**UNITED STATES OF AMERICA**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

### **FORM 10-KSB**

 

**ANNUAL REPORT UNDER SECTION 13 OR 15(D)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe fiscal year ended June 30, 2003**

 

# **Commission file No.**0-29501

 

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

(Exact name of registrant as specified in its charter)

 
| **NEVADA**                                                     |   | **33-0879853**        |
|----------------------------------------------------------------|--------|-----------------------|
| (State or other jurisdiction of incorporation or organization) |   | (IRS Employer ID No.) |

 

**2075 Corte del Nogal, Suite R****Carlsbad,California 92009(760) 431-2206**

(Address and telephone number of principalexecutive offices)

 

Securities registered under Section 12(b) of the Exchange Act: **NONE**

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

## **Common Stock, $0.001 par value**

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   ý  Yes  o  No

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B is not contained in this form, and no disclosure will becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. ý

 

At October  1,  2003 the  aggregate market value ofthe voting stock held by non-affiliates of  the  registrant was approximately $2,800,000 based on the lasttrade  price  as reported on the NASD OTC Bulletin Board. For purposes ofthis  calculation,  shares owned  by officers, directors,and 10% shareholders known  to theregistrant have been excluded. Such exclusion is not intended, nor shall it bedeemed, to be an admission that such persons are affiliates of the registrant.

 

At October 1, 2003, there were 18,090,006shares of the registrant’s Common Stock, $0.001 par value, issued andoutstanding.

 

 

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**ForwardLooking Statements**

 

In addition tohistorical information, this Annual Report on Form 10-KSB may containforward-looking statements that involve a number of risks and uncertainties,including those discussed below at “Risks and Uncertainties.” While thisoutlook represents management’s current judgment on the future direction of thebusiness, such risks and uncertainties could cause actual results to differmaterially from any future performance suggested below. Readers are cautionednot to place undue reliance on the forward-looking statements, which speak onlyas of the date of this Annual Report. The Company undertakes no obligation topublicly release any revisions to forward-looking statements to reflect eventsor circumstances arising after the date of this document. See “Risks andUncertainties.” References in this Annual Report on Form 10-KSB to“Com-Guard.com” and the “Company” are to Com-Guard.com, Inc.

 

**PART I**

** **

**Item1.   Description of Business.**

 

Com-Guard.com, Inc. (the “Registrant” or the“Company”) was incorporated as e-World Security, Inc. in the State of Nevada onOctober 7, 1998. The Company’s name was changed to Com-Guard.com, Inc. andfiled on April 16, 1999.

 

The Registrant has limited operating history. The principal business ofthe Registrant is the exploitation of niche products for the microcomputerindustry that provide enhanced system security for both individual users andnetwork administrators. The Company’s primary products are:

 

1.  Com-GuardTM,which includes unique software that enables an authorized user to prohibit useof their computer, record events, and protect and deny access to stored filesand

 

2.  Com-Guard ProTM,combines Com-GuardTM software with a patented Sensor-CardTMhardware PC board to provide the data security mentioned above with expandedsystem level security that guards against physical tampering, theft, siteaccess, and unauthorized use of computers.

 

Com-Guard is able to hide, encrypt, and lock down data files in whatcan be considered a virtual ComputerSafeTM so that if there is asecurity violation attempt, locally or through a network, the intruder will notbe able to access the files in the Com-GuardTM protected area. TheCompany’s Web-GuardTM product keeps unauthorized users from usinginstalled browsers and therefore limits their access to the Internet.

 

The Registrant’s present business address is 2075 Corte del Nogal,Suite R, Carlsbad, California 92009.

 

**Overview.**

 

Com-Guard.com, Inc. provides a group of productsthat provide users of personal computers with (1) Internet security, (2) fileand hardware security, and (3) internal facility security.

 

Thecompany’s Com-Guard ProTM system, its most comprehensive product,monitors a computer or network and detects, through proprietary software andhardware, unauthorized attempts to use, tamper with, steal or remove data orequipment. The system is designed to generate a 110 db audible alarm and toinitiate a message, which can be sent to pagers, telephones, other computers,PDA’s and other electronic receiving devices.

 

Homeautomation, including systems to provide “internal” security to certain areasof a home or office, represents an additional market for Com-Guard. The system,installed in a PC, has the ability to function as an internal home securitysystem, controlling a series of sensors to protect against theft and intrusion,and can be utilized for child safety, etc.

 

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TheCompany’s Com-GuardTM product is a softwarepackage that safeguards virtually unlimited numbers of files. The principalapplication for this product is to protect the user from identity theft andinvasion of privacy.  Its uniquecombination of file protection, event recording, and electronic notificationguards critical programs and data to protect against loss, corruption andunwanted access. Files can be locked, hidden and/or encrypted to remainunreadable even if the hard disk is scanned using sophisticated disk dataaccess tools. Unauthorized file access attempts and outright attacks arerecorded for forensic analysis.  And ifso desired, a page, phone-call and/or email notification is sent.

 

The Web-GuardTM program offered by the Company locks up to three application programsyou select and allows you to control when they are used.  One simple mouse click locks or unlocksthese programs again.  Web-Guard can recordeverywhere the user goes on the Web. Web-Guard’s silent URL Tracking keeps a log of every URL any browservisits.  The protected log can’t bemodified or erased, unless you know the password.

 

Themarket for Com-Guard’s products consists of individualusers and industry. The popularity of the Internet has created a need for bothdata security and access limitations. Limiting access to sensitive and/orconfidential files has grown to be a need for all users of microcomputers.

 

TheCompany is managed by experienced individuals who haveworked in the microcomputer industry for over 20 years with successful trackrecords.

 

**The Products.**

 

Com-Guardis a PC-based hardware/software system. It provides features to providesecurity for computers, networks, and home/office environments.

 

*Protection from computer tampering and theft:* Over $8billion of computers are stolen annually. Com-Guard ProTM provides an internalsensor in the computer, which enables an alarm to inform the user of anymovement of the system. The system can be enabled remotely with a RFtransmitting device similar to that used in automobile alarm systems, which canbe carried on a key chain.

 

*Protection of valuable PC components from tamperingand theft:* While billions are lost annually due to theft ofcomputers, substantial theft is attributable to tampering and theft ofcomponents, such as mice, memory, disk drives, keyboards, etc. The Com-GuardProTM system detects any vibration of the system, and provides a warning alertto the owner of the system.

 

*Prevent unauthorized access to PC:* Unauthorizedaccess to a PC can range from children logging onto Internet sites withoutparental knowledge or permission, to office co-workers accessing confidentialand sensitive files from a PC without the user’s knowledge or consent.Com-GuardTM software allows the user to place applications, directories, and/orfiles in a secure location that simulates a ComputerSafeTM where all access isdenied without a valid password (combination). Additionally, Com-Guard providesa log of all attempts at unauthorized access.

 

*Internal home/office security features:* Com-GuardProTM, through interconnected sensors (heat, motion, video, etc.) can serve asa central internal security system. The same alarm capabilities and eventlogging features of the basic PC security system are enabled in an environmentthat protects the entire environment. The end user can connect a motiondetector, video camera or other security products that will be provided by theRegistrant, to the connectors on the back of the Com-Guard Sensor-CardTMhardware.

 

*Battery backup:* In the event of powerfailure or deliberate disconnection of the computer, Com-Guard continues tooperate with its own battery backup on the power source.

 

*Remote notification:* Com-Guard alarm messagescan be routed to remote devices such as pagers and telephones.

 

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Com-Guardproducts are offered in several configurations depending upon the need of theindividual customer. Com-Guard initially offered three products as describedabove in the Overview: (1) Com-Guard Pro version, including Com-Guard’spatented Sensor-CardTM hardware and Soft-GuardTMsoftware; (2) Com-Guard software only for file and data access protection; and(3) Web-Guard - a software package to provide limiting access to browsers andtracking of URL’s visited.

 

**New Technology Offering**

 

On August 19, 2003,****Com-Guard,Inc. announced a licensing, representation and development agreement with First4 Internet Limited, (F4i) a British software technology development company.

 

Com-Guard will market products using F4i’s Image CompositionAnalysis (ICA) technology, which scans for and blocks pornographic images andtext sent through websites, email, and webmail, as well as license it to othercompanies.  The software has been indevelopment for more than four years.

 

This technology, unlike most porn filtering solutions thatblock certain URLs (web addresses), scans the content of images and text beforedisplay to determine attributes of an obscene or pornographic nature.

 

The Image Composition Analysis software incorporatessophisticated algorithmic calculations to help identify the content of eachimage and to analyze the text that is sent to the end-user, thus ensuringeffective filtering.  Independenttesting has confirmed that ICA software prevents about 96 percent ofpornographic images from reaching the computer screen.  When a site is identified as containingoffensive material, it can be assigned to a “black” list to prevent furtherattempts to access the site.  Theauthorized user can manage the listings of the “black” and “white” lists toinsure total accuracy.

 

**The Market.**

 

The U.S. personal computerindustry consists of thousands of computer manufacturers, assemblers, OEMs, andperipheral/parts producers. Their products are sold and supported by a varietyof distributors, resellers, systems integrators, retail merchants, and servicecompanies. Saturating markets and increasing competition is forcing vendors toseek new users in homes, small businesses and classrooms with revampedmarketing strategies and lower cost computers. The information on the size ofthe PC Computer Industry and network market is considered pertinent because theRegistrant cannot sell and install a Com-Guard board and its related software unlessthere are Personal Computers that are installed.

