals and other
electronic devices. The agreement grants us the exclusive worldwide marketing
rights to its products except in the country it is domiciled. As of June 30,
2004 we had taken orders for $555,000 of their products. We anticipate delivery
of these orders during the fourth quarter of 2004.

     We are a Florida corporation organized under the name Hipstyle.com, Inc. in
June 1999. In April 2002, in a transaction characterized as a reverse merger,
CCS International, Ltd. ("CCS") was acquired by us and our corporate name was
changed to Security Intelligence Technologies, Inc. The transaction by which we
acquired the stock of CCS is referred to in this Form 10-KSB as the "reverse
merger". From and after April 17, 2002, our business was the business conducted
by CCS prior to the reverse merger.

                                      -3-
<PAGE>


     Our principal executive offices are located at 145 Huguenot Street, New
Rochelle, New York 10801, telephone (914) 654-8700. Our website is
www.spyzone.com. Neither the information nor other statements contained in our
website nor the information contained in any other Internet website is a part of
this annual report on Form 10-KSB.

RISK FACTORS

     We require significant working capital in order to fund our operations.
     -----------------------------------------------------------------------
At June 30, 2004, we had cash of $172,621 and a working capital deficit in
excess of $7.4 million and for the fiscal year ended June 30, 2004, our
operations generated a negative cash flow of $855,000. In order to pay our
current obligations and develop and market our products, we require significant
additional working capital. We have incurred losses in the past, our losses are
continuing and we continue to generate negative cash flow from operations. As a
result, our working capital deficiency is increasing. In the event that we are
unable to raise the necessary funding we may be unable to continue operations
and it may be necessary to seek protection under the Bankruptcy Code.

     Our increasing current liabilities reflect our inability to pay creditors
     -------------------------------------------------------------------------
currently.
----------
We have used our customer deposits to pay creditors and finance our operations.
If our vendors do not extend us necessary credit we may not be able to fill
current or new orders, which may affect the willingness of our clients to
continue to place orders with us or to make advance payments to us. Our
inability to obtain advance payments from customers will impair our ability to
obtain components necessary to make products, which, in turn, may necessitate a
cessation of business. Further, if one or more of our creditors or customers
obtain significant judgments against us and seeks to enforce the judgments, our
ability to continue in business would be impaired and it may be necessary for us
to seek protection under the Bankruptcy Code.

     We have no commercial credit availability.
     ------------------------------------------
Except for a $500,000 credit facility provided by a group of private investors,
we do not have any credit facility. The loans under the credit facility, which
are convertible into common stock, are due on June 30, 2005. Unless we can
obtain either equity financing or a substitute lender prior to June 30, 2005, we
do not believe that we will have the resources to pay the lenders. We do not
presently have any agreements or understandings with respect to an equity
financing or credit facility, and, in view of our substantial working capital
deficit and continuing losses, we may be unable to raise equity or obtain a
credit facility. If we are not able to pay the loans when they mature, and the
lenders do not covert their loans or grant us an extension, it may be necessary
for us to cease operations and seek protection under the Bankruptcy Code.

     We have been operating at a loss, and our losses are continuing.
     ----------------------------------------------------------------
We sustained losses of $5.0 million, or $.25 per share (basic and diluted), for
the fiscal year ended June 30, 2004, $3.8 million, or $.22 per share (basic and
diluted), for the fiscal year ended June 30, 2003, and our losses are
continuing. We cannot give any assurance that we can or will ever operate
profitably. Our failure to operate profitably is affecting the willingness of
customers to place orders with us and the willingness of our suppliers to
provide us with necessary components.

     Our independent auditors have included an explanatory paragraph in their
     ------------------------------------------------------------------------
report as to our ability to continue as a going concern.
--------------------------------------------------------
As a result of our continuing and significant losses and our working capital
deficiency, our independent auditors have included in their report an
explanatory paragraph as to our ability to continue as a going concern.

     If we do not have access to the most current technology, we may not be able
     ---------------------------------------------------------------------------
to market our products and services.
------------------------------------
The security industry is constantly changing to meet new requirements, which
result from both new threats to government and industry, both from potential
threats to persons and property to industrial and governmental espionage, as
well as general concern about personal and family safety. In order to meet these
needs we will both have to anticipate problems and develop methods or reducing
the potential risk. We rely primarily on the performance and design
characteristics of our products in marketing our products, which requires access
to state-of-the art technology in order to be competitive. Our business could be
adversely affected if we cannot obtain licenses for such updated technology or
develop state-of-the-art technology ourselves. Because of our financial
problems, we are not able to devote any significant effort to research and
development, which could increase our difficulties in making sales of our
products.

                                      -4-
<PAGE>

     Because of our limited resources, we may not be able to develop or
     ------------------------------------------------------------------
implement a successful marketing program.
-----------------------------------------
Our ability to implement an expanded marketing program is dependent upon our
ability to fund the program. If we are not able to obtain necessary financing,
we may be unable to market our products. Furthermore, our financial condition
may inhibit potential customers from purchasing our equipment and our
competitors may use our financial condition in marketing to the same customers.

     We are subject to government regulations, which if violated, could prohibit
     ---------------------------------------------------------------------------
us from conducting a significant portion of our export business and result in
-----------------------------------------------------------------------------
criminal liability.
-------------------
The United States and other governments have strict regulations concerning the
exporting and importing of security devices, which may restrict sales of certain
products to bona fide law enforcement agencies or may restrict the sale of
certain products from the United States. If we violate any of these laws, we may
be subject to civil or criminal prosecutions. If we are charged with any such
violations, regardless of whether we are ultimately cleared, we may be unable to
sell our products. During the fiscal year ended June 30, 2003 we incurred
significant expense and our reputation was impaired as a result of criminal
charges against our employees, including one of our officers, even though the
charges were dismissed.

     Because we are dependent on our management, the loss of key executive
     ---------------------------------------------------------------------
officers could harm our business.
---------------------------------
Our business is largely dependent upon our senior executive officers, Messrs.
Ben Jamil, chief executive officer, Chris R. Decker, chief financial officer,
and Menahem Cohen, vice president. Although we have an employment agreement
with Mr. Jamil, the employment agreement does not guarantee that he will
continue with us. Since we do not have an agreement with Messrs. Decker, and
Cohen, both of these officers has the right to terminate his employment. Our
business may be adversely affected if any of our key management personnel or
other key employees left our employ.

     Because we lack patent or copyright protection, we cannot assure you that
     -------------------------------------------------------------------------
others will not be able to use our proprietary information in competition with
------------------------------------------------------------------------------
us.
---
We have no patent or copyright protection for our proprietary software, and we
rely on non-disclosure agreements with our employees. Since our business is
dependent upon our proprietary products, the unauthorized use or disclosure of
this information could harm our business.

     Major corporations may be able to develop and fund marketing efforts that
     -------------------------------------------------------------------------
could enable them to dominate the market.
-----------------------------------------
Because there are a number of major companies that can both offer security
products to governments and industry and fund a product development and
marketing program, these companies have the financial ability to dominate the
market, to effectively set a standard which may be incompatible with our
technology and to use their financial resources and government and industry
contacts to successfully compete against us in all major markets, regardless of
whether their technology is superior or inferior to ours.

     Our growth may be limited if we cannot make acquisitions. A part of our
     -----------------------------------------------------------------------
growth strategy is to acquire other businesses that are related to our current
------------------------------------------------------------------------------
business.
---------
Such acquisitions may be made with cash or our securities or a combination of
cash and securities. To the extent that we require cash, we may have to borrow
the funds or issue equity. Our stock price and financial condition may adversely
affect our ability to make acquisitions for equity or to raise funds for
acquisitions through the issuance of equity securities. If we fail to make any
acquisitions, our future growth may be limited. Furthermore, because of our
stock price, the issuance of any stock or other equity securities in connection
with any acquisition may result in significant dilution to our stockholders and
may result in a change of control. As of the date of this report we do not have
any agreement or understanding, either formal or informal, as to any
acquisition.

     If we make any acquisitions, they may disrupt or have a negative impact on
     --------------------------------------------------------------------------
our business.
-------------
If we make acquisitions, we could have difficulty integrating the acquired
companies' personnel and operations with our own. In addition, the key personnel
of the acquired business may not be willing to work for us, and our officers may
exercise their rights to terminate their employment with us. We cannot predict
the affect expansion may have on our core business. Regardless of whether we are
successful in making an acquisition, the negotiations could disrupt our ongoing
business, distract our management and employees and increase our expenses.

     We do not anticipate paying dividends on our common stock.
     ----------------------------------------------------------

     The rights of the holders of common stock may be impaired by the potential
     --------------------------------------------------------------------------
issuance of preferred stock.
----------------------------
Our certificate of incorporation gives our board of directors the right to
create new series of preferred stock. As a result, the board of directors may,
without stockholder approval, issue preferred stock with voting, dividend,
conversion, liquidation or other rights which could adversely affect the voting
power and equity interest of the holders of common stock. Preferred stock, which
could be issued with the right to more than one vote per share, could be
utilized as a method of discouraging, delaying or preventing a change of
control. The possible impact on takeover attempts could adversely affect the
price of our common stock. Although we have no present intention to issue any
additional shares of preferred stock or to create any new series of preferred
stock, we may issue such shares in the future.


                                      -5-
<PAGE>

     Shares may be issued pursuant to our stock plans which may affect the
     ---------------------------------------------------------------------
market price of our common stock.
---------------------------------
We may issue stock upon the exercise of options or pursuant to stock grants
covering an aggregate of 2,970,000 shares of common stock pursuant to our stock
incentive plans, including options to purchase 2,609,500 shares which were
outstanding on June 30, 2004. The exercise of these options and the sale of the
underlying shares of common stock and the sale of stock issued pursuant to stock
grants may have an adverse effect upon the price of our stock.

     Because we are subject to the "penny stock" rules, stockholders have
     --------------------------------------------------------------------
difficulty in selling our common stock.
---------------------------------------
Because our stock is traded on the OTC Bulletin Board and our stock price is
very low, our stock is subject to the Securities and Exchange Commission's penny
stock rules, which impose additional sales practice requirements on
broker-dealers that sell our stock to persons other than established customers
and institutional accredited investors. These rules may affect the ability of
broker-dealers to sell our common stock and may affect the ability of our
stockholders to sell any common stock they may own.

     A third party may claim ownership of stock held by our chief executive
     ----------------------------------------------------------------------
officer.
--------
In connection with an agreement between Mr. Ben Jamil and two financial
consultants entered into prior to the April 2002 reverse merger of CCS into us,
the consultants or their designees were to purchase a 30% interest in five of
our subsidiaries, and that 30% was to have been exchanged for 1,500,000 shares
of series B preferred stock. Mr. Jamil has advised the consultants and their
designees that, as a result of their failure to pay the consideration for the
shares, the agreement is terminated and they have no interest in the series B
preferred stock or the stock in the five subsidiaries. It is possible that the
consultants or their designees may claim that they own the series B preferred
stock or the stock in the five subsidiaries and we can give no assurance that
their claim will not be upheld.

     We may not be able to comply in a timely manner with recently enacted
     ---------------------------------------------------------------------
corporate governance provisions.
--------------------------------
Beginning with the enactment of the Sarbanes-Oxley Act of 2002 in July 2002, a
significant number of new corporate governance requirements have been adopted or
proposed. We believe that we currently comply with all of the requirements that
have become effective thus far that relate to companies whose common stock is
not listed in the Nasdaq Stock Market or a registered stock exchange. As a
result of our financial condition and the price of our stock, we may be unable
to attract independent directors or implement certain policies which are
required but which are expensive to implement, including systems relating to
accounting controls. Our failure to be in compliance with applicable securities
laws and regulations could result in our inability to continue to be traded on
the OTC Bulletin Board which in turn would result in increased difficulty for
stockholders to sell their shares.

INDUSTRY OVERVIEW

     Increasingly, governments, including the military, businesses and
individuals have recognized the need for security products and services to
protect them from the risks associated with terrorism, physical attacks, threats
of violence, white-collar crime and fraud.

     The United States has been the target of several deadly terrorist attacks
directed towards its citizens and facilities around the world. As a result,
institutions, including the United States Department of Defense and other
government agencies and multinational corporations are redefining strategies to
protect against and combat terrorism.

     As a company in the security products industry, we market our products in
two markets - the law enforcement security market and the specialized security
services market.


                                      -6-
<PAGE>

     Law Enforcement Security Products Market. In response to an increased
emphasis on safety and protection, the number of active police officers has
increased significantly over the past several years. By 1999 there were more
than 900,000 law enforcement personnel in the United States. We expect an
increase in law enforcement personnel as a partial response to the September 11,
2001, attacks which, we believe, will lead to increased demand for security
products and we are seeking to participate in this demand.

     Specialized Security Services Market. Corporations are increasingly
contracting private companies to handle all or a portion of their security
services. Industry studies reflect a growth rate in the market for worldwide
security services market at 8.0% annually from 1999 to 2003, and we believe that
the market is continuing to grow. We believe that demand by multinational
corporations and governmental agencies for security services such as risk
assessment, crisis management, guard force management, security force
organization and executive protection is likely to increase as these entities
continue to establish operations and manufacturing facilities in developed and
developing countries. In addition, demand for corporate investigative services
continues to grow as businesses react to the need to protect their assets
against the growing threat of white collar crime including fraud, counterfeiting
and piracy of intellectual property.

GROWTH STRATEGY

We believe that the following strengths are critical to our success as a
provider of surveillance and security products, and security risk management
services.

     Broad Portfolio of Products and Services. We believe that a broad range of
products, strong branding, and a distribution network is critical to our success
as a provider of security products and services. We are able to offer a wide
range of security consulting services, equipment, and systems that enable us to
provide comprehensive solutions to our customers' security needs. Our goal is to
strengthen our capabilities as a single source provider of global security
systems and services. Our international infrastructure enables us to assist
government buyers and multinational corporate clients who are responding to
security concerns as they both expand their business into new countries and seek
to provide greater security for their existing facilities and personnel.

     Strong and Recognized Brands. We believe that our brand names are
recognized in our markets and that our market recognition, combined with what we
believe is a high level of performance has contributed to our developing market
positions in a number of the product categories in which we compete.

     We believe that the demand for both security and surveillance products and
security risk management services will continue to grow. We will address this
growth by offering a comprehensive array of premium security risk management
products and services. By establishing a critical mass of products and services
and a broad base of customers, we believe that we have developed the capacity to
perform multiple aspects of our clients' threat analyses and security provisions
on a comprehensive basis. We will continue to seek to implement this growth
strategy primarily through internal expansion of our existing businesses and
through strategic acquisitions of businesses offering complementary services,
markets, and customer bases. However, because of our financial condition and the
low price of our stock, we may not be able to acquire any businesses or
implement our growth strategy.

Products and Services

     We distribute a wide range of specialized products and systems covering
security, privacy, home and personal protection, confidential business
communications, lie detection, cellular phone privacy, drug and bomb contraband
detection, miniaturized covert audio and video surveillance and protection,
digital, the Internet, global systems for mobile communications ("GSM"),
personal communication systems ("PCS"), time division mobile access ("TDMA") and
code division multiple access ("CDMA") satellite technologies and wireless
communications.