 

In 2001, the worldwidenumber of PCs-in-use topped 600 Million units. In the following six years, thisnumber is projected to nearly double to over 1.15 Billion PCs-in-use byyear-end 2007 for a compound annual growth of 11.4%. The U.S. has the largestnumber of PCs-in-use with 175 Million at year-end 2001, and will increase by6.2% per year to reach 251 Million units in 2007. Despite yearly PC sales ofover 40 Million units in the U.S., the annual increase in PCs-in-use will growby over 13 Million per year due to over 70% PC replacement rates.

 

Networking continues to havea profound effect on the PC industry, from local area networks (LANs) and widearea networks (WANs) to the Internet and Intranets. Networking andclient/server technologies have enabled the personal computer to play a greaterrole in mission-critical business functions. This expands the value of the PCto companies and reduces the status of legacy mainframe and midrange systems, while,at the same time, exposing a company and/or its data to Cyber-attacks.LAN functions are graduating from traditional print sharing, file transfer, ande-mail uses to transaction processing, management support, and Internet accessapplications. Users are also seeking to link LANs to wider areas to accommodateregional offices and to provide remote access to home workers.

 

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This “connectivity” fuelsthe growing concern regarding file and data security. According toInternational Data Corporation (“IDC”), over half of business PCs in the UnitedStates are now connected via a LAN. This number reaches as high as80 percent when speaking about organizations with more than 100 employees.The Internet is, in a sense, the widest area network and is creating arevolution in the way PCs are used both by businesses and individuals.

 

The PC security industry hascome into prominence recently, as a result of the newly recognized threat ofcyber-terrorism. Corporate data, once reasonably secure when companies used theirown internal computers and networks, have come under increasing threats as moretransactions and communications between companies take place over the Internetand Wide Area Networks (WANs). Mike McConnell, former Director of the U.S.National Security Agency, expresses the point concisely in a July 2001 RedHerring Special Report on Digital Security when he speaks to the need forimproved security of computers and data from cyber- attacks stating that“The United States is more networked than anyone else, and more vulnerable”.

 

The Internet securitysoftware market has been robust with sales of security software in 2000, rising33 percent to $5.1 Billion, outpacing the general software market, whichgrew 12 percent for the year. The Internet has made access to corporatedata easier making the threat of data theft and or tampering a real and risingissue for businesses large and small alike. Forbes magazine reported that85 percent of US corporations had at least one “network” breach costing atotal of at least $10 Billion, aggregately.

 

Fueled by the proliferationof the personal computer and Internet use, the market for Com-Guard’s productsis substantial. In 2000, over $5.1 Billion was spent on Internet Securitysoftware by individual computer users and corporate entities. According toInternational Data Corporation, this number is expected to grow to $14 Billionby the year 2005, a compounded annual growth rate of 23%.

 

Major vendors are beginningto target small businesses, which form the least penetrated, fastest growingbusiness sector. Market drivers include the improved availability of PCs inconsumer outlets at attractive prices and new efforts by major vendors toaddress the problems faced by these companies, most of which have limitedresources and technical know-how. Sales to the more than 6 million firmswith less than 100 employees in the United States constitute the largest shareof shipments to the business sector, rising to an estimated 42 percent bythe year 2000. The small business sector represents more than 60 percentof business employees.

 

As evidence of the need forPC data security in connection with identity theft, a report released by theNational Cyber Security Alliance on June 4, 2003, found that most broadbandusers lack basic knowledge of protections against the dangers of an always-onconnection to the Internet.

 

The study, conducted in thehomes of 120 broadband users, showed 86 percent of the users said they keepsensitive health, financial or personal information on their home computers,but only 11 percent said they have safe and securely configured systems.

 

Additionally, a recent IDCsurvey of businesses revealed that security is of paramount concern in theenterprise. Increased use of the Internet and corporate growth are among themost significant business drivers for adding security; and there was littleevidence that these pressures would change over the next several years.

 

The IDC survey also coveredthe priority given by respondents to securing assets. Other than virusprotection, which has been addressed by dozens of products over the past fewyears, the most important concern was corruption of data and unwanteddisclosure of data.

 

Finally, the IDC reportindicated a general dissatisfaction with the usability and integration ofcurrent security technologies, which represents an opportunity for Com-Guardand associated technologies.

 

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**Business Strategy.**

 

The Company’s fundamentalstrategy is to position its Com-Guard product as a preferable method of PCsecurity to end-users, businesses, and institutions worldwide. The Companyintends to be the leader in:

 

1.             TheDETECTION of unauthorized activities such as attempts to tamper with or stealequipment and/or access stored information with proper identification.

 

2.             ThePROTECTION of the physical system and data security of the files that the userelects to safeguard from all who try to access the information without validauthority by placing files in a virtual “ComputerSafeTM” (a protected area ofthe disk drive that is highly secure).

 

3.             Theimmediate NOTIFICATION of the legal user of the event with some detail of theviolation attempt.

 

Production of the productand inventory procurement have been arranged with the original Koreandeveloper/manufacturer. The Korean developer/manufacturer will be used tomanufacture the Com-Guard product, assuming that price and delivery will beagreed to by both parties.

 

Management believes that itscosts will remain competitive with alternative sources of supply. In any case,The Company does not, at this time, plan to build its own manufacturingcapability and will continue to outsource The Company inventories. Theprincipal supplier as mentioned, will be Guardtec, Inc. The Companybelieves that there are many contract manufacturing companies that would bid onmanufacturing the Company’s product.

 

Guardtec has been thelogical manufacturer of choice for the hardware PC board used in the Com-GuardPro product. However, the Company is equally able to manufacture the productanywhere we deem appropriate. Com-Guard software development has been developedin the U.S. Except for Korea, Com-Guard has worldwide manufacturing and marketing rights to the hardware andunderlying software. Material customers for the products can be found nearlyeverywhere in the world.

 

End-user marketing will focus on providing a limitedversion of the product over the Company’s Internet site. In this way, theproduct is exposed to a broad sector of the market that would match the profileof our consumer. Customers could order broadened feature sets of the productdirect from the Company, or from resellers, who might stock the product instores.

 

Com-Guard will be madeavailable to selected resellers either as a branded product or underprivate-label arrangements. The product would be merchandised for sale with newcomputer systems or as an add-on product to existing PC owners. The Companyintends to use standard distribution such as major distributors, specialtydistributors in the enterprise area and computer resellers located throughoutthe United States.

 

The F4iImage Composition Analysis technology and derivative products will address thegrowing need to protect users from undesirable image and test content appearingon the display whether originating from Web sites, e-mail attachments or ChatRoom applications.

Theissues are:

• 30percent of teenage girls said they had been sexually harassed in a chat room(Girl Scout Research Institute)

• Only7 percent, however, told their mothers or fathers about the

 

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harassment,as they were worried that their parents would ban them from going online (G. S.R. I.)

• 86percent of the girls polled said they could chat online without their parents’knowledge (G. S. R. I.)

• 54percent could conduct a cyber relationship (According to the FBI)

• Atleast one adult crosses state lines every day to meet with a child they havedeveloped a relationship with online. (According to the e Marketer)

• 75percent of children are willing to share personal information online aboutthemselves and their family in exchange for goods and services. (According tothe Youth Internet Safety Survey)

• Onein 33 youths received an aggressive sexual solicitation in the past year, i.e.a predator asked a young person to meet somewhere, called a young person on thephone, and/or sent the young person correspondence, money, or gifts through theU.S. Postal Service (According to the Crimes Against Children Research Centre)

• 77percent of the targets for online predators were age 14 or older, 22 percentwere aged 10 to 13 (G. S. R. I.)

 

The Company’s sales forcewill be primarily comprised of direct sales personnel to focus on thetechnology licensing market and manufacturer’s representative firms throughoutthe US and Europe to focus on product sales. The reps will be responsible forselling direct to business and commercial accounts’ principally Fortune 1000companies and the like whose needs for the product have been validated by theresearch.

 

The Company will plan andexecute an integrated advertising public relations campaign to promoteCom-Guard, including participation in trade shows and seminars, and frequentuse of consumer and trade publications

 

**Competition.**

 

Whilemany security products for the PC are available, most are either inadequate ortoo costly for general consumption and use. Most products are either costly“firewall” systems for Internet management, or software products that rely oncomplex encryption technologies or password protection, which has proven bothcumbersome and inadequate. Furthermore, existing technologies do not combinethe features of data security as well as theft protection; and no PC productcombines the features of Com-Guard along with an interior security system (forhome or office).

 

Firewallproducts are designed to keep out potential intruders and encryption productsare used to scramble or otherwise render data “unreadable.” Com-Guard wasdesigned to detect an intrusion and notify the owners. The product will detectunauthorized use, report the intrusion and prevent the unauthorized intruderfrom accessing data in the Com-Guard protected area.

 

Consequently,the Company believes that Com-Guard is well-positioned in features and price,which can provide it a competitive position in a market of considerable size.

 

TheCompany’s management has extensive experience in outsourcing computer hardwareproducts and believes that there is a lot of competition for manufacturingcomputer related hardware boards. The components on Com-Guard hardware boardsare widely available from multiple manufactures.

 

Companiesgenerally compete by advertising product features and having products tested byindependent product reviewers and testing companies. The Company will pursuethese avenues for competing with their products.

 

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**Intellectual Property.**

 

TheCompany has a patent in the United States (Application number 09/030,993),which covers the implementation of Com-Guard hardware. Copyright applicationswill be filed on all software developed for the system. The IntellectualProperty covers the use of a hardware board which has a device to determinewhen the computer had been moved or tampered with.

 

**Employees.**

 

The Company has a total of(9) employees, of whom four (4) were in corporate administration andfinance, two in engineering and research and development, and three in salesand marketing.

 

Priorto September 1, 2002 the Company retained its staff through consultingagreements and accrued fees. Initial payroll and employees commenced onSeptember 1, 2002. Consulting services were for executive services, legaland accounting, engineering and sales and marketing.

 

**Reports to security holders***.*

 

The Company isfully reporting. The Company will deliver this Form 10-KSB as its annual reportto its shareholders. The Company reports its quarterly and annual financialresults to the Securities and Exchange Commission (“SEC”). The last reportfiled by the Company was for the period ended March 31, 2003.

 

Accordingly,the public may read and copy any materials filed by the Company with the SEC atthe SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.20549. The public may obtain information on the operation of the PublicReference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains anInternet site that contains reports, proxy and information statements, andother information regarding issuers that file electronically with the SEC(http://www.sec.gov). The Company’s Internet address is www.com-guard.com.

 

**Risks anduncertainties.**

 

**Our business is capital intensive and will require additionalfinancing which will result in dilution to existing shareholders which would inturn reduce the share price of earlier issued shares**

 

Our operations are capitalintensive and growth will consume a substantial portion of available workingcapital. We may require additional capital in order to fund are operations. Wedo not have any commitments for additional financing and there can be noassurance that such additional funding, if required, will be available, or ifavailable, will be available upon favorable terms. With respect to our abilityto obtain financing on favorable terms, we do not have significant assets toserve as loan collateral. Still further, we presently do not have a sufficientcash flow to qualify for reasonable debt financing. Insufficient funds mayprevent us from implementing our business strategy. In the event we raiseadditional funds through the issuance of equity securities, dilution to the thenexisting stockholders will result and future investors may be granted rightssuperior to those of existing stockholders. Accordingly, such dilution wouldreduce the share price of the earlier issued shares.

 

**Lack of operations, positive cash flow and profitability maycontinue which will affect our ability to remain in business**

 

As of March 31, 2003,planned principal operations commenced. As such we have a limited history ofoperations, the generation of positive cash flow or profits in the industriesin which we participate. If we do not generate positive cash flow and hencebecome profitable, we may not be able to remain in business.

 

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**Uncertainty of commercial success may affect our ability toremain in business**

 

With respect to our revenueand profitability prospects, we may not be able to achieve commercial successwith our Com-Guard product. Furthermore, the computer industry is characterizedby rapid change and growth. Accordingly, we may not be able to keep up with thepace of technological change or fund its growth. If we fail to achievecommercial success, we will continue to suffer net losses and we will have togo out of business.

 

**Competition may have an adverse effect on our business**

 

We are subject tocompetition from other companies that may try to emulate or compete withsimilar products or services. These competitors have been in the businesslonger than us and may have large executive and operating staffs. Our prospectsmay be adversely affected by competition from these companies. The introductionof similar or superior products by current or future competitors could have amaterial adverse effect on our business and financial condition.

 

**Dependence on management will affect our profitability**

 

Future success depends onthe continued services of Dr. Edward W. Savarese, Chief Executive Officerand Joe Sigismonti, President and Chief Operating Officer. While we intend toenter into customary employment agreements with each of them, the loss of anyof their services would be detrimental and could have a material adverse effecton the business, financial condition and results of operations. Future successis also dependent on our ability to identify, hire, train and retain otherqualified managerial and other employees. Competition for these individuals isintense and increasing. We may not be able to attract, assimilate, or retainqualified technical and managerial personnel and our failure to do so couldhave a material adverse effect on the business, financial condition and resultsof operations.

 

**Dependence on proprietary technology and risks of third partyinfringement claims could adversely affect our business and results ofoperations**

 

Although we have receivedpatent protection, our measures to protect our current proprietary rights maybe inadequate to prevent misappropriation of such rights or that ourcompetitors will not independently develop or patent technologies that aresubstantially equivalent to or superior to our technologies. Additionally,although we believe that our products and technologies do not infringe upon theproprietary rights of any third parties, that third parties may assertinfringement claims against products and technologies that we license, or hasthe rights to use, from third parties. Any such claims, if proved, couldmaterially and adversely affect our business and results of operations. Inaddition, though any such claims may ultimately prove to be without merit, thenecessary management attention to, and legal costs associated with litigationor other resolution of such claims could materially and adversely affect ourbusiness and results of operations.

 

**The results of research and development efforts are uncertainand we may not be able to compete effectively in the marketplace**

 

We will need to make significantresearch and development expenditures to remain competitive. While we performextensive usability and beta testing of new products, the products we arecurrently developing or may develop in the future may not be technologicallysuccessful. If they are not technologically successful, the resulting productsmay not achieve market acceptance and these products may not competeeffectively with products of competitors currently in the market or introducedin the future. If we are unsuccessful in the marketplace, it may affect ourability to remain in business.

 

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**Reliance on third party technologies may result in adecreasing demand for our products and our ability to remain in business affectthe value of your investment**

 

Our software products aredesigned to run on multiple operating systems and integrate with securityproducts from other vendors. Businesses in the corporate market may not adoptsuch technologies as anticipated or will in the future migrate to othercomputing technologies that we do not support. Moreover, if our products andtechnology are not compatible with new developments from these companies, as towhich there can be no assurances, the business, results of operations andfinancial condition could be materially and adversely affected. If we areunable to successfully and timely develop products that operate under existingor new operating systems, or if pending or actual releases of the new operatingsystems delay the purchase of products, future net revenues and operatingresults could be materially adversely affected. Additionally, as hardwarevendors incorporate additional server- based network management andsecurity tools into network operating systems, the demand may decrease for someproducts, including those currently under development. In the event such demanddecreases, we will continue to suffer net losses and we will have to go out ofbusiness.

 

**Our auditors have expressed doubts about our ability tocontinue as a going concern which may result in the loss of your entire investment**

 

In preparing our auditedfinancial statements, our auditors have expressed doubts about our ability tocontinue as a going concern. If we discontinue operations, you will lose yourentire investment.

 

**Risks Relating to Our Common Stock**

 

**Because our common stock has recentlybeen listed on the NASD OTC Bulletin Board there can be no assurance that aregular trading market for our common stock will ever be developed and as suchthe investors must be able to bear the financial risk of losing their entireinvestment**

 

Our common stock was listedon December 24, 2002 on the NASD OTC Bulletin Board under the tradingsymbol “CGUD.” There has been only limited trading activity in our securitiesat this time and a regular trading market for our common stock may never bedeveloped. We do not know if a market for our common stock will be establishedor that, if established, a market will be sustained. Therefore, investorsshould realize that they may be unable to sell our common stock if theypurchase it. Accordingly, investors must be able to bear the financial risk oflosing their entire investment in our common stock.

 

**Potential volatility of stock price will affect the value ofour common stock**

 

There can be no assurancethat an active public trading market can be established or sustained.Furthermore, if a regular trading market for the common stock is established,the shares could be subject to significant fluctuations in response tooperating results and other factors, many of which are not within our control.Accordingly, you may not be able to obtain a satisfactory price for your sharesif you need to sell some or all of your shares at a time when the shares may bedepressed.

 

**Item 2.Description of Property.**

 

The Company occupiesapproximately 2,000 square feet of space in a facility located at 2075 Cortedel Nogal, Suite R, Carlsbad, CA 92002, at a monthly rental rate of $2,183. Thelease expires on August 31, 2005.

 

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Monthly rental on this facility is subject toannual rent adjustments based on the Consumer Price Index (CPI). The Companyowns no real property.

 
| **Item 3.** | **Legal  Proceedings.**                                   |
|-------------|-----------------------------------------------------------|
|        |                                                      |
|        | None.                                                     |
|        |                                                      |
| **Item 4.** | **Submission of Matters to a Vote of  Security Holders.** |
|        |                                                      |
|        | None.                                                     |

 

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**PART II**

 

**Item 5. Market forCommon Equity and Related Stockholder Matters.**

 

The Company’s common stock was listed onDecember 24, 2002 on the NASD OTC Bulletin Board under the trading symbol“GCUD.” There has been only limited trading activity in our securities at thistime and there can be no assurance that a regular trading market for our commonstock will ever be developed.

 

By virtue of Rule 3a51-1 ofthe Securities Act of 1934 (the “Act”), if the Company’s common stock has aprice of less than $5.00 per share it will be considered a “penny stock.” Theprerequisites required of broker-dealers engaging in transactions involving“penny stocks” have discouraged, or even barred, many brokerage firms fromsoliciting orders for certain low priced stocks.

 

Still further, with respectto the trading of penny stocks, broker-dealers have an obligation to satisfycertain special sales practice requirements pursuant to Rule 15g-9 of the Act,including a requirement that they make an individualized written suitabilitydetermination for the purchase and receive the purchaser’s written consentprior to the transaction.