                                      -7-
<PAGE>

Products

         We offer the following products:

         -        Covert audio and video logging systems to monitor employees
                  and household surveillance.
         -        Scramblers, data and fax transmission systems to protect and
                  secure communications.
         -        Fax managers that log the activities of outgoing and incoming
                  faxes.
         -        Armored and bulletproof clothing and automobiles.
         -        Counter-surveillance, wiretap detection and electronic
                  counter-measures.
         -        Night vision, electro-optic devices and infrared scopes and
                  cameras.
         -        Anti-hacking and secure remote computing to protect computer
                  networks.
         -        Bomb and weapons and other contraband detection for airport
                  security, business, and home.
         -        Personal Protection Products.
         -        Voice stress analyzers and lie detection to evaluate the
                  honesty of employees or vendors
         -        Tracking and recovery and fleet management systems.
         -        Cellular telephone tracking systems for 911 emergency
                  programs.
         -        Communication jamming systems.

     We develop and market integrated systems for the surveillance of global
system for mobile communications and other communications. With the recent
developments in communication technologies, there are numerous fundamental
systems underlying digital wireless communications throughout the world.
Intelligence professionals require the ability to monitor, intercept and block
various global systems for mobile communications, personal communication systems
and other systems using a variety of communications access and monitoring
systems. Our customers for our integrated systems for the surveillance of global
systems for mobile communications usually request us to custom design a system
to meet their communications surveillance requirements and are based on
extensive engineering studies of the existing communications systems in each
customer's country, along with an in-depth analysis of the various individual
needs of the customer. Examples of our global systems for mobile communications
intercept systems are the GSM 2060, a passive off-the-air intercept system which
allows a user to target a specific cellular transmission and listen to both
incoming and outgoing conversations and the GSM 4000, which was designed for an
international west European security group and is a multi-channel monitoring
system capable of intercepting various band transmissions simultaneously, while
recording multiple conversations.

     In addition to our integrated systems for the surveillance of global system
for mobile communications, we have developed and we market cellular interception
for operation on analog advanced mobile phone systems, digital advanced mobile
phone system, and time division multiple access systems, as well as various
other equipment for wireless and hard-wired communications surveillance for
voice, fax and data.

     We offer radio communication; monitoring and radio frequency jamming
equipment designed to combat terrorist activation of bombs utilizing radio
controlled incendiary devices ("RCIED's"). These products include a system built
into a briefcase for VIP personal protection, and vehicle mounted systems for
military use. These systems have multiple bands and operate by creating an
intensive electromagnetic field that saturates the airwaves thereby disabling
the operation of a RCIED.

     We offer a configurable emergency rescue, theft recovery, fleet management
or freight management system. Our system uses the well-known global positioning
system ("GPS") satellite tracking system which can combine with an optional
sophisticated location prediction algorithm software package that takes over
position reporting functions whenever the vehicle enters a dead satellite access
zone. This unique and rugged system supplies real time position and status
information from the customer's location to one of several possible call center
configurations. The call center can track the location of a customer's vehicle
and has features to report theft, breakdowns, and rescue requests. Optional
configurations allow the end user to perform an analysis of driver's
performance, manage public transportation line routes, perform automated fleet
and freight management for commercial trucking, and dispatch police, ambulance,
and taxicabs.

Services

     We offer comprehensive security training programs in counterintelligence
and counter-surveillance in Miami, New York, London and Hong Kong. This
training, offered to United States government agencies, friendly nations, and
clients in the private sector in the United States and in foreign countries,
includes methods of recognizing, deterring, and minimizing security risks. We
have conducted seminars for intelligence personnel, crime fighting associations
and their associated membership societies, from CIA to FBI to United States
Customs, United States Coast Guard, military branches, police departments from
New York City's strategic command to police chiefs from innumerable cities and
towns across the country.


                                      -8-
<PAGE>


     We offer the design, integration, application analysis and technical
support of sophisticated electronic and computer driven surveillance,
monitoring, tracking and recovery and secure communication equipment. We offer
site surveys and security solutions that include consultations and law
enforcement training by experienced security personnel who act as advisors and
instructors. Our consultants oversee in-country installations and train the
client's personnel in the installation, use and maintenance of their security
equipment. These clients are from the corporate world as well as governmental,
public and private agencies.

Marketing and Distribution

     We have a network of sales representatives and international distributors
who sell and service our law enforcement equipment. Our distributors and we
currently operate in a number of countries and serve a client base representing
governmental and non-governmental agencies as well as multinational corporations
worldwide. However, during the past year we have been in litigation with three
of our distributors. See "Item 3. Legal Proceedings".

     When first entering a foreign market, we seek to promote a comprehensive
range of products and services by seeking qualified sales representatives with
local ties and existing relationships within the country's business and
governmental communities. We try to tailor our marketing strategy to each
geographic area of the world, and further to tailor our product offering by
country. There are opportunities for cross marketing of military and law
enforcement products, which strengthen the image of each product group and
further enhance our position as an integrated provider of a wide selection of
such products and services.

     We employ a variety of marketing programs in support of our reseller's
channels to make our target markets aware of the value of our integrated systems
and technology and to help create pre-sales demand for our resellers. These
programs include trade shows, advertising campaigns, seminars, direct mailings,
brochures and other promotional efforts designed to generate sales leads.
Training programs are an integral part of our customer service. In addition to
enhancing customer satisfaction, we believe that they also help breed customer
loyalty and brand awareness, so that we may sell additional products to the same
customer. We also use our website to generate brand awareness. However, because
of our limited resources, we have reduced our advertising and promotional
expense.

Joint Venture Agreements

     We are a party to three joint venture agreements with technology companies.
In connection with these agreements we and our joint venture partner formed new
entities whose ownership and share of operating results are equally owned. The
joint venture agreements grant the new entities exclusive marketing rights to
the joint venture partner's products, except in the countries the joint venture
partners are domiciled.

Product Design and Installation

     Our engineering staff is involved in both developing new systems made
possible by the advances in technology and continually improving the production
process and reducing the cost of the products.

     We generally provide installation services for the more sophisticated
integrated systems for the surveillance of global systems for mobile
communications systems. Installation phases may include site surveys,
identification of central command site location, supervision of the installation
of site interfaces, and training personnel to manage systems. We generally
provide warranty maintenance and support services for the first three to twelve
months following installation of a system, depending on the terms of each
particular contract. Thereafter, long-term service is provided on a
service-contract basis.


                                      -9-
<PAGE>


     We assemble our products from components that are readily available from a
number of suppliers. We do not have any long-term supply contracts.

Competition

     The security industry includes companies that offer a range of products and
services, such as access control, personnel protection, surveillance,
counter-surveillance, computer security, vehicular security, night vision, fiber
optics and communications. In order to meet the needs of a prospective customer,
we believe that it is necessary to offer integrated solutions across industry
lines rather than to offer a range of devices. There are a large number of
companies who offer products or services aimed at one or more segments of the
security industry, and new technologies are being developed by both new
companies and major companies. However, we believe that as the severity of the
problem or potential problem increases governments and major corporations,
including financial institutions, are less concerned with the price of the
products than with such factors as:

-     The perceived ability of the vendor to treat the identity of the client,
the scope of the work and the solution in confidence.

-     The ability of the vendor to offer an integrated approach that seeks to
address the problem by offering a wide range of products and services rather
than to offer solutions based on a small range of products and services.

-     On the other hand, major clients are concerned about the financial
condition of the vendor, and our financial condition, including our significant
working capital deficiency and our history of losses, raise questions as to our
ability to perform under the purchase order and to provide the necessary support
following delivery. Competitors have used and may continue to use our financial
condition and their stronger financial condition, resources and relationships in
marketing their products and services regardless of whether their products and
services are better than ours. As discussed below, many of our competitors are
substantially stronger than we are financially and are very well known in the
industry and have significant government and industry contacts and
relationships.

     The marketplace for manufacturers and vendors for security and surveillance
products and systems is highly competitive and consists of numerous
organizations ranging from internet-based mail-order firms to military armament
manufacturers such as, Lockheed Martin, and Harris. Other aerospace
manufacturers have rushed into the arena of bomb detection and other explosive
ordinance disposal ("EOD") products. The security marketplace continues to favor
the more established and reliable manufacturers such as Nice (Israel) and
Thompson C.S.F. now a part of Thales Group (France) with proven technology.
Siemens (Germany), and Rohde & Schwartz (Germany), are manufacturers of
"simulated" base stations.

     Currently there is growing competition in the cellular interception and
monitoring systems market. Although many competitors have greater financial,
technical and other resources, we believe that at present our technology gives
us a competitive advantage, although because of our financial condition and
continuing losses, we are having difficulty competing in this market. In all of
these areas, the major corporations have the ability to develop competitive
products and fund a marketing effort that enable them to compete successfully
against us regardless of whether their products are superior.

Research and Development

     Because of our financial condition our research and development effort has
been limited to the development of certain new products and improvement of
existing products. Because of our working capital limitations, we have not been
able to expand our research and development effort. During the past two years we
did not expend any significant amount on research and development activities.


                                      -10-
<PAGE>

Intellectual Property Rights

     We have no patents or copyrights on our products, and we rely on
non-disclosure agreements with our employees. Since our business is dependent
upon our proprietary products, the unauthorized use or disclosure of this
information could harm our business. We currently own a number of United States
trademark registrations.

Government Regulation

     The United States and other governments have strict regulations concerning
the exporting and importing of certain security devices that may restrict sales
of certain products to bona fide law enforcement agencies or may restrict the
sale of products in or from the United States. We are subject to federal
licensing requirements with respect to the sale in foreign countries of certain
of our products. In addition, we are subject to a variety of federal, state,
local and foreign regulations that govern our operations and the workplace. We
are also subject to certain regulations promulgated by, among others, the United
States Departments of Commerce and State.

Employees

     As of September 29, 2004, we had a total of approximately 30 employees, of
whom 18 were employed at our main office and 12 were employed at our sales
offices or service center. None of our employees are represented by unions or
covered by any collective bargaining agreements. We have not experienced any
work stoppages or employee related slowdowns and believe our relationship with
our employees is good.

Item 2.  PROPERTIES

     We lease approximately 9,840 square feet of executive offices and warehouse
space at 145 Hugeunot Street, New Rochelle, NY 10801 under a lease that expires
on October 31, 2010. The annual rent is approximately $125,000, and is subject
to annual increases. We also lease approximately 9,000 square feet for five of
our sales offices and one retail/service center locations in Miami, Florida, New
York City, Washington, DC Beverly Hills, CA, London, England, and Hong Kong
under leases that expire from 2004 to 2010 at a current annual rent of $428,000
, subject to annual increases. We believe that our present facilities are
adequate to meet our immediate requirements and that any additional space we may
require will be available on reasonable terms.

Item 3.  LEGAL PROCEEDINGS

     Because of our financial position, actions have been commenced or
threatened by creditors. Currently we are defending lawsuits for the collection
of approximately $894,000 and have been unable to satisfy approximately $167,000
of judgments previously rendered in actions by creditors.

     In June 1998, a photographer and model formerly retained by CCS filed suit
in U. S. District Court for the Southern District of New York captioned Ross &
Vassilkioti v. CCS International, Ltd. seeking damages for alleged copyright
infringement and other claims. The judge in the case has granted the plaintiff
partial summary judgment as to the copyright infringement. On June 18, 2003, a
jury awarded the plaintiffs $350,000 on the copyright infringement portion of
the case. Under federal judicial rules, the Company is unable to contest the
granting of partial summary judgment until a final judgment has been rendered.
The Company reached a settlement on May 7, 2004 with the plaintiffs for $600,000
payable with 550,459 shares of the Company's common stock. The agreement
stipulates the shares will be valued at their average closing price for the 30
days beginning July 7, 2005 and ending August 5, 2005. CCS has guaranteed that
the value of the shares will be at least $300,000 and is responsible for the
amount that $300,000 exceeds the value of the shares. Ben Jamil, our chief
executive officer and principal stockholder has guaranteed that the value of the
shares will be at least $150,000.

     On November 1, 2002, a former Company supplier filed suit in the United
States District Court for the District of Maryland, captioned Micronel Safety,
Inc. v. CCS International Ltd. seeking damages of $242,400 for breach of
contract to purchase certain products. CCS has denied the material allegations
of the plaintiff's claim and has raised affirmative defenses thereto. In August
2004, Micronel Safety, Inc. found another buyer for the products and on August
16, 2004 the case was dismissed.


                                      -11-
<PAGE>

     On or about March 13, 2003, an action was commenced against CCS and its
subsidiary in the Circuit Court of the 11th Judicial Circuit, Miami-Dade County,
Florida captioned Welcome Publishing Company, Inc. v. CCS International, Ltd.
and Counter Spy Shop of Mayfair Ltd., Inc. seeking damages of $140,430 for an
alleged breach of an advertising contract. CCS has denied the material
allegations of the plaintiff's claim and has raised affirmative defenses
thereto. The Company believes that it has valid defenses to the claim. The case
appears to be going to trial however, a trial date has not been set.

The Company is also the defendant in three actions arising out of
distributor agreements. On or about May 11, 2000 an action was commenced against
CCS in the Supreme Court, New York County, captioned Ergonomic Systems
Philippines Inc. v. CCS International Ltd. The plaintiff seeks to recover
$81,000, which was paid to CCS in connection with a distributorship agreement
between the parties, plus costs and interest. CCS has denied the material
allegations of the claim and has raised affirmative defenses thereto. On August
3, 2004, the Court granted the plaintiff's claim which, together with accrued
interest, totaled $120,223. The Company believes that it has a valid basis for
appeal of the court's verdict, but it can give no assurance the court verdict
will not be upheld.

     On or about October 12, 2001, an action was commenced against CCS in the
United States District Court for the Southern District of New York, captioned
China Bohai Group Co., Ltd. and USA International Business Connections Corp. v.
CCS International, Ltd. The plaintiff seeks to recover $250,000 paid to CCS in
connection with a distributorship agreement between the parties, plus $5,000,000
of punitive damages and costs and interest. CCS has denied the material
allegations of the plaintiff's claim and has raised affirmative defenses
thereto. CCS has asserted a counterclaim seeking damages in the approximate
amount of $1,150,000 based upon the plaintiff's alleged breach of the parties'
distributorship agreement. The Company believes that it has valid defenses to
the claim.

     On December 3, 2002 EHS Elektronik Sistemleri submitted a demand for
arbitration to the American Arbitration Association in New York City claiming
CCS breached a joint venture agreement it had entered into with CCS in 1994 and
seeking a refund of the $200,000 it had paid to CCS. On March 4, 2004 the
arbitrator awarded the plaintiff's claim which, together with accrued interest,
totaled $223,620. The Company believes that it has a valid basis for appeal of
the arbitrator's award but it can give no assurance the American Arbitration
Association will not uphold the award.

     On July 1, 2002, the Company's London subsidiary, Homeland Security
Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair Limited) ("HSS of
UK"), entered into an agreement to assume the business operations of another
United Kingdom corporation ("Predecessor") for nominal consideration. The
Predecessor is a defendant in ongoing litigation brought by a former customer,
who has sued for breach of a contract executed in 1998 and is seeking a refund
of approximately $293,000 in products and services purchased from the
Predecessor. Due to the business transfer, there is a possibility that the
plaintiff could name HSS of UK as a defendant in the case. The Company, in
consultation with counsel, believes that the Predecessor has valid defenses to
the claim, and that HSS of UK has valid defenses against any action that may be
brought against it.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

Not applicable.