 

Still even further, such broker-dealers haveadditional disclosure requirements as set forth in the Securities EnforcementAct Remedies and Penny Stock Reform Act of 1990. These disclosure requirementsinclude the requirement for a broker-dealer, prior to a transaction in a pennystock, to deliver a standardized risk disclosure document that providesinformation about penny stocks and the risks of the penny stock market.

 

Still even further, abroker-dealer must provide the customer with current bid and offer quotationsfor the penny stock, the compensation of the broker-dealer and its salespersonin the transaction, and monthly account statements showing the market value ofeach penny stock held in the customer’s account.

 

Accordingly, the above pennystock regulations and the associated broker-dealer requirements may have anadverse effect on the market liquidity of the Company’s common stock and theability of any present and prospective shareholder investors to sell theirsecurities on the secondary market.

 

However, regardless of theprice of the Registrant’s stock, in the event the Company has net tangibleassets in excess of $2,000,000 and if the Company has been in continuousoperation for at least three (3) years, or net tangible assets of $5,000,000,if the Company has been in continuous operation for less than three (3) years,Rule 3a51-1(g) of the Act will preclude the Company’s common stock from beingclassified as a “penny stock.”

 

**Dividends.**

 

The Company has never paid any cash dividends on itscapital stock. The Company currently anticipates that it will retain allavailable earnings for use in the operation and expansion of its business, anddoes not anticipate paying any cash dividends in the foreseeable future.

 

**Recent Sales ofUnregistered Securities; Use of Proceeds From Registered Securities.**

 

The Company had the following stock issuancesfor the period covered by this report as described below. All such shares weresold by the officers and directors of the Company and no underwriters wereutilized.

 

FromJuly 31, 2002 through August 9, 2002, a total of 4,125,003 shares ofcommon stock at $.35 per were issued pursuant to a Regulation D,Rule 506 Offering for cash of $1,426,250 to a total of fifteen(15) accredited investors. A total of 2,062,501 Warrants exercisable at$.70 per share were also issued as part of this offering to these sameinvestors.

 

OnAugust 9, 2002, a total of 500,000 shares of common stock were issued as aplacement fee for the Regulation D, Rule 506 Offering to a total ofseven (7) accredited investors as follows: 175,000 shares to one (1)shareholder, 4,000

 

12

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sharesto one (1) shareholder, 18,000 shares to one (1) shareholder, 221,000 shares toone (1) shareholder, 2,000 shares to one (1) shareholder, 25,000 shares to one(1) shareholder and 55,000 shares to one (1) shareholder.

 

OnMarch 4, 2003, a total of 94,286 shares of common stock were issued to one(1) accredited investor creditor of the Company at $.35 per share inconsideration of the cancellation of a total of $33,000 debt.

 

OnMarch 4, 2003, a total of 857,142 shares of common stock were issued to asingle accredited investor creditor of the Company at $.70 per share inconsideration of the cancellation of a $600,000 debt that occurred inDecember 2002.

 

Onor about December 15, 2003, a single accredited investor converted itsConvertible Promissory Note in the amount of $250,000 into 357,142 shares ofcommon stock at a conversion rate of $.70 per share. The share certificaterepresenting this converted shares was issued on March 4, 2003.

 

OnMarch 4, 2003, a total of 525,000 shares of common stock at $.35 per sharewere issued pursuant to a Regulation D, Rule 506 Offering for cash of$187,500 to a total of six (6) accredited shareholders. A total of 262,500Warrants exercisable at $.70 per share were also issued as part of thisoffering. Payment for these shares was received in December 2002.

 

OnMarch 4, 2003, a total of 178,572 shares of common stock were issued to asingle accredited investor creditor of the Company at $.70 per share inconsideration of the cancellation of a $125,000 debt that occurred inDecember 2002.

 

OnMarch 4, 2003, a total of 357,145 shares of common stock were issued tofour (4) consultants of the Company at $.70 per share in consideration ofvarious consulting services provided to the Company of a total valuation of$250,000 as follows: 178,572 shares to one (1) shareholder, 71,429 shares toone (1) shareholder, 71,429 shares to one (1) shareholder, and 35,715 shares toone (1) shareholder. Two (2) of the consultants were accredited investors andthe other two (2) consultants were unaccredited investors.

 

OnApril 2, 2003, a total of 533,716 shares of common stock were issued toeleven (11) consultants of the Company at $.35 per share in consideration ofvarious consulting services provided to the Company of a total valuation of$186,801 as follows: 142,858 shares to one (1) shareholder (accreditedinvestor), 50,000 shares to one (1) shareholder (accredited investor), 50,000shares to one (1) shareholder (unaccredited investor), 75,000 shares to one (1)shareholder (unaccredited investor), 59,888 shares to one (1) shareholder(accredited investor), 50,000 shares to one (1) shareholder (accredited investor),15,112 shares to one (1) shareholder (unaccredited investor), 42,858 shares toone (1) shareholder (accredited investor), 18,000 shares to one (1) shareholder(accredited investor), 15,000 shares to one (1) shareholder (unaccreditedinvestor), and 15,000 shares to one (1) shareholder (accredited investor).

 

OnApril 2, 2003, a total of 40,000 shares of common stock were issued tothree (3) accredited investor consultants of the Company at $.20 per share inconsideration of various consulting services provided to the Company of a totalvaluation of  $8,000 as follows: 15,000shares to one (1) shareholder, 15,000 shares to one (1) shareholder and 5,000shares to one (1) shareholder.

 

**(b)  Exemptions fromRegistration:**  Withrespect to the shares issued as noted in Items 4(a)1 through 4(a)4, suchissuances were made in reliance upon the private placement exemptions providedby Section 4(2) of the Securities Act of 1933 as amended (the “Act”) andNevada Revised Statutes Sections 78.211, 78.215, 78.3784, 78.3785 and 78.3791(collectively the “Nevada Statutes”) debt cancellations listed at Items 4(a)10,4(a)11, 4(a)12 and 4(a)14, the placement fee listed at Item 4(a)9 and theconsulting services listed at Item 4(a)15, 4(a)16 and 4(a)17, such issuances weremade in reliance on the private placement exemptions provided bySection 4(2) of the Act and the Nevada Statutes.

 

13

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With respect to the issuanceof the 5,150,003 common shares and 2,325,001 Warrants listed at Items 4(a)12and 4(a)13, such issuances were made in reliance on the private placementexemption provided by Section 4(2) of the Act, SEC Regulation D,Rule 506 of the Act and the Nevada Statutes.

 

**(c)  Basis forReliance Upon Exemption from Registration:**  We have relied upon the private placement exemptions fromregistration provided by Section 4(2) of the Securities act of 1933 asamended (the “Act”) and SEC Regulation D, Rule 506 of the Act. Withrespect to the Rule 506 exemption, this type of offering is available toreporting company issuers for sales without regard to the dollar amount of theoffering. Only accredited investors were utilized in this offering and all ofthe shares issued satisfied the Rule 506 requirements.

 

Those shares not issuedpursuant to Rule 506 were issued pursuant to Section 4(2) of the Actwhich exempts from registration transactions by an issuer not involving apublic offering. This offering exemption is available to any issuer butprohibits general solicitation or advertising. Prospective purchasers must haveaccess to information about the issuer. We have utilized this Section 4(2)exemption by providing prospective purchasers with such sufficient informationand required that all such purchasers be financially sophisticated; have acertain net worth and have the ability to bear the risk of loss of theirrespective investments.

 

**Item 6.Management’s Discussion and Analysis or Plan of Operation.**

 

Thefollowing discussion and analysis should be read in conjunction with thefinancial statements and notes thereto appearing elsewhere in this AnnualReport on Form 10-KSB. The discussion of the Company’s business contained inthis Report on Form 10-KSB may contain certain projections, estimates and otherforward-looking statements that involve a number of risks and uncertainties,including those discussed above at “Risks and Uncertainties.” While thisoutlook represents management’s current judgment on the future direction of thebusiness, such risks and uncertainties could cause actual results to differmaterially from any future performance suggested below. The Company undertakesno obligation to release publicly the results of any revisions to theseforward-looking statements to reflect events or circumstances arising after thedate hereof.

 

**Overview.**

 

TheCompany has limited operating history and is no longer in the developmentstage. It’s principal business is the exploitation of niche products for themicrocomputer industry that provide enhanced system security for bothindividual users and network administrators. The Company’s initial product,Com-Guard, includes unique software and hardware that enables users to protectand limit access to data; and to provide a security system against tamperingand unauthorized use of computers.

 

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

 

The market for Com-Guardconsists of individual users and industry. The popularity of the Internet hascreated a need for both data security and access limitations. Limiting accessto sensitive and/or confidential files has grown to be a need for all users ofmicrocomputers.

 

Home automation, includingsystems to provide “internal” security to certain areas of a home or office,represents an additional market for Com-Guard. The system, installed in a PC,has the ability to function as an internal home security system, controlling aseries of sensors to protect against theft and intrusion.

 

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The Company has commencedthe initial marketing of its products. However, quarter-to-quarter financialcomparisons may be of limited usefulness now and for the next several quartersas CGC continues to market its products.

 

The Company has recentlyentered into its first international license agreement. The Licensee will pay asmall license fee so that the end user may use the Com-GuardTM software productup to nine (9) months. After the nine months period, the user can buy theproduct for the suggested retail price. CGC will then be paid a percentage ofthe retail sales generated.