                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Our common stock is traded on the OTC Bulletin Board under the symbol SITG.
The following table sets forth the range of high and low bid quotations for our
common stock from July 1, 2002 until June 30, 2004, as reported by the OTC
Bulletin Board.


                                      -12-
<PAGE>


     The quotes represent inter-dealer prices without adjustment or mark-ups,
markdowns or commissions and may not necessarily represent actual transactions.
The trading volume of our securities fluctuates and may be limited during
certain periods. As a result, the liquidity of an investment in the Company's
securities may be adversely affected. Because of our stock price, our common
stock is subject to the SEC's penny stock rules, which adversely affects the
ability of persons to purchase or sell our stock.


<TABLE>
<CAPTION>

                                                     COMMON STOCK

                           High          Low                             High         Low
                       ------------- -------------                    ----------  ----------
      Fiscal 2004                                      Fiscal 2003
---------------------                             -------------------
<S>                    <C>          <C>           <C>                  <C>          <C>
Quarter ended                                     Quarter ended
September 30, 2003         $ 0.70        $ 0.70   September 30, 2002     $ 0.17      $ 0.15

Quarter ended                                     Quarter ended
December 31, 2003          $ 0.40        $ 0.35   December 31, 2002      $ 0.18      $ 0.16

Quarter ended                                     Quarter ended
March 31, 2004             $ 0.80        $ 0.65   March 31, 2003         $ 0.07      $ 0.04

Quarter ended                                     Quarter ended
June 30, 2004              $ 0.80        $ 0.66   June 30, 2003          $ 0.12      $ 0.10
</TABLE>



     On September 29, 2004, the last quoted price by the OTC Bulletin Board was
$.30 per share of common stock.

     As of September 29, 2004 there were 22,413,316 shares of Common Stock
outstanding, held of record by approximately 584 record holders and beneficial
owners.


     The following table sets forth information as to equity compensation plans
pursuant to which we may issue our equity securities.

<TABLE>
<CAPTION>
                                                                                                Number of securities
                                                                                                remaining available for
                                                                         Weighted average       future issuance under
                                            Number of securities to be   exercise price of      equity compensation plans
                                            issued upon exercise of      outstanding options,   (excluding securities
                                            outstanding options,         warrants and rights    reflects in columns (a))
                                            warrants and rights          (b)                    (c)
                                            (a)
------------------------------------------- ---------------------------- ---------------------- -------------------------
<S>                                         <C>                          <C>                    <C>
Equity compensation plans approved by
security holders                                             -0-                    N.A.                      -0-
------------------------------------------- ---------------------------- ---------------------- -------------------------
Equity compensation plans not approved by
security holders                                      3,970,000                    $.84                     89,500
------------------------------------------- ---------------------------- ---------------------- -------------------------
         Total                                        3,970,000                    $.84                     89,500
------------------------------------------- ---------------------------- ---------------------- -------------------------
</TABLE>


     As of January 21, 2002, our board of directors adopted the 2002 Stock Plan,
which provided for the grant of non-qualified stock options to purchase a
maximum of 2,000,000 shares of common stock to directors, employees, officers,
agents, consultants and independent contractors who perform services for the
Company. As of June 30, 2004, 1,959,500 options to purchase shares of common
stock have been issued and are outstanding under this plan.

                                      -13-
<PAGE>


     On April 17, 2002 we granted a non-qualified stock option to Mr. Ben Jamil,
chief executive officer and a director, to purchase 1,000,000 shares of common
stock at $2.00 per share. Mr. Jamil's employment agreement is described under
"Item 10. Executive Compensation."

     As of July 3, 2003 our board of directors adopted the 2003 Stock Incentive
Plan (the "2003 Plan") which provided for the grant of non-qualified stock
options to purchase a maximum of 320,000 shares of common stock or the grant of
shares to directors, employees, officers, agents, consultants and independent
contractors who perform services for the Company. As of June 30, 2004, 236,000
shares have been issued to consultants and 35,000 shares have been issued to an
officer for services rendered.

     As of January 23, 2004 our board of directors adopted the 2004 Stock
Incentive Plan (the "2004 Plan") which provided for the grant of non-qualified
stock options to purchase a maximum of 650,000 shares of common stock or the
grant of shares to directors, employees, officers, agents, consultants and
independent contractors who perform services for the Company. As of June 30,
2004, 650,000 options to purchase shares of common stock have been issued and
are outstanding under this plan.

     During the fiscal year ended June 30, 2004, we issued the following
securities exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. No underwriting or other
compensation was paid in connection with these transactions:

     We issued 16,468 shares of common stock to an officer and an employee in
payment of accrued compensation totaling $7,000.

     We issued 167,500 shares of common stock to consultants in payment of
consulting fees of $99,625.

     On May 7, 2004, we issued 550,459 shares of common stock to Frank Ross and
Juliett Vassilkioti, pursuant to a settlement agreement. See "Item 3. Legal
Proceedings." The settlement agreement provides that the shares will be valued
at their average closing price for the 30 days beginning July 7, 2005 and ending
August 5, 2005. CCS has guaranteed that the value of the shares at that time
will be at least $300,000 and is responsible for the amount that $300,000
exceeds that value. Ben Jamil, our chief executive officer and principal
stockholder has guaranteed that the shares will have a value of at least
$150,000. At September 29, 2004 the value of the shares based upon the closing
price of our common stock was $165,138.

     We issued 100,000 shares of common stock to creditors in full settlement,
subject to certain terms, of $37,000 of accounts payable. If the proceeds from
the sale of the common stock when the creditors sell the shares is less than
$37,000, we are to pay the creditors the difference between $37,000 and the
proceeds received from the sale of the shares. At September 29, 2004 the value
of the shares based upon the closing price of our common stock was $30,000.

     We sold 1,190,000 shares of common stock and issued warrants to purchase
500,000 shares of common stock for $154,000, including 1,000,000 shares of
common stock and warrants to purchase 500,000 shares of common stock at an
exercise price of $.15 per share sold to Jason S. Lyons for $135,000 and 180,000
shares of common stock sold to GSM Communications, Inc. for $18,000. The
warrants vest immediately, have cashless exercise rights and a life of three
years. These options and warrants were valued at $268,624 using the
Black-Scholes option-pricing model and were expensed during the year ended June
30, 2004. In addition we have expensed $611,500 representing the difference
between the market value and the actual price paid for the 1,190,000 shares of
common stock.

During the year ended June 30, 2004 we registered 2,920,000 shares of
common stock and issued the following shares:

     In July 2003, we formalized consulting contracts with Michael D. Farkas,
Jason S. Lyons and an additional financial consultant relating to acquisition
services, financial public relations and operational performance services. In
connection therewith we granted immediately exercisable options to purchase a
total of 2,600,000 shares of common stock of which 1,700,000 options were
granted to Michael Farkas, and options to purchase 400,000 shares were granted
to Jason S. Lyon. The exercise price ranged from $.10 per share to $.50 per
share. As of June 30, 2004 the consultants had exercised options to purchase
2,600,000 shares of common stock, for a total of $659,000. Of these options,
options to purchase 1,700,000 shares were exercised by Michael D. Farkas for
$400,000, and options to purchase 400,000 shares were exercised by Jason S.
Lyons for $140,000. These options were valued at $405,727 using the
Black-Scholes option-pricing model and were expensed during the year ended June
30, 2004.


                                      -14-
<PAGE>

     We issued 136,000 shares of common stock to consultants in full settlement,
subject to certain terms, of $52,050 of payables. If the proceeds from the sale
of the common stock when the creditors sell the shares is less than $52,050, we
are to pay the creditors the difference between $52,050 and the proceeds
received from the sale of the shares. At September 29, 2004 the value of the
shares based of closing price of the Company's common stock was $40,800.

     We issued 35,000 shares of common stock to an officer in payment of accrued
compensation totaling $7,000.

     We issued 100,000 shares of common stock to consultants in payment of
consulting fees of $39,456.

     No underwriting or other compensation was paid in connection with these
transactions.

     On June 10, 2004 we entered into a convertible credit agreement with
private investors, including Michael D. Farkas, Ostonian Securities Limited,
Kesef Equity Group, Inc., and GSM Communications, Inc. that provides for the
Company to borrow up to $500,000 upon the attainment of certain performance
criteria prior to September 15, 2004. At June 30, 2004 the Company had borrowed
$200,000 under this agreement and borrowed an additional $300,000 during the
first quarter of fiscal 2005. The notes are convertible, at the note holder's
option, into the Company's common stock, at $.10 per share.

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

GENERAL OVERVIEW.

     The following discussion should be read in conjunction with the financial
statements and notes thereto of the Company. Such financial statements and
information have been prepared to reflect the Company's financial position as of
June 30, 2004. Historical results and trends should not be taken as indicative
of future operations. Management's statements contained in this report that are
not historical facts but are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may differ
materially from those included in the forward-looking statements. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
complying with those safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," "prospects"
or similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain.

     We are operating under a heavy financial burden as reflected in our
substantial working capital deficiency and our continuing losses and negative
cash flow from operations. We have sought to address these problems during
fiscal 2004 by closing three of our retail operations and converting two of them
to sales offices with lower operating costs, and entering into a credit
agreement with an investor group pursuant to which we had borrowed $200,000 at
June 30, 2004. We borrowed the remaining $300,000 during the first quarter of
fiscal 2005. The $500,000 is due in June 2005, and we may not have the funds to
repay the loans at that time.

     Our working capital deficiency has made it difficult for us to attract new
business and maintain relations with our customers and suppliers. Other than our
credit agreement and loans from our chief executive officer, our main source of
funds has been our customer deposits which we use for our operations.


                                      -15-
<PAGE>


     If we are unable to increase our sales and pay our note holders and other
creditors, it may be necessary for us to cease business and seek protection
under the Bankruptcy Code.


Critical accounting policies

     The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. Preparing
financial statements in accordance with generally accepted accounting principles
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The following paragraphs
include a discussion of some of the significant accounting policies and methods
applied to the preparation of the Company's consolidated financial statements.
See Note 1 of Notes to Consolidated Financial Statements for further discussion
of significant accounting policies.

Use of estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the combined financial statements, and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.

Inventories

     Inventories are valued at the lower of cost (first-in, first-out) or
market.

Revenue recognition

     The Company recognizes revenue from sales upon the delivery of merchandise
to a customer. Non-refundable advance payments received under marketing and
distribution arrangements are deferred and either applied as payments towards
customer purchases made pursuant to the terms of the respective agreements, or
recognized as income at the termination of the agreement if specified purchase
quotas have not been met by the customer. Customer deposits are initially
recorded as liabilities and recognized as revenue when the related goods are
shipped.

Stock-based Compensation

     The Company periodically grants stock options to employees in accordance
with the provisions of its stock option plans, with the exercise price of the
stock options being set at the closing market price of the common stock on the
date of grant. The Company accounts for stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and accordingly accounts for employee stock-based compensation
utilizing the intrinsic value method. FAS No. 123, "Accounting for Stock-Based
Compensation", establishes a fair value based method of accounting for
stock-based compensation plans. The Company has adopted the disclosure only
alternative under FAS No. 123, which requires disclosure of the proforma effects
on earnings and earnings per share as if FAS No. 123 had been adopted as well as
certain other information. Stock options granted to non-employees are recorded
at their fair value, as determined in accordance with SFAS No. 123 and Emerging
Issues Task Force Consensus No. 96-18, and recognized over the related service
period. Deferred charges for options granted to non-employees are periodically
re-measured until the options vest.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation. Although it does not require use of the
fair value method of accounting for stock-based employee compensation, it does
provide alternative methods of transition. It also amends the disclosure
provisions of SFAS No.123 and APB No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. SFAS No. 148's amendment of the transition and annual
disclosure requirements is effective for fiscal years ending after December 15,
2002. The amendment of disclosure requirements of APB No. 28 is effective for
interim periods beginning after December 15, 2002. We adopted SFAS No. 148 and
APB No.28 on January 1, 2003.


                                      -16-
<PAGE>

Income taxes

     The Company uses the liability method to determine its income tax expense.
Under this method, deferred tax assets and liabilities are computed based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted rates and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that all or some portion of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax asset depends on
the Company's ability to generate sufficient taxable income in the future.
Because of our losses we did not incur any income tax expense during fiscal 2004
or 2003. Financial guarantees

     Certain shares issued by the Company to settle debt obligations contain a
price guarantee that requires the Company to settle in cash any difference
between the original face amount of the debt and proceeds from the creditor's
subsequent sale of the shares. The Company accounts for these transactions by
recording the debt at fair value with periodic mark-to-market adjustments until
the guarantee is settled. Unrealized gains or losses resulting from changes in
fair value are included in earnings and accrued expenses.

Fair Value of Financial Instruments

     The fair values of financial instruments recorded on the balance sheet are
not significantly different from their carrying amounts due to the short-term
nature of those instruments, or because they are accounted for at fair value.

New Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The adoption of this Interpretation did not
have a material effect on our consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which requires
mandatory redeemable financial instruments to be classified as liabilities, the
result of which requires related expense to be classified as interest expense
rather than minority interest on a prospective basis. SFAS No. 150 is effective
in the three months ended June 30, 2003 for financial instruments entered into
or modified after May 31, 2003, and is otherwise effective July 1, 2003 for
previously issued instruments. SFAS No. 150 is not expected to have a material
impact on our financial position or results of operations.

Joint Venture Agreements

     We are party to three joint venture agreements with technology companies.
In connection with these agreements we and our joint venture partner formed new
entities whose ownership and share of operating results are equally owned. The
joint venture agreements grant the new entities exclusive marketing rights to
the joint venture partner's products, except in the countries in which the joint
venture partners are domiciled. We account for investments in the joint ventures
using the equity method because our ownership is greater than 20% and we have
the ability to exercise significant influence over the operating, investing and
financing decisions of the joint venture entities. Under the equity method, we
will record our share of joint venture income or losses and adjust the basis of
its investment accordingly. As of June 30, 2004, the joint ventures have not
generated any revenues or other significant business activity.

                                      -17-
<PAGE>

Foreign Currency Translation

     The functional currency of our United Kingdom subsidiary is the local
currency. Accordingly, we translate all assets and liabilities into U.S. dollars
at current rates. Revenues, costs, and expenses are translated at average rates
during each reporting period. Gains and losses resulting from the translation of
the consolidated financial statements are excluded from results of operations
and are reflected as a translation adjustment and a separate component of
stockholders' deficit. Translation adjustments were $17,595 as of June 30, 2004
and were immaterial as of June 30, 2003. Gains and losses resulting from foreign
currency transactions are recognized in the consolidated statement of operations
in the period they occur.


RESULTS OF OPERATIONS - Year Ended June 30, 2004 and Year ended June 30, 2003.

Revenues. Revenues for the year ended June 30, 2004 ("fiscal 2004") were
$3,013,332 a decrease of $715,833 or 19.2%, from revenues of $3,729,165 for the
year ended June 30, 2003 ("fiscal 2003"). During fiscal 2004, we closed our
retail stores in New York, Beverly Hills and Washington, DC and converted our
operations in Beverly Hills and Washington, DC from retail stores to sales
offices. These closures resulted in a decrease of approximately $1.4 million
from these three locations, representing a 60.7% decline is sales from
approximately $2.3 million in fiscal 2003 to approximately $900,000 in fiscal
2004. These decreases were offset by increased sales from our operations in New
Rochelle, New York and London.