 

We have started efforts to marketand sell our products through our website: www.com-guard.com and a number ofother commercial websites. In addition, we are working on other avenues ofdistribution and sales for our products. Funds recently raised through aPrivate Placement offering have been utilized for product development,marketing and general working capital. We currently anticipate that we havesufficient cash flow for approximately the next three months. We will need toimprove its working capital position. We will need to increase revenue or raiseadditional funds to fully develop our business. There can be no assurance,however, that we will be able to complete any additional debt or equityfinancing on favorable terms or at all, or that any such financings, ifcompleted, will be adequate to meet our capital requirements. Any additionalequity or convertible debt financings could result in substantial dilution toour stockholders. If adequate funds are not available, we will be required todelay, reduce or eliminate some or all of our planned activities. Our inabilityto fund our capital requirements would have a material adverse effect on  the Company.

 

We currently have adequatecash resources to continue through December 31, 2003.

 

AlsoSee “Risks and Uncertainties” in Part I of this Annual Report on Form 10-KSB.

 

**Results of Operations.**

 

**Consulting Fees.**

 

For the year ended June30, 2003, consulting fees were $468,560 and $979,895 for the year ended June30, 2002 a decrease of $511,385.  Thisdecrease was due to certain individuals that were consultants during 2002 thatbecame employees during 2003.  Payrollfor these employees commenced on September 1, 2002.

 

**Payroll and related costs.**

 

Payroll for the Company commenced onSeptember 1, 2002.  Payroll and relatedcosts for the year ended June 30, 2003 were $712,017 compared to  $0 for the previous year.

 

**Other General and Administrative Expenses.**

 

Other general and administrative expenses forthe year ended June 30, 2003 were $281,072. Other general and administrativeexpenses for the year ended June 30, 2002 were $194,856 a decrease of$86,216.  Overall expenses for generalcorporate functions remained accentually the same as the prior year.

 

15

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**Research and Development Expenses.**

 

Forthe year ended June 30, 2003, research and development expenses were $89,920.For the year ended June 30, 2002, research and development expenses were$139,700 a decrease of $49,780.  Overallcosts during the year decrease due to the Company completing certain ofits  products during the year.

 

**Sales and Marketing**

 

Salesand marketing for the year ended June 30, 2003 and 2002 were $164,136 and $0and for the year ended June 30, 2002 . The increase in sales and marketing was due to increased efforts by theCompany to market its products during the year.

 

**ProfessionalFees.**

 

Professionalfees for the year ended June 30, 2003 were $159,892 and $141,432 for the yearended June 30, 2002 an increase of $18,460.  This increase was due mainly to additional legal and accounting feesduring the year.

 

**Liquidityand Capital Resources.**

 

  Wehave financed our operations primarily through cash generated from the sale ofits stock and loans to us. We are no longer classified as a development stagecompany and have commenced the sales and marketing of our products.

 

As of June 30, 2003, we have reduced debt in theapproximate amount of $1,537,721 through the issuance of common stock.  During the year ended June30, 2003, the Company was forgiven $1,400,000 of prior years accrued consultingexpenses due to stockholders which was accounted for as a contribution toadditional paid-in capital.  Seealso  Supplemental Disclosure ofNon-cash Investing and Financing Activities to the Statements of Cash Flows for the years ended June 30,2003 and 2002.

 

Asof  June 30, 2003, the Companyincurred a net loss of $1,960,774 and negative cash flows from operatingactivities of $1,256,034, has a stockholders’ deficiency of $710,460 and aworking capital deficiency of $683,310 at June 30, 2003.

 

Duringthe year ended June 30, 2000, we acquired certain hardware ISA circuitboards from a current shareholder for approximately $638,000. This shareholdercurrently owns 600,000 shares of our stock. This inventory has since beenwritten down to $60,000 based on its current value. During the year endedJune 30, 2001, the Company acquired a new series of PCI circuit boardsfrom another shareholder for $600,000. As of March 31, 2003, thisinventory has been reduced to $165,000. This shareholder currently owns 857,142shares of our common stock. CGC is the sole licensee outside of Korea for thesecircuit board products. We are not aware that either Guardtec or SoftwareTechnologies have ever sold these same products to any other third party. CGChas the license rights to manufacture (outsource) these products from otheroutside vendors. We will, based on sales and demand, determine whether tooutsource manufacturing to another vendor or reorder from Guardtec. During theprevious two years we have been developing, refining and testing our itssoftware for these products. We have recently completed a new version of itsour software for these products and are pursuing sales opportunities.

 

Inaddition to the software developed for the hardware circuit boards, we alsohave software applications that can be sold as separate products. Sincehardware related products have a higher cost to manufacture than stand-alonesoftware products, we are currently placing a strong emphasis on our standardsoftware products to generate revenue. We are developing strategies in certainkey target areas to market our hardware/software products.

 

16

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Our auditors have expressed their uncertainty as to our ability to continue as a going concern. They cite the minimal capital resources available to meet existing and anticipated obligations.   Management’s current plans are: (1) to further commercialize its own products, (2) to market new products, including products from other manufacturers, and  (3) to continue to operate and improve e-commerce sites to sell its products  To successfully execute its current plans, the Company will need to improve its working capital position.  The Company plans to overcome the circumstances that impact our ability to remain a going concern through a combination of achieving profitability, raising additional debt and equity financing, and renegotiating existing obligations.

 

Therecan be no assurance, however, that we will be able to complete any additionaldebt or equity financing on favorable terms or at all, or that any such financings,if completed, will be adequate to meet our capital requirements. Any additionalequity or convertible debt financings could result in substantial dilution toour stockholders. If adequate funds are not available, we will be required todelay, reduce or eliminate some or all of our planned activities. Our inabilityto fund our capital requirements would have a material adverse effect on  the Company.

 

Wecurrently have adequate cash resources to continue through December 31, 2003.

 

# **CRITICAL ACCOUNTING POLICIES**

 

The Company believes thefollowing are its most critical accounting policies in that they are the mostimportant to the portrayal of the Company’s financial condition and results andrequires management’s most difficult, subjective or complex judgments.

 

***InventoryValuation***

 

The Company regularly monitors and assesses our risk ofnot incurring any material sales of its inventory in the future.  This evaluation is based upon the Company’ssales force efforts and information the Company receives from potentialcustomers.  Based upon the results ofthe analysis, the Company records a valuation reserve for this risk.  This analysis requires the Company to makesignificant estimates, and changes in facts and circumstances could result inmaterial changes in the valuation reserve.

 

***RevenueRecognition***

 

TheCompany accounts for the licensing of software in accordance with AmericanInstitute of Certified Public Accountants (AICPA) Statement of Position (SOP 97-2,*Software Revenue Recognition*).  The Company recognizes revenue when (i)persuasive evidence of an arrangement exists; (ii) delivery has occurred orservices have been rendered; (iii) the sales price is fixed or determinable;and (iv) collectibility is reasonably assured. Post customer support (PCS), if applicable, is recognized on delivery ofapplicable software.  The Companyaccrues all estimated costs of providing the PCS services, includingupgrades/enhancements.

 

Atthe time of the transaction, the Company assesses whether the fee is fixed anddeterminable based on the payment terms associated with the transaction andwhether collectibility is reasonably assured. If a

 

17

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significantportion of a fee is due after our normal payment terms, the Company accountsfor the fee as not being fixed and determinable.  In these cases, the Company recognizes revenue as the fees becomedue.  Where the Company provides ordelivers a product or service at a specific point in time and there are noremaining obligations, the Company recognizes revenue upon the delivery of theproduct or completion of the service.

 

***Recent AccountingPronouncements***

 

InApril 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No.145, “*Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.*”  SFAS No. 145 rescinds the provisions of SFASNo. 4, which requires companies to classify certain gains and losses from debtextinguishments as extraordinary items, eliminates the provisions of SFAS No.44 regarding transition to the Motor Carrier Act of 1980 and amends theprovisions of SFAS No. 13 to require that certain lease modifications betreated as sale leaseback transactions. The provisions of SFAS No. 145 related to classification of debtextinguishments are effective for fiscal years beginning after May 15, 2002,with earlier application encouraged.

 

InJuly 2002, the FASB issued SFAS No. 146, “*Accountingfor Restructuring Costs*.” SFAS No. 146 applies to costs associated with an exit activity(including restructuring) or with a disposal of long-lived assets.  Those activities can include eliminating orreducing product lines, terminating employees and contracts and relocatingplant facilities or personnel.  UnderSFAS No. 146, the Company will record a liability for a cost associated with anexit or disposal activity when that liability is incurred and can be measuredat fair value.  SFAS No. 146 willrequire the Company to disclose information about its exit and disposal activities,the related costs, and changes in those costs in the notes to the interim andannual financial statements that include the period in which an exit activityis initiated and in any subsequent period until the activity is completed.  SFAS No. 146 is effective prospectively forexit or disposal activities initiated after December 31, 2002, with earlieradoption encouraged.  Under SFAS No.146, a company cannot restate it’s previously issued financial statements andthe new statement grandfathers the accounting for liabilities that a companyhad previously recorded under Emerging Issues Task Force Issue 94-3.