Cost of Sales. Cost of sales decreased by $424,065 or 23.2%, to $1,402,980
in fiscal 2004 from 1,827,045 in fiscal 2003. Cost of sales as a percentage of
product sales decreased to 46.6% in fiscal 2004 from 49.0% in fiscal 2003
reflecting an improvement in product mix.

Compensation and benefits. Compensation and benefits decreased by $314,778,
or 12.4% to $2,227,767 in fiscal 2004 from $2,542,545 in fiscal 2003 primarily
due to (i) a reduction in expense in our New York retail store that we closed on
January 31, 2004 of $125,186, and (ii) decreases in our Beverly Hills and
Washington DC operations where we converted from retail stores to sales offices
and reduced these expenses by $179,962.

Professional fees and legal matters. Professional fees and legal matters
decreased by $3,045, or .3% to $933,576 in fiscal 2004 from $936,621 in fiscal
2003. Based on a review of outstanding legal matters and unpaid settlements, we
have established, in consultation with outside counsel, reserves for litigation
costs that are probable and can be reasonable estimated. We can provide no
assurance, however, that such reserves will be sufficient to absorb actual
losses that may result from unfavorable outcomes. Moreover, it is possible that
the resolution of litigation contingencies will have a material adverse impact
on our consolidated financial condition, results of operations, and cash flows.
Because of our financial position, we are subject to claims, which may result in
litigation from our creditors. As a result we expect that we will continue to
incur attorney's fees and the use of management resources to defend these claims
and litigation.

Stock based compensation. Stock based compensation is attributable to the
grant of options and warrants to consultants and common stock which we sold to
consultants at a discount from the market price. Options and warrants granted to
consultants were valued at $990,358 using the Black-Scholes option-pricing model
and were expensed during fiscal 2004. Comparable expense in fiscal 2003 was
$5,301. Expense related to sales of common stock to consultants at discounts
from market was $618,500 in fiscal 2004. There were no similar transactions in
fiscal 2003.

Selling, general and administrative expenses. Selling, general and
administrative decreased by $154,803, or 8.1% to $1,743,625 in fiscal 2004 from
$1,910,546 in fiscal 2003. The decrease was primarily due to (i) a decrease in
rent expense of $187,488, or 29.8% to $441,288 in fiscal 2004 from $628,776 in
fiscal 2003 due to lower rents in relocated sales offices and (ii) a decease in
advertising expense of $123,626, or 54.5% to $103,068 in fiscal 2004 from
226,694 in fiscal 2003 all partially offset by (iii) and increase in travel and
attendance at trade shows of $112,741, or 59.6% to $301,781 in fiscal 2004 from
$189,040 in fiscal 2003.

Unrealized (gain) loss on financial guarantees. Unrealized (gain) loss on
financial guarantees is attributable to the increase or decrease in market value
relating to our price guarantees on common stock which we have issued in payment
of trade payables. Unrealized (gain) loss on financial guarantees changed
$282,030 or 192.6%, to a gain of $135,590 in fiscal 2004 from a loss of $146,440
in fiscal 2003.


                                      -18-
<PAGE>

Depreciation and amortization. Depreciation and amortization decreased by
$4,581, or 4.4% to $100,142 in fiscal 2004 from $104,723 in fiscal 2003 as a
consequence of certain assets becoming fully depreciated in fiscal 2003.

Interest expense. Interest expense increased by $26,665 or 25.6% to
$131,046 in fiscal 2004 from $104,381 in fiscal 2003 as a result of a continued
increase in the Company's interest bearing outstanding debt obligations.

As a result of the factors described above, our net loss increased by
$1,109,423, or 28.8% to $4,999,072, $.25 per share, in fiscal 2004 from
$3,848,437, $.22 per share, in fiscal 2003.


LIQUIDITY AND CAPITAL RESOURCES

We require significant working capital to fund our future operations. At
June 30, 2004 we had cash of $172,621 and a working capital deficit of
$7,400,771. During fiscal 2004, we had a negative cash flow from operations of
$855,000. Our accounts payable and accrued expenses at June 30, 2004 were
$3,722,228. As a result of our continuing losses, our working capital deficiency
has increased. We funded our losses through the issuance of our common stock. We
also utilized vendor credit and customer deposits. Because we have not been able
to pay our trade creditors in a timely manner, we have been subject to
litigation and threats of litigation from our trade creditors and we have used
common stock to satisfy our obligations to trade creditors. In many instances
when we issue common stock, we have provided that if the stock does not reach a
specified price level one year from issuance, we will pay the difference between
that price level and the actual price. As a result, we have contingent
obligations to our some of these creditors. With respect to 1,263,459 shares of
common stock issued during the fiscal 2004, 2003 and 2002, the market value of
the common stock on June 30, 2004 was approximately $161,811 less than the
guaranteed price.

Our accounts payable and accrued expenses increased from $3,563,776 at June
30, 2003 to $3,722,228 at June 30, 2004 an increase of $158,452. After an
increase in the market value of our common stock held by trade creditors of
$135,590 our other accounts payable and accrued expenses increased by $294,042
reflecting our inability to pay creditors currently. We also had customer
deposits and deferred revenue of $3,325,710 which relate to payments on orders
which had not been filled at that date. We have used our advance payments to
fund our operations. If our vendors do not extend us necessary credit we may not
be able to fill current or new orders, which may affect the willingness of our
clients to continue to place orders with us.

During the past three years we have sought, and been unsuccessful, in our
efforts to obtain adequate funding for our business. Because of our losses, we
are not able to increase our borrowing. Our bank facility terminated on November
1, 2002 and to date, we do not have any agreements with any replacement bank. In
2004 we entered into a convertible credit agreement with private investors that
permits us to borrow up to $500,000 upon the attainment of certain performance
criteria. At June 30, 2004 we had borrowed $200,000 under this credit facility
and borrowed an additional $300,000 in August and September 2004. Our
obligations to these lenders become due in June 2005. We do not presently have
the resources to pay the lenders. Unless we are either able to raise equity or
debt capital, which is unlikely based on our financial condition and history of
losses which are continuing, or the lenders extend the maturity date or convert
their debt into equity, we are unlikely to be able to pay the notes. If the
lenders seek to enforce their notes, it may be necessary for us to seek
protection under the Bankruptcy Code. Our failure to obtain similar financing
from this or another lender could materially impair our ability to continue in
operation, and we cannot assure you that we will be able to obtain the necessary
financing. Our main source of funds other than the private investors has been
from loans from our chief executive officer, customer deposits and vendor
credit. During fiscal 2004 we raised $813,000 resulting from the exercise of
options to buy our common stock and the sale of our common stock. Management
cannot provide any assurance that we will be able to raise any more money
through the sale of our equity securities. We may not be able to obtain any
additional funding, and, if we are not able to raise funding, we may be unable
to continue in business. Furthermore, if we are able to raise funding in the
equity markets, our stockholders might suffer significant dilution and the
issuance of securities may result in a change of control. These factors raise
substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.


                                      -19-
<PAGE>

Item 7.  FINANCIAL STATEMENTS

         The financial statements begin on Page F-1.

Item 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     On June 29, 2004 we accepted the resignation of Schneider & Associates LLP
as the Registrant's independent public accountants and selected Demetrius &
Company, L.L.C. to serve as the our independent public accountant for the fiscal
year ending June 30, 2004. At no time since its engagement has Demetrius &
Company, L.L.C. had any direct or indirect financial interest in or any
connection with us or any of our subsidiaries other than as independent
accountant. Neither we nor anyone on our behalf consulted Demetrius & Company
L.L.C. prior to engagement regarding the application of accounting principles to
a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on our financial statements.

     Our financial statements for the fiscal years ended June 30, 2002 and June
30, 2003 were audited by Schneider & Associates LLP, whose report on such
financial statements did not include any adverse opinion, or disclaimer of
opinion, nor was the report qualified or modified as to audit scope or
accounting principles. The report however was modified as to our ability to
continue as a going concern. There were no disagreements with Schneider &
Associates LLP on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedures in connection with the
audit for the fiscal years ended June 30, 2002 and June 30, 2003 and financial
statements filed on Form 10QSB for subsequent interim periods preceding their
resignation on June 29, 2004.

ITEM 8A  CONTROLS AND PROCEDURES

     As of the end of the fiscal year ended June 30, 2004, our chief executive
officer and chief financial officer evaluated the effectiveness of our
disclosure controls and procedures. Based on their evaluation, the chief
executive officer and the chief financial officer have concluded that our
disclosure controls and procedures are effective in alerting them to material
information that is required to be included in the reports that we file or
submit under the Securities Exchange Act of 1934.

     There has been no change in our internal control over financial reporting
that occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 8b.  OTHER INFORMATION

Not applicable.


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL

     Set forth below is information concerning our directors and executive
officers.


                                      -20-
<PAGE>

       Name                  Age      Position
------------------          ----      --------
Ben Jamil                    71       Chairman of the board, chief
                                      executive officer
                                      and director
Chris R. Decker              57       Chief financial officer and director
Tom Felice                   42       Director
Menahem Cohen                51       Vice president and director
Sylvain Naar                 62       Director


     Ben Jamil has been chairman of the board, president, chief executive
officer and a director of CCS since its organization in July 1992. He assumed
such positions with us upon completion of the reverse merger in April 2002. Mr.
Jamil has more than 40 years experience in government, military, law enforcement
and business security, specializing in the design, and marketing of
sophisticated, hi-tech systems for communication, voice and data privacy,
surveillance and monitoring.

     Chris R. Decker, a certified public accountant, joined us in April 2002 and
became chief financial officer and a director in August 2002. Prior to April
2002 he was controller for Trumarkets LLC, a broker dealer, from June 1, 2001
until April 2002, an independent consultant from April 1999 until June 2001, was
vice president corporate controller for County Seat Stores, Inc., a retailer of
specialty apparel, from January 1998 until April 1999 and for three years prior
thereto, was executive vice president, chief financial officer of All American
Food Group, Inc. a franchising company in the specialty food sector.

     Tom Felice joined CCS at its inception as vice president of consumer sales.
He took a leave of absence in November 2000 to consult for a family business and
returned to CCS in October 2001 when he became vice president sales and director
of CCS. He assumed such positions with us upon completion of the reverse merger
in April 2002. In May 2003 he resigned his position as vice president sales to
pursue other opportunities but remains as a member of the board of directors.

     Menahem Cohen has been vice president for Latin American sales and a
director of CCS since January 2002 and became our vice president and a director
upon completion of the merger. He was a consultant to CCS from its inception in
1992 until 2002.

     Sylvain Naar has been a director of CCS since March 2002 and became a
drector upon completion of the reverse merger in April 2002. He became vice
president in May of 2003 and resigned from that position in August 2003. From
1990 to February 2002, Mr. Naar was vice president for product and business
development at Copytele, Inc. a developer of advanced flat panel displays and
secure communication products. With over 30 years experience in
telecommunications, Mr. Naar has held numerous executive positions at Hazeltine,
Thomson, CSF, and Alcatel.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on its review of
the copies of such reports furnished to the Company during the year June 30,
2004, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were satisfied except
for four reports covering four transactions of Ben Jamil which took place during
the period of August 23, 2002 and January 30, 2004, and six reports covering six
transactions of Chris R. Decker which took place during the period of August 23,
2002 and August 4, 2004. These reports were filed on October 1, 2004 and none of
the reports covered transactions that involved a public purchase or sale of
securities.


                                      -21-
<PAGE>


Director Compensation

     Directors who are also employees of the Company are not paid any fees or
other remuneration for service on the Board or any of its Committees.

Meetings and Committees of the Board of Directors

     The Board of Directors met twelve (12) times during the fiscal year ended
June 30, 2004. The Board of Directors has a standing Audit Committee.

The Audit Committee

     Through May 1, 2003 the Audit Committee of the Board of Directors consisted
of two (2) individuals Chris R. Decker our chief financial officer and Sylvain
Naar, a director. On May 1, 2003 Tom Felice a director and former officer
replaced Sylvain Naar. The Audit Committee met once (1) time during the fiscal
year ending June 30, 2004. The Audit Committee is primarily responsible for
reviewing the services performed by the Company's independent public
accountants, evaluating the Company's accounting policies and its system of
internal controls, and reviewing significant finance transactions.

         The functions of the Audit Committee are focused on three areas:

         o     the adequacy of the  Company's  internal  controls and  financial
               reporting process and the reliability of the Company's  financial
               statements.

         o     the independence and performance of the Company's independent
               public accountants.

         o     the Company's compliance with legal and regulatory requirements.

     The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
The independent auditors and management are required to periodically report to
the Audit Committee regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services
performed to date. The Audit Committee may also pre-approve particular services
on a case-by-case basis.

     The Audit Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. The Audit Committee discusses these matters with the Company's
independent public accountants and with appropriate Company financial personnel.
Meetings are held with the independent public accountants who have unrestricted
access to the Audit Committee. The Audit Committee also appoints and engages the
independent public accountants and reviews periodically their performance and
independence from management. In addition, the Audit Committee reviews the
Company's financing plans and reports recommendations to the full Board of
Directors for approval and to authorize action.

     Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's system of
internal controls. The independent public accountants audit the annual financial
statements prepared by management, express an opinion as to whether those
financial statements present fairly the financial position, results of
operations and cash flows of the Company in conformity with generally accepted
accounting principles and discusses with the Audit Committee any issues they
believe should be raised with the Audit Committee.

     The Audit Committee reviews the Company's audited financial statements and
meets with both management and, the Company's independent public accountants, to
discuss such audited financial statements, and financial statements included in
quarterly reports on Form 10-QSB. Management represents to the Audit Committee
that the financial statements are prepared in accordance with generally accepted
accounting principles. The Audit Committee receives from and discusses with the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company.

                                      -22-
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

     Set forth below is information with respect to compensation paid or accrued
by us for fiscal years ended June 30, 2004, and 2003 to our chief executive
officer. No other officer received compensation of $100,000 during any of those
fiscal years.

Summary Compensation Table
<TABLE>
<CAPTION>

                                                                         Long-Term
                                                                         Compensation (Adwards)
                                    Fiscal                               Options, SARs
Name and Principal Position          Year        Salary         Bonus         (Number)
--------------------------------  ------------ ------------  -------------------------------
<S>                                <C>          <C>            <C>         <C>
Ben Jamil, chief executive               2004    $ 250,000           $ -            200,000
officer                                  2003      250,000             -                  -
                                         2002      172,799             -          1,000,000

</TABLE>


Employment Agreement

     In April 2002, in connection with the completion of the reverse merger, we
entered into a three-year employment agreement with Ben Jamil pursuant to which
Mr. Jamil agreed to serve as our president and chief executive officer. The
agreement calls for an annual base compensation of $250,000 and may be increased
on each anniversary date commencing May 1, 2003 by 10% if we achieve certain
performance criteria. In addition to the base salary, Mr. Jamil is eligible to
receive an annual discretionary bonus commencing June 30, 2003, at the sole
discretion of the board of directors. Pursuant to the agreement, we granted Mr.
Jamil a non-qualified stock option to purchase 1,000,000 shares of common stock
at an exercise price of $2.00 per share. The option vests upon our attaining
$10,000,000 of annual revenue and expires on April 17, 2007.

Stock Options

     As of January 21, 2002, the board of directors of the Company adopted the
2002 Stock Plan (the "2002 Plan"), which provided for the grant of non-qualified
stock options to purchase a maximum of 2,000,000 shares of common stock to
directors, employees, officers, agents, consultants and independent contractors
who perform services for the Company. In connection with the reverse merger
outstanding options to purchase a total of 1,800,500 shares of CCS' common stock
were converted into options to purchase an equal number of shares of the
Company's common stock at exercise prices of $.50 to $1.00 per share, which were
the same exercise prices as the options under the CCS plan. As of June 30, 2004
a total of 1,959,500 options to purchase shares of common stock are outstanding
under the 2002 Plan.

     As of July 3, 2003 the board of directors of the Company adopted the 2003
Stock Incentive Plan (the "2003 Plan") which provided for the grant of
non-qualified stock options to purchase a maximum of 320,000 shares of common
stock or the grant of shares to directors, employees, officers, agents,
consultants and independent contractors who perform services for the Company. As
of June 30, 2004, 246,000 shares have been issued to consultants and 35,000
shares have been issued to an officer for services rendered.

     As of January 23, 2004 our board of directors adopted the 2004 Stock
Incentive Plan (the "2004 Plan") which provided for the grant of non-qualified
stock options to purchase a maximum of 650,000 shares of common stock or the
grant of shares to directors, employees, officers, agents, consultants and
independent contractors who perform services for the Company. As of June 30,
2004, 650,000 options to purchase shares of common stock have been issued and
are outstanding under this plan.

                                      -23-
<PAGE>

Option Exercises and Outstanding Options

     The following table sets forth information concerning the exercise of
options during the fiscal year ended June 30, 2004 and the fiscal year-end value
of options held by our chief executive officer, who is the only officer named in
the summary compensation table. No stock appreciation rights have been granted.



<TABLE>
<CAPTION>
                          Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value

                                                                                  Number of
                                                                                  Securities           Value of
                                                                                  Underlying           Unexercised
                                                                                  Unexercised          In-the-Money
                                                                                  Options at Fiscal    Options at Fiscal
                                                                                  Year End             Year End
                                                                                  -----------------    -------------------

                                       Shares Acquired Upon    Value              Exercisable/         Exercisable/
       Name                            Exercise                Realized           Unexercisable        Unexercisable
--------------------                   ---------------------   --------------     -----------------    -------------------
<S>                                                                                 <C>
Ben Jamil                                  --                       --              1,200,000                 --/--
</TABLE>

<TABLE>
<CAPTION>

                                            Option Grants in Fiscal Year Ended June 30, 2004

                                              Percent of                                    Potential Realizable Value an
                                              Total Options                                 Annual Rates of Stock Price
                           Number of Shares   Granted to        Exercise                    Appreciation for Option Term
                           Underlying         Employees in      Price Per    Expiration    -------------------------------
       Name                Options Granted    Fiscal Year       Share        Date             5%               10%
-----------------------    -----------------  ---------------   ---------    -----------    -------       ----------
<S>                         <C>                 <C>             <C>              <C>        <C>              <C>
Ben Jamil                   200,000             100.0%          $  .25       Jan 2014       $31,445          $79,687
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table and discussion provides information as to the shares of
common stock beneficially owned on September 10, 2004 by:

         -        each director;

         -        each officer named in the executive compensation table;

         -        each  person  owning  of  record  or  known  by  us  based  on
                  information  provided to us by the persons named below, to own
                  beneficially at least 5% of our common stock; and

         -        all officers and directors as a group.

                                      -24-
<PAGE>

<TABLE>
<CAPTION>
                                                 Shares of Common        Percentage of
                                                Stock Benefically        Outstanding
                   Name                               Owned              Common Stock
--------------------------------------------  -----------------------    ------------------
<S>                                                       <C>                        <C>
Ben Jamil                                                 11,338,000                 50.1%
145 Huguenot Street
New Rochelle, NY 10801
Michael D. Farkas                                          2,150,100                  9.4%
1691 Michigan Avenue, Suite 425
Miami, FL 33139
Ostonian Securities Limited                                2,203,496                  9.3%
60 St. James Street
London, England SW1 ALE
Jason S. Lyons                                             1,915,000                  8.4%
7239 San Salvador Dr
Boca Raton, FL 33433
Kesef Equity Group, Inc.                                   1,750,000                  7.2%
14 Lyle Farm Lane
Englishtown, NJ 07726
GSM Communications, Inc.                                   1,289,500                  5.6%
1221 Brickell Avenue, Suite 900
Miami, FL 33131
Chris R. Decker                                              785,000                  3.4%
Menahem Cohen                                                450,000                  2.0%
Tom Felice                                                   253,000                  1.1%
Sylvain Naar                                                       -                     -
All directors and officers as a                           12,826,000                 54.4%
group (6 individuals)
</TABLE>

     Except as otherwise indicated each person has the sole power to vote and
dispose of all shares of common stock listed opposite his name. Stockholders are
deemed to own shares of common stock issuable upon the exercise of options or
upon conversion of convertible securities which are exercisable or convertible
within 60 days of September 10, 2004.

     The shares beneficially owned by Mr. Jamil represent 11,138,000 shares of
common stock and 200,000 shares of common stock issuable upon exercise of
options held by him.

     The shares beneficially owned by Michael D. Farkas represents 1,036,000
shares of common stock owned by him, 471,600 shares of common stock owned by his
wife, Rebecca Farkas, 37,500 shares of common stock owned by their children, and
the holdings of Atlas Equity Group, Inc., which is beneficially owned by him
consisting of 55,000 shares of common stock owned by them and 550,000 shares of
common stock issuable upon the conversion of notes payable held by them.

     The shares beneficially owned by Mr. Lyons represents 1,400,000 shares of
common stock owned by him and 500,000 shares of common stock issuable upon the
exercise of warrants owned by Lyons Capital Group LLC which is beneficially
owned by Jason S. Lyons.

     The shares beneficially owned by Ostonian Securities Limited represent
953,496 shares of common stock and 1,250,000 shares of common stock issuable
upon the conversion of notes payable held by them.

     The shares beneficially owned by Kesef Equity Group, Inc. represent
1,750,000 shares of common stock issuable upon the conversion of notes payable
held by them.


                                      -25-
<PAGE>

     The shares beneficially owned by GSM Communications, Inc. represent 639,500
shares of common stock and 650,000 shares of common stock issuable upon the
conversion of notes payable held by them.

     The shares beneficially owned by Mr. Decker represent 335,000 shares of
common stock and 450,000 shares of common stock issuable upon exercise of
options held by him.

     The shares beneficially owned by Mr. Cohen represent shares of common stock
issuable upon exercise of options held by him.

     The shares beneficially owned by Mr. Felice represent 3,000 shares of
common stock and 250,000 shares of common stock issuable upon exercise of
options held by him.

     In connection with an agreement between Mr. Ben Jamil and two financial
consultants entered into prior to the reverse merger, the consultants or their
designees were to purchase a 30% interest in five of our subsidiaries, and that
30% was to have been exchanged for 1,500,000 shares of series B preferred stock.
Mr. Jamil has advised the consultants and their designees that, as a result of
their failure to pay the consideration for the shares, the agreement is
terminated and they have no interest in the series B preferred stock or the
stock in the five subsidiaries. It is possible that the consultants or their
designees may claim that they own the series B preferred stock or the stock in
the five subsidiaries.

Item 12.   Certain Relationships and Related Transactions

     In March 2004 we sold 1,000,000 shares of common stock to Jason S. Lyons
for $135,000, and issued warrants to purchase 500,000 shares of common stock at
an exercise price of $.15 per share. The warrants vest immediately, have
cashless exercise rights and a life of three years.

     In July 2003, we formalized consulting contracts with Michael D. Farkas and
Jason S. Lyons relating to acquisition services, financial public relations and
operational performance services. In connection therewith we granted immediately
exercisable options to purchase a total of 1,700,000 options to Michael D.
Farkas, and options to purchase 400,000 shares were granted to Jason S. Lyons.
The exercise price ranged from $.10 per share to $.50 per share. As of June 30,
2004 options to purchase 1,700,000 shares were exercised by Michael Farkas for
$400,000, and options to purchase 400,000 shares were exercised by Jason S.
Lyons for $140,000.

     During fiscal 2004 we sold 180,000 shares of common stock to GSM
Communications, Inc. for $18,000.

     On June 10, 2004 we entered into a convertible credit agreement with
private investors, including Michael D. Farkas, Ostonian Securities Limited,
Kesef Equity Group, Inc., and GSM Communications, Inc. that provides for the
Company to borrow up to $500,000 upon the attainment of certain performance
criteria prior to September 15, 2004. At June 30, 2004 the Company had borrowed
$200,000 under this agreement and borrowed an additional $300,000 during the
first quarter of fiscal 2005. The notes are convertible, at the note holder's
option, into the Company's common stock, at $.10 per share.

     During fiscal year 2004 we paid commissions of $35,000 related to financing
activities to Atlas Capital Services, LLC which is beneficially owned by Michael
D. Farkas.

     On January 23, 2004 we issued options to purchase 200,000 shares of common
stock to Ben Jamil.

     On January 23, 2004 we issued options to purchase 150,000 shares of common
stock to Menahem Cohen.

     On January 23, 2004 we issued options to purchase 150,000 shares of common
stock to Chris R. Decker, and on January 12, 2004 we issued 35,000 shares of
common stock to Mr. Decker in payment of accrued wages.


                                      -26-
<PAGE>

     The agreement relating to the April 2002 reverse merger provided, as a
condition to CCS' obligation to close, that we receive proceeds of $1,000,000
from a private sale of the our securities. This condition was not met at
closing, and CCS completed the reverse merger with us having received only
$75,000. At the closing of the reverse merger, we entered into a stock pledge
agreement with Atlas Equity Group, Inc. a Florida corporation beneficially owned
by Michael D. Farkas who is a stockholder of the Company, and who beneficially
owns more than 5% of our common stock, pursuant to which Atlas Equity was to
have pledged 1,500,000 shares of our common stock. Atlas Equity never delivered
the shares to be held pursuant to the pledge agreement. The pledge agreement
stipulated the pledged shares were to be returned to Atlas Equity if we sold
shares of common stock sufficient to generate net cash proceeds of $925,000 to
us prior to June 1, 2002, which date was subsequently extended to June 14, 2002.
On December 16, 2002, we and Atlas Equity and certain successor owners of Atlas
Equity's pledged shares entered into an agreement that reduced the number of
pledged shares to 750,000, restricted the number of pledged shares that could be
sold for a period of one year, expanded the money raising activity to include
the issuance of debt and extended the date to raise the $925,000 to July 7,
2004. As of June 30, 2004 we had sold shares of common stock and issued debt
generating net cash proceeds of $993,000 and all pledged shares have been
released.


Item 13.  EXHIBITS AND REPORTS ON FORM 8-KSB

(a) Reports on Form 8-KSB


(1) Current Report on Form 8-K filed on June 30, 2004 with respect to Item 4.

(2) Current Report on Form 8-K/A filed on July 30, 2004 with respect to Item 4.


(b) Exhibits

Exhibit
  No.     Description

2.1       Agreement and Plan of Merger dated as of February 28, 2002 among the
          Registrant, CCS International, Ltd., and CCS Merger Corp.(1)

3.1       Articles of incorporation (2)

3.1       Articles of Amendment to Articles of Incorporation (4)

3.2       By-laws (2)

10.1      Employment Agreement, dated as of April 17, 2002, by and between the
          Registrant and Ben Jamil. (3)

10.2      Form of pledge Agreement, dated as of April 17, 2002, by and between
          the Registrant and Atlas Equity (3)

10.3      Agreement dated as of December 16, 2002, by and between the Registrant
          and ATLAS EQUITY and successor owners of Atlas Equity's pledged
          shares. (5)

10.3      2002 Stock Plan. (4)

10.4      2003 Stock Incentive Plan (5)

10.5      Consulting Agreement, dated as of July 2, 2003, by and between the
          Registrant and Michael D. Farkas. (6)


                                      -27-
<PAGE>

10.6      Consulting Agreement, dated as of July 2, 2003, by and between the
          Registrant and Shimon Fishman. (6)

10.7      Consulting Agreement, dated as of July 18, 2004, by and between the
          Registrant and Jason S. Lyons (7)

10.8      2004 Stock Plan.

10.9      Revolving Convertible Credit Agreement, dated June 10, 2004, by and
          between the Registrant and private investors, including Michael D.
          Farkas

14.1      Code of Ethics.

21.1      List of Subsidiaries.

23.1      Consent of Independent Auditors.

31.1      Certification of chief executive officer.

31.2      Certification of chief financial officer.

32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
          of 2002

(1)       Filed as an exhibit to the Registrant's Form 8-K with a report date of
          February 28, 2002 and which was filed with the Commission on March 5,
          2002, and incorporated herein by reference.

(2)       Filed as an exhibit to the Registrant's Form 10SB12G which was filed
          with the Commission on October 17, 2000, and incorporated herein by
          reference.

(3)       Filed as an exhibit to the Registrant's Form 8-K with a report date of
          April 17, 2002 and which was filed with the Commission on April 25,
          2002, and incorporated herein by reference.

(4)       Filed as an exhibit to the Registrant's Form 10-KSB filed with the
          commission on November 6, 2002, and incorporated herein by reference.

(5)       Filed as an exhibit to the Registrant's Form 10-KSB filed with the
          commission on October 14, 2003, and incorporated herein by reference.

(6)       Filed as an exhibit to the Registrant's Form S-8 filed with the
          commission on July 22, 2004, and incorporated herein by reference.

(7)       Filed as an exhibit to the Registrant's Form S-8 filed with the
          commission on September 29, 2003, and incorporated herein by
          reference.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

1.        Audit Fees. The aggregate fees billed for the audit of our financial
          statements and review of financial statements included in our
          quarterly Form 10-QSB were $60,073 and $67,825 for the fiscal years
          ended June 30, 2004 and June 30, 2003 respectively.

2.        Audit-Related Fees. There were no audit-related fees billed for the
          fiscal years ended June 30, 2004 and June 30, 2003.

3.        Tax Fees. Tax fees billed were $8,890 and $725 for the fiscal years
          ended June 30, 2004 and June 30, 2003 respectively.




                                      -28-
<PAGE>

4.        All Other Fees. There were no other fees billed for the fiscal years
          ended June 30, 2004 and June 30, 2003.


                                      -29-
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm                   F - 1

Independent Auditors' Report                                              F - 2

Consolidated Balance Sheet June 30, 2004                                  F - 3

Consolidated Statements of Operations for the years
   ended June 30, 2004 and June 30, 2003                                  F - 4

Consolidated Statement of Changes in Stockholders' Deficit
   for the years ended June 30, 2004 and June 30, 2003                    F - 5

Consolidated Statements of Cash Flows for the years
   ended June 30, 2004 and June 30, 2003                                  F - 6

Notes to Consolidated Financial Statements                        F - 7 - F -22



                                      -30-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Security Intelligence Technologies, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Security
Intelligence Technologies, Inc. and Subsidiaries as of June 30, 2004, and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for the year then ended. 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 audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Security Intelligence Technologies, Inc. and its subsidiaries as of June 30,
2004, and the consolidated results of their operations and cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has incurred operating losses in fiscal 2004
and 2003, negative cash flows from operations, and has limited cash and other
resources to fund future operations. In addition, the Company is involved in
material litigation, the costs of which have significantly impacted liquidity.
Management's plans concerning these matters are also discussed in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.