 

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

 

In April 2003, the FASB issued SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and HedgingActivities”.  SFAS No. 149 amends andclarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded inother contracts (collectively referred to as derivatives) and for hedgingactivities under SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities”.  The changes inSFAS No. 149 improve financial reporting by

 

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requiring that contracts with comparablecharacteristics be accounted for similarly. This statement is effective for contracts entered into or modified after June 30, 2003 andall of its provisions should be applied prospectively.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting For Certain FinancialInstruments with Characteristics of both Liabilities and Equity”.  SFAS No. 150 changes the accounting forcertain financial instruments with characteristics of both liabilities andequity that, under previous pronouncements, issuers could account for as equity.  The new accounting guidance contained inSFAS No. 150 requires that those instruments be classified as liabilities inthe balance sheet.

 

SFASNo. 150 affects the issuer’s accounting for three types of freestandingfinancial instruments.  One type ismandatorily redeemable shares, which the issuing company is obligated to buyback in exchange for cash or other assets. A second type includes put options and forward purchase contracts, whichinvolves instruments that do or may require the issuer to buy back some of itsshares in exchange for cash or other assets. The third type of instruments that are liabilities under this Statementis obligations that can be settled with shares, the monetary value of which isfixed, tied solely or predominantly to a variable such as a market index, orvaries inversely with the value of the issuers’ shares.  SFAS No. 150 does not apply to featuresembedded in a financial instrument that is not a derivative in its entirety.

 

Mostof the provisions of SFAS No. 150 are consistent with the existing definitionof liabilities in FASB Concepts Statement No. 6, “Elements of FinancialStatements”.  The remaining provisionsof this Statement are consistent with the FASB’s proposal to revise thatdefinition to encompass certain obligations that a reporting entity can or mustsettle by issuing its own shares.  ThisStatement shall be effective for financial instruments entered into or modifiedafter May 31, 2003 and otherwise shall be effective at the beginning of thefirst interim period beginning after June 15, 2003, except for mandatorilyredeemable financial instruments of a non-public entity, as to which theeffective date is for fiscal periods beginning after December 15, 2003.

 

**Item7. Financial Statements.**

 

**CONTENTS**

 
|   | INDEPENDENT AUDITORS’  REPORT                                                                |
|--------|---------------------------------------------------------------------------------------------------|
|   |                                                                                              |
|   |                                                                                              |
|   | BALANCE  SHEET AS OF JUNE 30, 2003                                                                |
|   |                                                                                              |
|   |                                                                                              |
|   | STATEMENTS OF OPERATIONS FOR  THE YEARS ENDED JUNE 30, 2003 AND 2002                              |
|   |                                                                                              |
|   |                                                                                              |
|   | STATEMENT OF CHANGES IN STOCKHOLDERS’  DEFICIENCY FOR THE YEARS ENDED JUNE 30, 2003 AND 2002 |
|   |                                                                                              |
|   |                                                                                              |
|   | STATEMENTS OF CASH FLOWS FOR  THE YEARS ENDED JUNE 30, 2003 AND 2002                              |
|   |                                                                                              |
|   |                                                                                              |
|   | NOTES TO FINANCIAL  STATEMENTS AS OF JUNE 30, 2003                                                |

 

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**INDEPENDENT AUDITORS’ REPORT**

 

Tothe Board of Directors of:

Com-Guard.com,Inc.

 

Wehave audited the accompanying balance sheet of Com-Guard.com, Inc. as of June30, 2003 and the related statements of operations, changes in stockholders’deficiency and cash flows for the years ended June 30, 2003 and 2002.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly in allmaterial respects, the financial position of Com-Guard.com, Inc. as of June 30,2003 and the results of its operations and its cash flows for the years endedJune 30, 2003 and 2002 in conformity with accounting principles generallyaccepted in the United States of America.

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern.  Asdiscussed in Note 11 to the financial statements, the Company has suffered anet loss from operations of $1,960,774, has a working capital deficiency of$683,310, a stockholders’ deficiency of $710,460 and has negative cash flowsfrom operating activities of $1,252,033. These matters raise substantial doubt about its ability to continue as agoing concern.  Management’s plans inregard to these matters are also described in Note 11.  The financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

 

 

WEINBERG& COMPANY, P.A.

 

BocaRaton, Florida

September23, 2003

 

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**COM-GUARD.COM,INC.BALANCE SHEETAS OF JUNE 30, 2003**

 
| **ASSETS**                                                                                              |   |       |       |
|---------------------------------------------------------------------------------------------------------|--------|------------|------------|
| **CURRENT ASSETS**                                                                                      |   |       |       |
| Cash and cash equivalents                                                                               |   | $          | 141,504    |   |
| Accounts receivable                                                                                     |   | 2,125      |       |
| Inventories                                                                                             |   | 240,795    |       |
| Related party receivables                                                                               |   | 15,319     |       |
|                                                                                                    |   |       |       |
| **TOTAL ASSETS**                                                                                        |   | $          | 399,743    |   |
|                                                                                                    |   |       |       |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                                       |   |       | ** ** |
|                                                                                                    |   |       |       |
| **CURRENT LIABILITIES**                                                                                 |   |       |       |
| Line of credit — bank                                                                              |   | $          | 21,443     |   |
| Accounts payable                                                                                        |   | 177,673    |       |
| Accrued payroll  liabilities                                                                            |   | 181,541    |       |
| Accrued interest                                                                                        |   | 5,907      |       |
| Accrued consulting fees                                                                                 |   | 681,489    |       |
| Notes payable —  stockholders                                                                      |   | 15,000     |       |
| Total Current Liabilities                                                                               |   | 1,083,053  |       |
|                                                                                                    |   |       |       |
| **LONG-TERM LIABILITIES**                                                                               |   |       |       |
| Notes payable —  stockholders                                                                      |   | 27,150     |       |
|                                                                                                    |   |       |       |
| **TOTAL LIABILITIES**                                                                                   |   | 1,110,203  |       |
|                                                                                                    |   |       |       |
| **COMMITMENTS AND CONTINGENCIES**                                                                       |   |       |       |
|                                                                                                    |   |       |       |
| **STOCKHOLDERS’ DEFICIENCY**                                                                       |   |       |       |
| Common stock, $.001 par value, 100,000,000 shares  authorized, 17,890,006 shares issued and outstanding |   | 17,890     |       |
| Additional paid in capital                                                                              |   | 6,620,976  |       |
| Accumulated deficit                                                                                     |   | (7,349,326 | )          |
| Total Stockholders’ Deficiency                                                                     |   | (710,460   | )          |
|                                                                                                    |   |       |       |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                                 |   | $          | 399,743    |   |

 

See accompanying notes to financialstatements.

 

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**COM-GUARD.COM, INC.STATEMENTS OF OPERATIONSFOR THE YEARS ENDED JUNE 30, 2003 AND 2002**

 
|                                                                                     |   | **2003**   |       | **2002**   |   |
|------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                                     |   |       |       |       |   |
| **SALES**                                                                                |   | $          | 68,136     |       | $      | 10,028 |   |
|                                                                                     |   |       |       |       |   |
| **COST OF GOODS SOLD**                                                                   |   | 59,471     |       | —     |   |
|                                                                                     |   |       |       |       |   |
| **PROVISION TO WRITE-DOWN INVENTORY**                                                    |   | 75,000     |       | 464,330    |   |
|                                                                                     |   |       |       |       |   |
| **GROSS LOSS**                                                                           |   | (66,335    | )          | (454,302   | )      |
|                                                                                     |   |       |       |       |   |
| **OPERATING EXPENSES**                                                                   |   |       |       |       |   |
| Consulting fees —  related party                                                    |   | 468,560    |       | 979,895    |   |
| Payroll and related costs                                                                |   | 712,017    |       | —     |   |
| Other general and administrative                                                         |   | 281,072    |       | 194,856    |   |
| Research and development                                                                 |   | 89,920     |       | 139,700    |   |
| Sales and marketing                                                                      |   | 164,136    |       | —     |   |
| Professional fees                                                                        |   | 159,892    |       | 141,432    |   |
| Impairment of intangible asset                                                           |   | —     |       | 150,000    |   |
| Depreciation                                                                             |   | 11,786     |       | 11,996     |   |
| TOTAL OPERATING EXPENSES                                                                 |   | 1,887,554  |       | 1,617,879  |   |
|                                                                                     |   |       |       |       |   |
| **LOSS FROM OPERATIONS**                                                                 |   | (1,953,889 | )          | (2,072,181 | )      |
|                                                                                     |   |       |       |       |   |
| **OTHER INCOME (EXPENSE)**                                                               |   |       |       |       |   |
| Interest expense                                                                         |   | (13,099    | )          | (31,048    | )      |
| Interest income                                                                          |   | 6,214      |       | 474        |   |
| TOTAL OTHER INCOME  (EXPENSE)                                                            |   | (6,885     | )          | (30,574    | )      |
|                                                                                     |   |       |       |       |   |
| Loss before provision for income taxes                                                   |   | (1,960,774 | )          | (2,102,755 | )      |
| Provision for income taxes                                                               |   | —     |       | —     |   |
|                                                                                     |   |       |       |       |   |
| **NET LOSS**                                                                             |   | $          | (1,960,774 | )          | $      | (2,102,755 | ) |
|                                                                                     |   |       |       |       |   |
| Net loss per share — basic and diluted                                              |   | $          | (0.14      | )          | $      | (0.20 | ) |
|                                                                                     |   |       |       |       |   |
| Weighted average number of shares outstanding  during the period —basic and diluted |   | 14,165,949 |       | 10,329,107 |   |

 

See accompanying notes to financialstatements.