DEMETRIUS & COMPANY, L.L.C.


Wayne, New Jersey
October 4, 2004

                                       F-1


                                      -31-
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Security Intelligence Technologies, Inc.

     We have audited the accompanying consolidated balance sheet of Security
Intelligence Technologies, Inc. and subsidiaries as of June 30, 2003, and the
related statements of operations, changes in stockholders' deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Security
Intelligence Technologies, Inc. and subsidiaries as of June 30, 2003, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred operating losses in fiscal 2003 and 2002, negative cash
flows from operations, and has limited cash and other resources to fund future
operations. In addition, the Company is involved in material litigation, the
costs of which have significantly impacted liquidity. Management's plans
concerning these matters are also discussed in Note 1. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.

Schneider & Associates LLP
Jericho, New York
October 10, 2003
                                       F-2


                                      -32-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 June 30, 2004

<TABLE>
<CAPTION>

ASSETS
Current Assets:
<S>                                                                                    <C>
      Cash                                                                              $    172,621
     Inventory                                                                               959,825
     Other current assets                                                                    223,872
                                                                                        ------------
        Total current assets                                                               1,356,318

Property and Equipment, at cost less accumulated depreciation
   and amortization of $170,969                                                               22,248

Other assets                                                                                  35,071
                                                                                        ------------
 Total assets                                                                           $  1,413,637
                                                                                        ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable and accrued expenses                                              $  3,722,228
     Note payable - CEO/stockholder                                                        1,509,151
     Convertible notes payable                                                               200,000
     Customer deposits                                                                     1,917,031
     Deferred revenue                                                                      1,408,679
                                                                                        ------------
         Total current liabilities                                                         8,757,089
                                                                                        ------------
Commitments and contingencies - See Notes

Stockholders' deficit:
     Preferred stock, $.0001 par value, 10,000,000 shares authorized:
         Series A Convertible-$1.00 per share liquidation preference, 3,500,000 shares
            authorized, issued and outstanding                                                   350
         Series B Convertible-$1.00 per share liquidation preference, 1,500,000 shares
            authorized, issued and outstanding                                                   150
     Common stock, $.0001 par value, 100,000,000 shares authorized,
         22,306,816 shares issued and outstanding                                              2,231
     Additional paid in capital                                                            3,808,283
     Accumulated deficit                                                                 (11,136,871)
     Accumulated other comprehensive loss                                                    (17,595)
                                                                                        ------------
       Total stockholders' deficit                                                        (7,343,452)
                                                                                        ------------
Total liabilities and stockholders' deficit                                             $  1,413,637
                                                                                        ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3

                                      -33-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                            Years Ended
                                                     ---------------------------
                                                                June 30,
                                                     ---------------------------
                                                         2004           2003
                                                     ------------   ------------
<S>                                                  <C>            <C>
Sales                                                $  3,013,332   $  3,729,165
                                                     ------------   ------------
Costs and expenses:
     Cost of sales                                      1,402,980      1,827,045
     Compensation and benefits                          2,227,767      2,542,545
     Professional fees and legal matters                  933,576        936,621
     Stock based compensation                           1,608,858          5,301
     Selling, general and administrative expenses       1,743,625      1,910,546
     Unrealized (gain) loss on financial guarantees      (135,590)       146,440
     Depreciation and amortization                        100,142        104,723
                                                     ------------   ------------
                                                        7,881,358      7,473,221
                                                     ------------   ------------
Operating loss                                         (4,868,026)    (3,744,056)

Interest expense                                          131,046        104,381
                                                     ------------   ------------
Net loss                                             $ (4,999,072)  $ (3,848,437)
                                                     ============   ============
Net loss per above                                   $ (4,999,072)  $ (3,848,437)
Other comprehensive loss - translation adjustment         (17,595)          --
                                                     ------------   ------------
Total comprehensive loss                             $ (5,016,667)  $ (3,848,437)
                                                     ============   ============
Loss per share, basic and diluted                    $      (0.25)  $      (0.22)
                                                     ============   ============
Weighted average number of shares                      20,036,902     17,278,269
                                                     ============   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4



                                      -34-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                       YEARS ENDED JUNE 30, 2004 AND 2003


<TABLE>
<CAPTION>

                          Convertible Preferred                                      Retained    Accumulated
                --------------------------------------                   Additional   Earnings     Other          Total
                    Series A             Series B       Common Stock      Paid-in   (Accumulated Comprehensive  Stockholders'
                    Shares    Amount   Shares    Amount  Shares   Amount  Capital     Deficit)       Loss        Deficit
                -------------------------------------------------------------------------------------------------------------
<S>              <C>          <C>      <C>       <C>    <C>        <C>     <C>      <C>          <C>          <C>
Balances, July
 1, 2002            3,500,000  $350    1,500,000  $150 16,992,346 $1,699   $418,417  $(2,289,362)          $-  $(1,868,746)

Issuance of
 common stock
   to settle
    debt                    -     -            -     -    419,043     42     83,405            -            -       83,447
Amortization of
 deferred
   compensation             -     -            -     -          -      -      5,301            -            -        5,301
Net loss                    -     -            -     -          -      -          -   (3,848,437)           -   (3,848,437)
                -----------------------------------------------------------------------------------------------------------
Balances,
 June 30, 2003      3,500,000   350    1,500,000   150 17,411,389  1,741    507,123   (6,137,799)           -   (5,628,435)
Sale of common
 stock                      -     -            -     -  1,190,000    119    168,881            -            -      169,000

Adjustment to
 record
 discount
   given on
    stock sales             -     -            -     -          -      -    596,500            -            -      596,500

Issuance of
 common stock
   to settle
    debt                    -     -            -     -    836,459     84    756,083                         -      756,167

Stock issued to
 consultants                -     -            -     -  2,868,968    287    789,338                         -      789,625

Amortization of
 deferred
   compensation             -     -            -     -          -      -    990,358                         -      990,358

Net loss                    -     -            -     -          -      -          -   (4,999,072)           -   (4,999,072)
Other
 comphrehensive
 loss                       -     -            -     -          -      -          -            -      (17,595)     (17,595)
                -----------------------------------------------------------------------------------------------------------

Balances,
 June 30, 2004      3,500,000  $350    1,500,000  $150 22,306,816 $2,231 $3,808,283 $(11,136,871)    $(17,595) $(7,343,452)
                ===========================================================================================================
</TABLE>



     The accompanying notes are an integral part of these financial
                               statements.

                                      F-5



                                      -35-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>

                                                                                          Years Ended
                                                                                  --------------------------
                                                                                          June 30,
                                                                                  --------------------------
                                                                                       2003         2003
                                                                                  ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>           <C>
    Net loss                                                                     $(4,999,072)  $(3,848,437)
    Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                  100,142       104,723
      Unrealized (gain) loss on financial guarantees                                (135,590)      146,440
      Stock issued to consultants and officers for services                          123,625          --
      Amortization of deferred compensation                                          990,358         5,301
      Discount on common stock sold and issued for services                          618,500          --
      Other comprehensive loss                                                       (17,595)         --
      Noncash compensation - CEO/stockholder                                          28,872       139,976
      Noncash interest expense - CEO/stockholder                                      55,887        47,649
      CHANGES IN OPERATING ASSETS AND LIABILITIES:
        Decrease in inventory                                                        488,489       741,873
        (Increase) decrease in other current assets                                 (171,430)      133,073
        Increase in accounts payable and accrued expenses                          1,050,209     1,421,662
        Increase in customer deposits                                                639,336       227,923
         Increase in deferred revenue                                                373,605       688,883
                                                                                 -----------   -----------
Net cash used in operating activities                                               (854,664)     (190,934)
                                                                                 -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Decrease (Increase) in other assets                                               19,875        (7,213)
                                                                                 -----------   -----------
Net cash used in investing activities                                                 19,875        (7,213)
                                                                                 -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                                           813,000          --
    Repayments of note payable - bank                                                   --        (200,000)
    Borrowings under note payable - CEO/stockholder                                     --         387,441
    Repayments of note payable - CEO/stockholder                                     (27,228)         --
    Borrowings under convertible credit facility                                     200,000          --
                                                                                 -----------   -----------
Net cash provided by financing activities                                            985,772       187,441
                                                                                 -----------   -----------
Net increase (decrease) in cash                                                      150,983       (10,706)

Cash, beginning of year                                                               21,638        32,344
                                                                                 -----------   -----------
Cash, end of year                                                                $   172,621   $    21,638
                                                                                 ===========   ===========
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       F-6



                                      -36-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business
-----------------------------------

Security Intelligence Technologies, Inc. ("SIT"), a Florida corporation and
its wholly owned subsidiaries (collectively the "Company") are engaged in the
design, assembly and sale of security and surveillance products and systems. The
Company purchases finished items for resale from independent manufacturers, and
also assembles off-the-shelf electronic devices and other components into
proprietary products and systems at its own facilities. The Company generally
sells to businesses, distributors, government agencies and consumers through
five sales offices located in Miami, Florida; Beverly Hills, California;
Washington, DC; Hong Kong, and its executive offices located in New Rochelle,
New York and through its retail store/service center in London, England.

On April 17, 2002, SIT, then known as Hipstyle.com, Inc. acquired all of
the stock of CCS International, Ltd. ("CCS"), a Delaware corporation, and its
wholly-owned subsidiaries. As a result of, and in connection with this
transaction, the name of the corporation was changed from Hipstyle.com, Inc. to
Security Intelligence Technologies, Inc. and CCS and its subsidiaries became
SIT's wholly-owned subsidiaries, the stockholders of CCS obtained control of the
merged entity after the transaction was completed. This transaction is referred
to in the notes to the Consolidated Financial Statements as the "reverse
merger". Under reverse acquisition accounting, CCS is considered the accounting
acquirer and SIT (then known as Hipstyle.com, Inc.) is considered the acquired
company. Inasmuch as SIT had no substantive assets or operations at the date of
the transaction, the merger has been recorded as an issuance of CCS stock to
acquire SIT, accompanied by a recapitalization, rather than as a business
combination.

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of SIT and its
wholly-owned subsidiaries, CCS, Spy Shop, Ltd. d/b/a Counter Spy Shop of
Delaware, a Delaware corporation (formerly a retail store closed on January 31,
2004); Security Design Group, Inc., a New York corporation (formerly a
manufacturing operation, currently inactive); Counter Spy Shop of Mayfair
London, Ltd., a District of Columbia corporation (formerly a retail store closed
on July 1, 2003); CCS Counter Spy Shop of Mayfair London, Ltd., a California
corporation (formerly a retail store closed on January 1, 2004); Counter Spy
Shop of Mayfair, Ltd., a Florida corporation (formerly a sales office/retail
store that ceased operations on March 31, 2004, currently inactive); and
Homeland Security Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair
Limited, a retail store/service center. The financial statements for the year
ended June 30, 2004 include the operations of Homeland Security Strategies,
Inc., a New York corporation, that commenced operations on August 20, 2003;
Homeland Security Strategies of California, Inc., a California corporation, that
operates a sales office that commenced operations on December 26, 2003; and
Homeland Security Strategies Inc of Florida, Inc., a Florida corporation, that
operates a sales office that commenced operations on January 30, 2004. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Basis of Financial Statement Presentation - Going Concern Explanatory Paragraph
-------------------------------------------------------------------------------

The financial statements of the Company have been prepared assuming the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company incurred net losses of $4,999,072 and $3,848,437 for the years ended
June 30, 2004 and June 30, 2003 respectively. In addition, at June 30, 2004, the
Company had a working capital deficit of $7,400,771 and a deficiency in
stockholders' equity of $7,343,452 and, for the year ended June 30, 2004, the
Company had negative cash flow from operations of $855,000. The Company is also
a defendant in material and costly litigation, which has significantly

                                       F-7


                                      -37-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



     1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued

Basis of Financial Statement Presentation - Continued:
------------------------------------------------------

impacted liquidity. (See Note 16). The Company requires significant
additional financing which may not be available. The Company's bank facility
terminated on November 1, 2002 and the only source of funds other than
operations has been the exercise of options to purchase shares of the Company's
common stock, the sale of the Company's common stock, a credit facility with a
group of private investors, loans from the Company's chief executive officer and
customer deposits. (See Notes 5, 6, 9 and 11).

These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with respect to these matters
include to settle vendor payables wherever possible, a reduction in operating
expenses, and continued financing from the chief executive officer in the
absence of other sources of funds. Management cannot provide any assurance that
its plans will be successful in alleviating its liquidity concerns and bringing
the Company to the point of profitability. The accompanying financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.

Use of estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the combined financial statements, and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.

Inventories
-----------

Inventories are valued at the lower of cost (first-in, first-out) or market.

Property and equipment
----------------------

Assets are stated at cost. Depreciation is computed over the estimated
useful life of the assets generally using the straight-line method over periods
ranging from five to seven years. Additions and major renewals and betterments
are capitalized and depreciated over their estimated useful lives. Repairs and
maintenance are charged to operating expenses as incurred.

Revenue recognition
-------------------

The Company recognizes revenue from sales upon the delivery of merchandise
to a customer. Non-refundable advance payments received under marketing and
distribution arrangements are deferred and either applied as payments towards
customer purchases made pursuant to the terms of the respective agreements, or
recognized as income at the termination of the agreement if specified purchase
quotas have not been met by the customer. Customer deposits are initially
recorded as liabilities and recognized as revenue when the related goods are
shipped.


                                       F-8


                                      -38-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Stock-based Compensation
------------------------

The Company periodically grants stock options to employees in accordance
with the provisions of its stock option plans, with the exercise price of the
stock options being set at the closing market price of the common stock on the
date of grant. The Company accounts for stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and accordingly accounts for employee stock-based compensation
utilizing the intrinsic value method. FAS No. 123, "Accounting for Stock-Based
Compensation", establishes a fair value based method of accounting for
stock-based compensation plans. The Company has adopted the disclosure only
alternative under FAS No. 123, which requires disclosure of the pro forma
effects on earnings and earnings per share as if FAS No. 123 had been adopted as
well as certain other information.

Stock options granted to non-employees are recorded at their fair value, as
determined in accordance with SFAS No. 123 and Emerging Issues Task Force
Consensus No. 96-18, and recognized over the related service period. Deferred
charges for options granted to non-employees are periodically re-measured until
the options vest.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation. Although it does not require use of the
fair value method of accounting for stock-based employee compensation, it does
provide alternative methods of transition. It also amends the disclosure
provisions of SFAS No.123 and APB No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. SFAS No. 148's amendment of the transition and annual
disclosure requirements is effective for fiscal years ending after December 15,
2002. The amendment of disclosure requirements of APB No. 28 is effective for
interim periods beginning after December 15, 2002. We adopted SFAS No. 148 and
APB No.28 on January 1, 2003.

FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income (loss) and income
(loss) per share as if compensation cost for the Company's stock option
issuances had been determined in accordance with the fair value based method
prescribed in FASB Statement 123. The Company estimates the fair value of each
stock option at the grant date by using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in fiscal 2004
and 2003: dividend yield of 0%, risk-free interest rate of 3.38%, expected lives
of eight years, and expected volatility of 120%. Under the accounting provisions
of SFAS Statement 123, the Company's net loss and loss per share for 2004 and
2003 would have been the pro forma amounts indicated below:



<TABLE>
<CAPTION>

                                                                               Year Ended June 30,
                                                                       --------------------------------------
                                                                             2004                 2003
                                                                       ----------------    ------------------
Net loss:
<S>                                                                        <C>                  <C>
     As reported                                                           $ (4,999,072)        $ (3,848,437)
     Deduct: Total stock based employee compensation expense
        determined under the fair value based method for all awards            (249,859)            (310,041)
                                                                       -----------------    -----------------
                                                                           $ (5,248,931)        $ (4,158,478)
                                                                       =================    =================

Loss per share:
     As reported                                                                $ (0.25)             $ (0.22)
     Proforma                                                                   $ (0.26)             $ (0.24)
</TABLE>


                                      F-9


                                      -39-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Income taxes
------------

The Company uses the liability method to determine its income tax expense.
Under this method, deferred tax assets and liabilities are computed based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted rates and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that all or some portion of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax asset depends on
the Company's ability to generate sufficient taxable income in the future.

Advertising
-----------

Advertising costs are expensed as incurred. The Company incurred
advertising expenses of approximately $103,000 and $227,000 during the years
ended June 30, 2004 and 2003 respectively.

Financial Guarantees
--------------------

Certain shares issued by the Company to settle debt obligations contain a
price guarantee that requires the Company to settle in cash any difference
between the original face amount of the debt and proceeds from the creditor's
subsequent sale of the shares. The Company accounts for these transactions by
recording the debt at fair value with periodic mark-to-market adjustments until
the guarantee is settled. Unrealized gains or losses resulting from changes in
fair value are included in earnings and accrued expenses. (See Note 4)

Fair Value of Financial Instruments
-----------------------------------

The fair values of financial instruments recorded on the balance sheet are
not significantly different from their carrying amounts due to the short-term
nature of those instruments, or because they are accounted for at fair value.

New accounting pronouncements
-----------------------------

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The adoption of this Interpretation did not
have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which requires
mandatorily redeemable financial instruments to be classified as liabilities,
the result of which requires related expense to be classified as interest
expense rather than minority interest on a prospective basis. SFAS No. 150 is
effective in the three months ended June 30, 2003 for financial instruments
entered into or modified after May 31, 2003, and is otherwise effective July 1,
2003 for previously issued instruments. SFAS No. 150 is not expected to have a
material impact on our financial position or results of operations.

                                      F-10



                                      -40-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO ONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003


1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Joint Venture Agreements
------------------------

The Company is a party to three joint venture agreements with technology
companies. In connection with these agreements the Company and its joint venture
partner formed new entities whose ownership and share of operating results are
equally owned. The joint venture agreements grant the new entities exclusive
marketing rights to the joint venture partner's products, except in the
countries in which the joint venture partners are domiciled. The Company
accounts for its investments in the joint ventures using the equity method
because the Company's ownership is greater than 20% and the Company has the
ability to exercise significant influence over the operating, investing and
financing decisions of the joint venture entities. Under the equity method, the
Company will record its share of joint venture income or losses and adjust the
basis of its investment accordingly. As of June 30, 2004, the joint ventures
have not generated any revenues or other significant business activity. Foreign
Currency Translation

The functional currency of the Company's UK subsidiary is the local
currency. Accordingly, the Company translates all assets and liabilities into
U.S. dollars at current rates. Revenues, costs, and expenses are translated at
average rates during each reporting period. Gains and losses resulting from the
translation of the consolidated financial statements are excluded from results
of operations and are reflected as a translation adjustment and a separate
component of stockholders' deficit. Translation adjustments were $17,595 as of
June 30, 2004 and were immaterial as of June 30, 2003. Gains and losses
resulting from foreign currency transactions are recognized in the consolidated
statement of operations in the period they occur.

Concentration of credit risk
----------------------------

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash balances. The Company
limits the amount of credit exposure to any one financial institution. The
Company generally does not grant credit to domestic or foreign customers.

Research and development costs
------------------------------

Research and development costs are charged to expense as incurred.

Loss Per Share
--------------

The Company calculates earnings per share in accordance with SFAS No. 128,
Earnings Per Share, and SEC Staff Accounting Bulletin No. 98. Accordingly, basic
and diluted loss per share is computed using the weighted average number of
shares of common stock outstanding and excludes all common stock equivalents
outstanding during the period. Common stock equivalents consist of shares
issuable upon the exercise of stock options and warrants using the treasury
stock method. Stock options and preferred stock that are convertible into common
stock based on the Company's attainment of performance goals are not includible
in the calculation of earnings per share until the specified targets are met.
The following securities have been excluded from the diluted computation for
fiscal 2004 and 2003 because they are contingently issuable and/or antidilutive:



                                      F-11


                                      -41-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003




1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Loss Per Share - Continued
--------------------------
                                                    Year Ended June 30,
                                               ---------------------------
                                                   2004            2003
                                               ----------        ---------
Series A Convertible Preferred Stock            3,500,000        3,500,000
Series B Convertible Preferred Stock            1,500,000        1,500,000
Stock options                                   2,609,500        1,959,500
Warrants                                          900,000          400,000


Reclassifications
-----------------

Certain  reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.

2.  INVENTORY

Inventories consist of the following at June 30, 2004:

Small components and supplies                                       $ 214,565
Finished goods                                                        745,260
                                                               ---------------
                                                                    $ 959,825
                                                               ===============

3.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following at June 30, 2004:

Office furniture and equipment                               $ 188,567
Leasehold improvements                                           4,650
                                                        ---------------
                                                               193,217
Accumulated depreciation and amortization                     (170,969)
                                                        ---------------
                                                              $ 22,248
                                                        ===============


Depreciation and amortization expense was $100,142 and $104,723 for the
years ended June 30, 2004 and 2003, respectively.




                                      F-12


                                      -42-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at June 30, 2004 consisted of the
following:

Accounts payable - trade                            $1,941,295
Professional fees and legal matters                  1,181,864
Potential liability for guarantees of common stock
   issued in settlement of claims                      161,803
Payroll liabilities                                    389,988
Deferred rent payable                                   47,278
                                                    ----------
                                                    $3,722,228
                                                    ==========

Outstanding lawsuits initiated by the Company's Creditors for nonpayment of
accrued liabilities were approximately $894,167 as of June 30, 2004. In
addition, as of June 30, 2004, the Company was subject to outstanding judgments
of approximately $167,000 relating to claims against the Company for non-payment
of obligations.

As of June 30, 2004 the Company had issued 1,263,459 shares of common stock
subject to financial guarantees with a maximum liability of $824,584.

5. NOTES PAYABLE - CEO/STOCKHOLDER

This amount represents (i) notes payable to the Company's chief executive
officer, and including accrued interest of $138,742 based on an interest rate of
5% per annum and (ii) deferred salary of $196,271. The Notes are secured by
substantially all of the assets of the Company and are due on demand.

6. NOTES PAYABLE CONVERTIBLE CREDIT FACILITY

On June 10, 2004 the Company entered into a convertible credit agreement
with private investors, including Michael D. Farkas, Ostonian Securities
Limited, Kesef Equity Group, Inc., and GSM Communications, Inc. that provides
for the Company to borrow up to $500,000 upon the attainment of certain
performance criteria prior to September 15, 2004. At June 30, 2004 the Company
had borrowed $200,000 under this agreement and borrowed an additional $300,000
during the first quarter of fiscal 2005. The notes bear interest at the rate of
10% per annum, are convertible into the Company's common stock, $.0001 at $.10
per share and mature on June 30, 2005. The conversion feature was valued at
$315,333 using the Black-Scholes option-pricing model and was expensed during
the year ended June 30, 2004 as stock based compensation.

7. PREFERRED STOCK

The board of directors has authorized two series of preferred stock, the
Series A preferred stock, consisting of 3,500,000 shares, and the Series B
preferred stock, consisting of 1,500,000 shares. Both Series A and Series B
preferred shares have a liquidation preference of $1.00 per share and are each
convertible into one share of common stock if CCS has either consolidated annual
net revenue of at least $10,000,000 or annual consolidated net income of at
least $1,000,000 prior to October 15, 2008. Each share of Series A preferred
stock has 15 votes per share. Series B preferred stock is nonvoting except as
required by law. All of the shares of Series A preferred stock and Series B
preferred stock are held by the Company's chief executive officer.

                                      F-13


                                      -43-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



8. STOCK OPTIONS

Stock Option Plans

As of January 21, 2002, the board of directors of the Company adopted the
2002 Stock Plan (the "2002 Plan"), which provided for the grant of incentive and
non-qualified stock options to purchase a maximum of 2,000,000 shares of common
stock to directors, employees, officers, agents, consultants and independent
contractors who perform services for the Company. As of June 30, 2004, a total
of 1,959,500 options to purchase shares of common stock are outstanding under
the 2002 Plan.

As of July 3, 2003 the board of directors of the Company adopted the 2003
Stock Incentive Plan (the "2003 Plan") which provided for the grant of
non-qualified stock options to purchase a maximum of 320,000 shares of common
stock or the grant of shares to directors, employees, officers, agents,
consultants and independent contractors who perform services for the Company. As
of June 30, 2004, 236,000 shares have been issued to consultants and 35,000
shares have been issued to an officer for services rendered.

As of January 23, 2004 our board of directors adopted the 2004 Stock
Incentive Plan (the "2004 Plan") which provided for the grant of non-qualified
stock options to purchase a maximum of 650,000 shares of common stock or the
grant of shares to directors, employees, officers, agents, consultants and
independent contractors who perform services for the Company. As of June 30,
2004, 650,000 options to purchase shares of common stock have been issued under
this plan.

A summary of changes in common stock options during fiscal 2004 and 2003
follows:

                              Number of    Weighted Average
                                Shares      Exercise Price
                              ----------  ------------------

Outstanding at June 30, 2002   1,783,000    $     0.61
      Granted                    300,000          0.08
      Cancelled                  (90,500)         1.34
      Exercised                     --              --
                              ----------    ----------
Outstanding at June 30, 2003   1,992,500          0.50

      Granted                    650,000          0.25
      Cancelled                  (33,000)         1.34
      Exercised                     --              --
                              ----------    ----------
Outstanding at June 30, 2004   2,609,500    $     0.42
                              ==========    ==========


                                      F-14




                                      -44-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003


8. STOCK OPTIONS - Continued:

Stock Option Plans - Continued"


The following table summarizes information about stock options outstanding
at June 30, 2004:


                                       Weighted
                                        Average
                                        Number     Remaining Number
       Exercise     Outstanding       Contractual    Exercisable
        Price        6/30/2004       Life (Months)    6/30/2004
      -----------   -----------   --------------     ------------
        $ 0.08          300,000               98         300,000
        $ 0.25          650,000              115         650,000
        $ 0.50        1,605,500               91       1,593,500
        $ 1.00           49,000               91          49,000
        $ 1.90            5,000               93           5,000
                    -----------   --------------     -----------
                      2,609,500               98       2,597,500
                   ============   ==============     ===========


At June 30, 2004 there were 79,500 options available for future grant under
the 2002, 2003, and 2004 Stock Plans.

Other Option Grant

Pursuant to the chief executive officer's employment agreement, the Company
granted him a non-qualified stock option to purchase 1,000,000 shares of common
stock at an exercise price of $2.00 per share. These options vest upon
achievement by the Company of $10,000,000 of annual revenues. Due to the
uncertainty of reaching the stipulated performance target, the Company has not
established a measurement date for the option. Upon determination that the
achievement of the revenue threshold is probable, the Company will value the
option on the measurement date using the intrinsic value method, and will record
the resulting charge, if any, over the remaining vesting period.

Common Stock Purchase Warrants

In April 2002, in connection with the reverse merger, (see Note 1) warrants
to purchase a total of 400,000 shares of CCS common stock issued to a consultant
were converted into warrants to purchase an equal number of shares of the
Company's common at an exercise price of $.50 per share, subject to an
anti-dilution provision, as defined. The warrants vested on April 17, 2003. The
Company has valued the warrants at $22,770 using the Black-Scholes option
pricing model.

                                      F-15


                                      -45-

<PAGE>



            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003




9. CONSULTING AGREEMENTS AND RELATED TRANSACTIONS

In July 2003 the Company formalized consulting contracts with Michael D. Farkas,
Jason S. Lyons and an additional financial consultant relating to acquisition
services, financial public relations and operational performance services. In
connection therewith the Company granted immediately exercisable options to
purchase a total of 2,600,000 shares of common stock, of which options to
purchase 1,700,000 shares were granted to Michael D. Farkas, and options to
purchase 400,000 shares were granted to Jason S. Lyons. The exercise price
ranged from $.10 per share to $.50 per share. As of June 30, 2004 the
consultants had exercised options to purchase 2,600,000 shares of common stock
for a total of $659,000. Of these options, options to purchase 1,700,000 shares
were exercised by Michael D. Farkas for $400,000, and 400,000 options exercised
by Jason S. Lyons for $140,000. These options were valued at $405,727 using the
Black-Scholes option-pricing model and were expensed as stock based compensation
during the year ended June 30, 2004.

During the year ended June 30, 2004 the Company sold 1,190,000 shares of
common stock and issued warrants to purchase 500,000 shares of common stock at
an exercise price of $.15 per share for $154,000, including 1,000,000 shares of
common stock and warrants to purchase 500,000 shares of common stock with an
exercise price of $.15 per share sold to Jason S. Lyons for $135,000, and
180,000 shares of common stock sold to GSM Communications, Inc. for $18,000. The
warrants vest immediately, have cashless exercise rights and a life of three
years. These options and warrants were valued at $268,624 using the
Black-Scholes option-pricing model and were expensed during the year ended June
30, 2004. In addition the Company has expensed as stock based compensation
$611,500 representing the difference between the market value and the actual
price paid for the 1,190,000 shares of common stock.

10. PLEDGE AGREEMENT

The agreement relating to the April 2002 reverse merger provided, as a condition
to CCS' obligation to close, that the Company receive proceeds of $1,000,000
from a private sale of the Company's securities. This condition was not met at
closing, and CCS completed the reverse merger with the Company having received
only $75,000. At the closing of the reverse merger, the Company entered into a
stock pledge agreement with Atlas Equity Group, Inc. a Florida corporation
beneficially owned by Michael D. Farkas who is a stockholder of the Company, and
who beneficially owns more than 5% of the Company's common stock, pursuant to
which Atlas Equity was to have pledged 1,500,000 shares of common stock of the
Company. Atlas Equity never delivered the shares to be held pursuant to the
pledge agreement. The pledge agreement stipulated the pledged shares were to be
returned to Atlas Equity if the Company sold shares of its common stock
sufficient to generate net cash proceeds of $925,000 to the Company prior to
June 1, 2002, which date was subsequently extended to June 14, 2002. On December
16, 2002 the Company and Atlas Equity and certain successor owners of Atlas
Equity's pledged shares entered into an agreement that reduced the number of
pledged shares to 750,000, restricted the number of pledged shares that could be
sold for a period of one year, expanded the money raising activity to include
the issuance of debt and extended the date to raise the $925,000 to July 7,
2004. As of June 30, 2004 the Company had sold shares of its common stock and
issued debt generating net cash proceeds of $993,000 and all pledged shares have
been released.