 

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**COM-GUARD.COM, INC.STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCYFOR THE YEARS ENDED JUNE 30, 2003 AND 2002**

 
|                                                     |   | **Common Stock** |   | **Common Stock********To Be Issued** |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |   |      |   |
|----------------------------------------------------------|--------|------------------|--------|--------------------------------------|--------|----------------------------------|--------|--------------------------|--------|-----------|--------|
|                                                     |   | **Shares**       |   | **Amount**                           |   | **Shares**                       |   | **Amount**               |   |      |   | **Total** |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Balance,  June 30, 2001                                  |   | 10,322,000       |   | $                                    | 10,322 |                             | — |                     | $      | —    |   | $ | 2,325,978 |   | $ | (3,285,797 | ) | $ | (949,497 | ) |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  to be issued for cash                             |   | —           |   | —                               |   | 35,000                           |   | 35                       |   | 6,965     |   | — |   | 7,000 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Beneficial  conversion feature on note payable           |   | —           |   | —                               |   | —                           |   | —                   |   | 17,500    |   | — |   | 17,500 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Net  loss, 2002                                          |   | —           |   | —                               |   | —                           |   | —                   |   | —    |   | (2,102,755 | ) | (2,102,755 | ) |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Balance,  June 30, 2002                                  |   | 10,322,000       |   | 10,322                               |   | 35,000                           |   | 35                       |   | 2,350,443 |   | (5,388,552 | ) | (3,027,752 | ) |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  issued                                            |   | 35,000           |   | 35                                   |   | (35,000                          | )      | (35                      | )      | —    |   | — |   | — |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  and warrants issued for cash, net                 |   | 4,814,286        |   | 4,814                                |   | —                           |   | —                   |   | 1,308,885 |   | — |   | 1,313,699 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  issued for services                               |   | 117,255          |   | 117                                  |   | —                           |   | —                   |   | 37,422    |   | — |   | 37,539 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  issued for stockholder loans and accrued interest |   | 779,285          |   | 779                                  |   | —                           |   | —                   |   | 394,431   |   | — |   | 395,210 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Stock  issued for accounts payable and accrued expenses  |   | 1,822,177        |   | 1,823                                |   | —                           |   | —                   |   | 2,529,795 |   | — |   | 2,531,618 |   |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Net  loss, 2003                                          |   | —           |   | —                               |   | —                           |   | —                   |   | —    |   | (1,960,774 | ) | (1,960,774 | ) |
|                                                     |   |             |   |                                 |   |                             |   |                     |   |      |   |   |   |   |   |
| Balance,  June 30, 2003                                  |   | 17,890,003       |   | $                                    | 17,890 |                             | — |                     | $      | —    |   | $ | 6,620,976 |   | $ | (7,349,326 | ) | $ | (710,460 | ) |

 

See accompanying notes to financialstatements.

 

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**COM-GUARD.COM,INC.STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUNE 30, 2003 AND 2002**

 
|                                                                         |   | **2003**   |       | **2002**  |   |
|------------------------------------------------------------------------------|--------|------------|------------|-----------|--------|
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                    |   |       |       |      |   |
| Net loss                                                                     |   | $          | (1,960,774 | )         | $      | (2,102,755 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |   |       |       |      |   |
| Depreciation                                                                 |   | 11,786     |       | 11,996    |   |
| Stock issued for services                                                    |   | 37,539     |       | —    |   |
| Provision for inventory write-down                                           |   | 75,000     |       | 464,330   |   |
| Impairment of intangible asset                                               |   | —     |       | 150,000   |   |
| Beneficial conversion on note feature                                        |   | —     |       | 17,500    |   |
| Impairment of deferred offering costs                                        |   | 5,000      |       | —    |   |
| Changes in operating assets and liabilities:                                 |   |       |       |      |   |
| Inventories                                                                  |   | (15,795    | )          | —    |   |
| Other current assets                                                         |   | (2,125     | )          | —    |   |
| Related party receivable                                                     |   | (6,791     | )          | (8,528    | )      |
| Deferred offering costs                                                      |   | —     |       | (5,000    | )      |
| Accounts payable and accrued expenses                                        |   | 267,277    |       | 163,544   |   |
| Accrued consulting                                                           |   | 336,850    |       | 1,025,550 |   |
| Net Cash Used In Operating Activities                                        |   | (1,252,033 | )          | (283,363  | )      |
|                                                                         |   |       |       |      |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                    |   |       |       |      |   |
| Purchase of property and equipment                                           |   | —     |       | (2,420    | )      |
| Net Cash Used In Investing Activities                                        |   | —     |       | (2,420    | )      |
|                                                                         |   |       |       |      |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                    |   |       |       |      |   |
| Proceeds from issuance of common stock and warrants,  net                    |   | 1,313,699  |       | —    |   |
| Proceeds from common stock to be issued                                      |   | —     |       | 7,000     |   |
| Proceeds (repayments) from loan payable —  stockholders                 |   | (92,443    | )          | 903       |   |
| Net repayments from lien of credit — bank                               |   | (593       | )          | (2,867    | )      |
| Proceeds from issuance of notes payable                                      |   | 20,500     |       | 87,628    |   |
| Proceeds from notes payable — stockholders                              |   | 70,093     |       | 273,410   |   |
| Net  Cash Provided By Financing Activities                                   |   | 1,311,256  |       | 366,074   |   |
|                                                                         |   |       |       |      |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                    |   | 59,223     |       | 80,291    |   |
|                                                                         |   |       |       |      |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             |   | 82,281     |       | 1,990     |   |
|                                                                         |   |       |       |      |   |
| **CASH AND CASH EQUIVALENTS AT END OF PERIOD**                               |   | $          | 141,504    |      | $      | 82,281 |   |
|                                                                         |   |       |       |      |   |
| **SUPPLEMENTAL DISCLOSURE OF CASH  FLOW INFORMATION:**                       |   |       |       |      |   |
|                                                                         |   |       |       |      |   |
| Interest paid                                                                |   | $          | —     |      | $      | — |   |
| Taxes paid                                                                   |   | $          | —     |      | $      | — |   |

 

See accompanying notes to financialstatements.

 

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## **SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTINGAND FINANCING ACTIVITIES:**

 

During the year ended June 30, 2003, the Companysettled $985,500 of accounts payable and accrued expenses with sevenstockholders by issuing 1,407,716 shares of common stock at $.70 per share andalso settled $157,011 of accounts payable and accrued expenses with nineshareholders by issuing 414,461 shares of common stock at $.35 per share.  Stock values are based on agreement betweenthe Company and stockholder.

 

Duringthe year ended June 30, 2003, the Company was forgiven $1,400,000 of prioryears accrued consulting expenses due to stockholders which was accounted foras a contribution to additional paid-in capital.

 

Duringthe year ended June 30, 2003, the Company settled $100,000 of notes payable and$8,600 of accrued interest by issuing 335,000 shares of common stock atapproximately $0.29 per share based on an agreement between the Company andstockholder.

 

Duringthe year ended June 30, 2003, $15,000 of notes payable was reclassified asnotes payable - stockholder since the noteholder became a stockholder of theCompany.

 

During the year ended June 30, 2003, the Companysettled $223,910 of notes payable — stockholders and $29,700 of accruedinterest by issuing 350,000 shares of common stock at approximately $.70 pershare and settled $33,000 of notes payable — stockholders by issuing 94,285shares of common stock at approximately $.35 per share.  Stock values are based on agreement betweenthe Company and stockholder.

 

Asof June 30, 2002, notes payable and accrued interest to stockholdersaggregating $188,685 were offset against stockholder loans/ advances.

 

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

**NOTES TOFINANCIAL STATEMENTS**

**AS OF JUNE 30, 2003**

 

**NOTE 1****                SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION**

 

***(A) Organization***

 

Com-Guard.com,Inc. was formed and incorporated in the state of Nevada on October 7, 1998 asE-WORLD SECURITY, INC.  On April 16,1999 the Company changed its name to COM-GUARD.COM, INC. (the “Company”).  Planned principal operations of the Companycommenced during the year ended June 30, 2003 and is therefore no longer in thedevelopment stage.  The Company sellsproducts that afford security protection to computer hardware and software inmicrocomputers.  The Company’s initialproduct, Com-Guard, includes unique software and hardware that enables users toprotect and limit access to data; and to provide a security system against tamperingand unauthorized use of computers.

 

***(B) Use of Estimates***

 

Inpreparing financial statements in conformity with accounting principlesgenerally accepted in the United States of America, management is required tomake estimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the financial statements and revenues and expenses during the reportedperiod.  Actual results could differfrom those estimates.

 

***(C) Cash and Cash Equivalents***

 

Forpurposes of the cash flow statements, the Company considers all highly liquidinvestments with original maturities of three months or less at the time ofpurchase to be cash equivalents.

 

***(D) Inventories***

 

Inventoriesconsist of primarily finished goods stated at the lower of cost (first-in,first-out) or market.  During the yearended June 30, 2003, the Company determined that the fair market value of theinventory was less than the carrying amount and recorded a $75,000 valuationreserve based on management’s planned marketing and distribution strategies andthe expected pricing of the related products.