                                      F-16



                                      -46-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003

11. ISSUANCES OF SECURITIES

During the fiscal year ended June 30, 2004, the Company issued the
following securities:

The Company issued 51,468 shares of its common stock to an officer and an
employee in payment of accrued compensation totaling $14,000.

The Company issued 267,500 shares of its common stock to consultants in
payment of consulting fees of $139,081.

On May 7, 2004, the Company issued 550,459 shares of its common stock to
Frank Ross and Juliett Vassilkioti, pursuant to a settlement agreement. See
"Item 3. Legal Proceedings." The settlement agreement provides that the shares
will be valued at their average closing price for the 30 days beginning July 7,
2005 and ending August 5, 2005. CCS has guaranteed that the value of the shares
at that time will be at least $300,000 and is responsible for the amount that
$300,000 exceeds that value. Ben Jamil, the Company's chief executive officer
and principal stockholder has guaranteed that the shares will have a value of at
least $150,000. (See Note 16). At September 29, 2004 the value of the shares
based upon the closing price of our common stock was $165,138.

The Company issued 236,000 shares of its common stock to creditors in full
settlement, subject to certain terms, of $89,050 of payables. If the proceeds
from the sale of the common stock when the creditors sell the shares is less
than $89,050, the Company is to pay the creditors the difference between $89,050
and the proceeds received from the sale of the shares. At September 29, 2004 the
value of the shares based upon the closing price of the Company's common stock
was $70,800.

During the fiscal year ended June 30, 2003, we issued the following securities:

On July 10, 2002, the Company and Shenzhen Newtek, a former product
distributor of the Company, entered into a Settlement Agreement under which the
Company issued 67,000 restricted shares of its common stock in full settlement,
subject to certain terms, of a $67,000 claim. If the market price of the
Company's common stock on July 10, 2003 is less than $1.00 per share, the
Company is to pay the plaintiff the difference between $67,000 and the value of
the stock or in the alternative the plaintiff can return the 67,000 shares to
the Company in return for a payment of $35,000.

On October 21, 2002, the Company and Allan L. Dunterman Jr. entered into a
Settlement Agreement under which the Company issued 110,000 restricted shares of
its common stock in full settlement, subject to certain terms, of an $88,750
claim. If the market price of the Company's common stock on October 21, 2003 or
such later date that the plaintiff sells the shares is less than $.81 per share,
the Company is to pay the plaintiff the difference between $88,750 and the value
of the stock.

The Company issued 112,043 restricted shares of common stock for investor
relations consulting services of $15,000 and issued 80,000 restricted shares of
common stock in full payment of trade payables of $18,267.

On October 7, 2002, the Company entered into an agreement with an investment
banking firm under which the Company issued 50,000 restricted shares of common
stock.

                                      F-17



                                      -47-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003


12. INCOME TAXES

There  was no income  tax  expense  or  benefit  in fiscal  2004 and 2003 due to
operating losses. In January 2003 the Company received approximately $158,000 of
tax refunds from a federal loss carry-back claim.

    Following is a reconciliation of the provision for incometaxes (tax benefit)
    with income taxes on the federal statutory rate:


<TABLE>
<CAPTION>
                                                                  June 30,
                                                      ----------------------------------
                                                           2004              2003
                                                      ---------------   ----------------
<S>                                                   <C>               <C>
    Federal tax at statutory rate                       $ (1,700,000)      $ (1,355,000)
    State and local taxes, net of federal effect            (297,000)          (159,000)
    Nondeductible items                                      237,000             93,000
    Change in valuation allowance                          1,760,000          1,421,000
                                                      ---------------   ----------------
    Income taxes (tax benefit)                          $          -       $          -
                                                      ===============   ================
    Components of deferred taxes are as follows:
</TABLE>


<TABLE>
<CAPTION>
                                                                  June 30,
                                                      --------------------------------
    Deferred tax assets:                                   2004             2003
                                                      ---------------  ---------------
<S>                                                      <C>              <C>
       Net operating losses                              $ 2,912,000      $ 1,798,000
       Deferred rent payable                                  18,000           22,000
       Reserves and allowances                               762,000          480,000
       Stock based compensation                              413,000           16,000
       Deferred revenue                                      563,000          413,000
                                                      ---------------  ---------------
                                                           4,668,000        2,729,000
    Deferred tax liability:
       Property and equipment                                 (6,000)           6,000
                                                      ---------------  ---------------
                                                           4,662,000        2,723,000
    Less valuation allowance                              (4,662,000)      (2,723,000)
                                                      ---------------  ---------------
     Net deferred taxes                                  $          -     $          -
                                                      ===============  ===============
</TABLE>


The Company files a consolidated federal return with its U.S. subsidiaries
and combined state tax returns where permitted.

The Company has recorded valuation allowances to offset tax benefits
arising from deferred tax items because their realization is uncertain. The
Company has federal net operating loss carry-forwards of approximately
$7,300,000 available to offset future federal taxable income. These losses
expire in 2021, 2022, 2023 and 2024.

13. 401(K) SAVINGS PLAN

The Company maintains a qualified deferred compensation plan under section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 15% of their salary, subject to the Internal Revenue Service limits.
The Company may make a discretionary match as well as a discretionary
contribution. The Company did not make any contributions to the plan for the
years ended June 30, 2004 and 2003.


                                      F-18



                                      -48-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003




14. RELATED PARTY TRANSACTIONS

Employment Agreement

In April 2002, in connection with the completion of the reverse merger, the
Company entered into a three-year employment agreement with Mr. Jamil pursuant
to which he agreed to serve as the Company's president and chief executive
officer. The agreement calls for an annual base compensation of $250,000 and may
be increased on each anniversary date commencing May 1, 2003 by 10% if the
Company achieves certain performance criteria. In addition to the base salary,
the chief executive officer is eligible to receive an annual discretionary bonus
commencing June 30, 2003, at the sole discretion of the board of directors.
Pursuant to the agreement, the Company granted the chief executive officer a
non-qualified stock option to purchase 1,000,000 shares of common stock at an
exercise price of $2.00 per share. These options vest upon achievement by the
Company of $10,000,000 of annual revenues.

15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>

                                                                        Year Ended
                                                               -----------------------------
                                                                          June 30,
                                                               -----------------------------
                                                                    2004            2003
                                                               --------------  -------------
Cash paid during the period for:
<S>                                                                 <C>            <C>
     Interest                                                       $ 74,063       $ 56,732
                                                               ==============  =============
     Income taxes (refunded - net)                                   $ 2,929     $ (153,707)
                                                               ==============  =============

Non-cash financing and investing activities:
     Common stock issued to settle accounts payable                $ 756,166       $ 83,447
                                                               ==============  =============
     Accrued interest and deferred salary credited
        to loan payable - CEO/stockholder                           $ 84,759      $ 187,625
                                                               ==============  =============
</TABLE>






16. COMMITMENTS AND CONTINGENCIES

Litigation
----------

Settled matters
---------------

In June 1998, a photographer and model formerly retained by CCS filed suit
in U. S. District Court for the Southern District of New York captioned Ross &
Vassilkioti v. CCS International, Ltd. seeking damages for alleged copyright
infringement and other claims. The judge in the case has granted the plaintiff
partial summary judgment as to the copyright infringement. On June 18, 2003, a
jury awarded the plaintiffs $350,000 on the copyright infringement portion of
the case. Under federal judicial rules, the Company is unable to contest the
granting of partial summary judgment until a final judgment has been rendered.
The Company reached a settlement on May 7, 2004 with the plaintiffs for $600,000

                                      F-19


                                      -49-
<PAGE>


            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003


16. COMMITMENTS AND CONTINGENCIES - Continued

Litigation - Continued
----------------------

Settled matters - Continued
---------------------------

payable with 550,459 shares of the Company's common stock. The agreement
stipulates the shares will be valued at their average closing price for the 30
days beginning July 7, 2005 and ending August 5, 2005. CCS has guaranteed that
the value of the shares will be at least $300,000 and is responsible for the
amount that $300,000 exceeds the value of the shares. Ben Jamil, the Company's
chief executive officer and principal stockholder has guaranteed that the value
of the shares will be at least $150,000 and has guaranteed that the shares will
have a value of at least $150,000.

On November 1, 2002, a former Company supplier filed suit in the United
States District Court for the District of Maryland, captioned Micronel Safety,
Inc. v. CCS International Ltd. seeking damages of $242,400 for breach of
contract to purchase certain products. In August 2004, Micronel Safety, Inc.
found another buyer for the products and on August 16, 2004 the case was
dismissed.

Pending Matters
---------------

On or about March 13, 2003, an action was commenced against CCS and its
subsidiary in the Circuit Court of the 11th Judicial Circuit, Miami-Dade County,
Florida captioned Welcome Publishing Company, Inc. v. CCS International, Ltd.
and Counter Spy Shop of Mayfair Ltd., Inc. seeking damages of $140,430 for an
alleged breach of an advertising contract. CCS has denied the material
allegations of the plaintiff's claim and has raised affirmative defenses
thereto. The Company believes that it has valid defenses to the claim. The case
appears to be going to trial, however, a trial date has not been set.

The Company is also the defendant in three actions arising out of
distributor agreements. On or about May 11, 2000 an action was commenced against
CCS in the Supreme Court, New York County, captioned Ergonomic Systems
Philippines Inc. v. CCS International Ltd. The plaintiff seeks to recover
$81,000, which was paid to CCS in connection with a distributorship agreement
between the parties, plus costs and interest. CCS has denied the material
allegations of the claim and has raised affirmative defenses thereto. On August
3, 2004, the Court granted the plaintiff's claim which, together with accrued
interest, totaled $120,223. The Company believes that it has a valid basis for
appeal of the court's verdict, but it can give no assurance the court verdict
will not be upheld.

On or about October 12, 2001, an action was commenced against CCS in the
United States District Court for the Southern District of New York, captioned
China Bohai Group Co., Ltd. and USA International Business Connections Corp. v.
CCS International, Ltd. The plaintiff seeks to recover $250,000 paid to CCS in
connection with a distributorship agreement between the parties, plus $5,000,000
of punitive damages and costs and interest. CCS has denied the material
allegations of the plaintiff's claim and has raised affirmative defenses
thereto. CCS has asserted a counterclaim seeking damages in the approximate
amount of $1,150,000 based upon the plaintiff's alleged breach of the parties'
distributorship agreement. The Company believes that it has valid defenses to
the claim.

On December 3, 2002 EHS Elektronik Sistemleri submitted a demand for arbitration
to the American Arbitration Association in New York City claiming CCS breached a
joint venture agreement it had entered into with CCS in 1994 and seeking a
refund of the $200,000 it had paid to CCS. On March 4, 2004 the arbitrator
awarded the plaintiff's claim which, together with accrued interest, totaled
$223,620. The Company believes that it has a valid basis for appeal of the
arbitrator's award, but it can give no assurance the American Arbitration
Association will not uphold the award.

                                      F-20


                                      -50-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



16. COMMITMENTS AND CONTINGENCIES

Litigation - Continued:
-----------------------

Pending Matters
---------------

On July 1, 2002, the Company's London subsidiary, Homeland Security
Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair Limited) ("HSS of
UK"), entered into an agreement to assume the business operations of another
United Kingdom corporation ("Predecessor") for nominal consideration. The
Predecessor is a defendant in ongoing litigation brought by a former customer,
who has sued for breach of a contract executed in 1998 and is seeking a refund
of approximately $293,000 in products and services purchased from the
Predecessor. Due to the business transfer, there is a possibility that the
plaintiff could name HSS of UK as a defendant in the case. The Company, in
consultation with counsel, believes that the Predecessor has valid defenses to
the claim, and that HSS of UK has valid defenses against any action that may be
brought against it.

Because of our financial position, actions have been commenced or threatened by
creditors. As of June 30, 2004 we are defending lawsuits for the collection of
approximately $894,167 and have been unable to satisfy approximately $167,000 of
judgments previously rendered in actions by creditors.

Given that litigation is subject to many uncertainties, it is not possible
to predict the outcome of the litigation pending against the Company. However,
it is possible that the Company's business, results of operations, cash flows or
financial position could be materially affected by an unfavorable outcome of
certain pending litigation in amounts in excess of those that the Company has
recognized. All such cases are being, and will continue to be vigorously
defended, and the Company believes that it has meritorious and valid defenses
against all such litigation, as well as a valid basis for appeal of any adverse
verdicts, should they result.

Stock Purchase Agreements

On January 31, 2002, Mr. Jamil entered into an understanding with two
financial consulting companies to sell to them 30% of his interest in the common
stock of CCS's subsidiaries, excluding Security Design, Inc., for nominal
consideration. Mr. Jamil has advised the Company that neither the two financial
consultants nor their designees have paid the required consideration for the
shares, and that he has never formally transferred any stock ownership in the
subsidiaries to the financial consultants or their designees. Further, a total
of 1,500,000 shares of the Company's Series B Preferred Stock were issued to the
chief executive officer in partial exchange for his shares in the subsidiaries,
and not to the financial consultants or their designees as had been contemplated
by agreements between the chief executive officer and the financial consultants
or their designees. The Company cannot give any assurance that the financial
consultants will not claim that they are entitled to the Series B shares.


                                      F-21



                                      -51-
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003



Operating Leases

The Company leases office space, retail stores and sales offices and office
equipment under non-cancelable operating leases that expire over various periods
through 2010. Rent expense is being recognized on a straight-line basis to
account for rent concessions and graduated charges during the lease term,
resulting in deferred rent payable of $47,278. Total rent expense for the years
ended June 30, 2004 and 2003 was approximately $481,456 and $632,288
respectively. The approximate future minimum rental commitments for all
long-term non-cancelable operating leases are as follows:


  Year ending
    June 30,                 Amount
-----------------        ---------------

      2005                    $ 514,894
      2006                      300,999
      2007                      266,697
      2008                      242,100
      2009                      162,954
Thereafter                      250,697
                         ---------------
                            $ 1,738,341
                         ===============

 17. SUBSEQUENT EVENTS

NOTES PAYABLE CONVERTIBLE CREDIT FACILITY

During August and September 2004, the Company borrowed an additional $300,000
under their convertible credit facility. (See Note 6).






                                      F-22



                                      -52-
<PAGE>

                                   SIGNATURES

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

SECURITY INTELLIGENCE TECHNOLOGIES, INC.

                                      /s/ Ben Jamil
                                      -------------------------------------
                                      Ben Jamil
                                      Chairman of the Board of Directors,
                                      President and Chief Executive Officer
                                      Dated: October 12, 2004



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated:


/s/ Ben Jamil                             /s/ Chris R. Decker
--------------------------------------    ------------------------------------
Ben Jamil                                 Chief Financial Officer and Director
Chairman of the Board of Directors,       Dated:  October 12, 2004
President and Chief Executive Officer
Dated:  October 12, 2004


/s/ Menachem Cohen                        /s/ Sylvain Naar
-------------------------------------    -------------------------------------
Menachem Cohen                            Sylvain Naar
Vice President and Director               Director
Dated: October 12, 2004                   Dated: October 12, 2004


/s/ Tom Felice
-------------------------------------
Tom Felice
Director
Dated: October 12, 2004


                                      -53-