 

The valuation reserve requires the Company to makesignificant estimates and changes in facts and circumstances that could resultin material changes in the valuation reserve.

 

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***(E) Property and Equipment***

 

Propertyand equipment are stated at cost and depreciated using the straight-line methodover the estimated economic useful lives of 3 to 7 years.  Expenditures for maintenance and repairs arecharged to expense as incurred.  Majorimprovements are capitalized.  As ofJune 30, 2003, all property and equipment have been fully depreciated.

 

***(F) Long-Lived Assets***

 

TheCompany reviews long-lived assets and certain identifiable assets related tothese assets for impairment whenever circumstances and situations change suchthat there is an indication that the carrying amounts may not be recoverable.

 

***(G) Stock Options and Warrants***

 

Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “*Accounting for Stock-Based Compensation*,”the Company has elected to account for Stock Options issued to employees underAccounting Principles Board Opinion No. 25 (“APB Opinion No. 25”) and relatedinterpretations.  The Company accountsfor stock options issued to non-employees under the fair value method of SFASNo. 123.

 

***(H) Revenue Recognition***

 

TheCompany accounts for the licensing of software in accordance with AmericanInstitute of Certified Public Accountants (AICPA) Statement of Position (SOP97-2, *Software Revenue Recognition*).  The Company recognizes revenue when (i)persuasive evidence of an arrangement exists; (ii) delivery has occurred orservices have been rendered; (iii) the sales price is fixed or determinable;and (iv) collectibility is reasonably assured. Post customer support (PCS), if applicable, is recognized on delivery ofapplicable software.  The Companyaccrues all estimated costs of providing the PCS services, includingupgrades/enhancements.

 

Atthe time of the transaction, the Company assesses whether the fee is fixed anddeterminable based on the payment terms associated with the transaction andwhether collectibility is reasonably assured. If a significant portion of a fee is due after our normal payment terms,the Company accounts for the fee as not being fixed and determinable.  In these cases, the Company recognizesrevenue as the fees become due.  Wherethe Company provides or delivers a product or service at a specific point intime and there are no remaining obligations, the Company recognizes revenueupon the delivery of the product or completion of the service.

 

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***(I) Income Taxes***

 

TheCompany accounts for income taxes under SFAS No. 109 “*Accounting for Income Taxes*”.  Under SFAS No. 109, deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enactedtax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled.  Under SFAS No. 109, the effect on deferredtax assets and liabilities of a change in tax rates is recognized in income inthe period that includes the enactment date.

 

TheCompany has made no current provision (benefit) for Federal income taxesbecause of financial statement and tax losses since its inception.  A valuation allowance has been used tooffset the recognition of any deferred tax assets arising from net operatingloss carryforwards due to the uncertainty of future realization.  The use of any tax loss carryforwardbenefits may also be limited as a result of changes in Company ownership.

 

***(J) Research and Development***

 

Researchand development, which includes purchased research and development and internalcosts incurred on the technology are expensed as incurred.  SFAS No. 86, “*Accounting for the Costs of Computer Software to be Sold, Leased, orOtherwise Marketed*” does not materially effect the Company becausethe Company has elected to expense as research and development all such costsprior to establishing technological feasibility as required by SFAS No.86.  Management expects technologicalfeasibility to be established upon completion of beta testing.

 

***(K) Fair Value of FinancialInstruments***

 

SFASNo. 107, “*Disclosures about Fair Value ofFinancial Instruments*”, requires disclosures of information aboutthe fair value of certain financial instruments for which it is practicable toestimate that value.  For purposes ofthis disclosure, the fair value of a financial instrument is the amount atwhich the instrument could be exchanged in a current transaction betweenwilling parties, other than in a forced sale or liquidation.

 

Thecarrying amounts of the Company’s financial instruments, including accountsreceivable, accounts payable and accrued liabilities, line of credit and notespayable, approximate fair value due to the relatively short period to maturityfor these instruments.

 

***(L) Recent Accounting Pronouncements***

 

In April 2002, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 145, “*Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections.*”  SFAS No. 145 rescinds the provisions of SFASNo. 4, which requires

 

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companies to classifycertain gains and losses from debt extinguishments as extraordinary items,eliminates the provisions of SFAS No. 44 regarding transition to the MotorCarrier Act of 1980 and amends the provisions of SFAS No. 13 to require thatcertain lease modifications be treated as sale leaseback transactions.  The provisions of SFAS No. 145 related toclassification of debt extinguishments are effective for fiscal years beginningafter May 15, 2002, with earlier application encouraged.

 

InJuly 2002, the FASB issued SFAS No. 146, “*Accountingfor Restructuring Costs*.” SFAS No. 146 applies to costs associated with an exit activity(including restructuring) or with a disposal of long-lived assets.  Those activities can include eliminating orreducing product lines, terminating employees and contracts and relocatingplant facilities or personnel.  UnderSFAS No. 146, the Company will record a liability for a cost associated with anexit or disposal activity when that liability is incurred and can be measuredat fair value.  SFAS No. 146 willrequire the Company to disclose information about its exit and disposalactivities, the related costs, and changes in those costs in the notes to theinterim and annual financial statements that include the period in which anexit activity is initiated and in any subsequent period until the activity iscompleted.  SFAS No. 146 is effective prospectivelyfor exit or disposal activities initiated after December 31, 2002, with earlieradoption encouraged.  Under SFAS No.146, a company cannot restate it’s previously issued financial statements andthe new statement grandfathers the accounting for liabilities that a companyhad previously recorded under Emerging Issues Task Force Issue 94-3.

 

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

 

*In April 2003, the FASBissued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments andHedging Activities”.  SFAS No. 149amends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in other contracts(collectively referred to as derivatives) and for hedging activities under SFASNo. 133, “Accounting for Derivative Instruments and Hedging Activities”.  The changes in SFAS No. 149 improvefinancial reporting by requiring that contracts with comparable characteristicsbe accounted for similarly.  Thisstatement is effective for contracts entered into or modified after June 30,2003 and all of its provisions should be applied prospectively.*

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting For Certain FinancialInstruments with Characteristics of both Liabilities and Equity”.  SFAS No. 150 changes the accounting forcertain financial instruments with characteristics of both liabilities andequity that, under previous pronouncements, issuers could account for asequity.  The new accounting guidancecontained in SFAS No. 150 requires that those instruments be classified asliabilities in the balance sheet.

 

29

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SFASNo. 150 affects the issuer’s accounting for three types of freestandingfinancial instruments.  One type ismandatorily redeemable shares, which the issuing company is obligated to buyback in exchange for cash or other assets. A second type includes put options and forward purchase contracts, whichinvolves instruments that do or may require the issuer to buy back some of itsshares in exchange for cash or other assets. The third type of instruments that are liabilities under this Statementis obligations that can be settled with shares, the monetary value of which isfixed, tied solely or predominantly to a variable such as a market index, orvaries inversely with the value of the issuers’ shares.  SFAS No. 150 does not apply to featuresembedded in a financial instrument that is not a derivative in its entirety.

 

Mostof the provisions of SFAS No. 150 are consistent with the existing definitionof liabilities in FASB Concepts Statement No. 6, “Elements of FinancialStatements”.  The remaining provisionsof this Statement are consistent with the FASB’s proposal to revise that definitionto encompass certain obligations that a reporting entity can or must settle byissuing its own shares.  This Statementshall be effective for financial instruments entered into or modified after May31, 2003 and otherwise shall be effective at the beginning of the first interimperiod beginning after June 15, 2003, except for mandatorily redeemablefinancial instruments of a non-public entity, as to which the effective date isfor fiscal periods beginning after December 15, 2003.

 

Managementdoes not expect the impact from these statements’ pronouncements to have amaterial impact on the Company’s consolidated financial position or results ofoperations.

 

***(M) Business Segments***

 

TheCompany applies SFAS No. 131, “Disclosures About Segments at an Enterprise andRelated Information.”  The Companyoperates in one segment and therefore segment information is not presented.

 

***(N) Loss Per Share***

 

Basicand diluted net loss per common share for the years ended June 30, 2003 and2002 is computed based upon the weighted average common shares outstanding asdefined by SFAS No. 128, “Earnings Per Share”. Common stock equivalents have not been included in the computation ofdiluted loss per share since the effect would be anti-dilutive.

 

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***(O) Concentrations***

 

Duringthe year ended June 30, 2003, approximately 90% of the Company’s sales pertainto one customer.

 

TheCompany maintains the majority of its cash balances in a financial institutionlocated in Carlsbad, California.  Thebalance in the institution is insured by the Federal Deposit Insurance Corporationup to $100,000.  At June 30, 2003, theCompany’s uninsured cash total was $49,847.

 

**NOTE 2****                PROPERTYAND EQUIPMENT**

 

Propertyand equipment as of June 30, 2003 and 2002 consisted of the following:

 
| Equipment                         |   | $      | 41,509 |   |
|-----------------------------------|--------|--------|--------|--------|
| Furniture and fixtures            |   | 2,816  |   |
| Computers                         |   | 2,420  |   |
|                              |   | 46,745 |   |
| Less: Accumulated depreciation    |   | 46,745 |   |
|                              |   |   |   |
| Property and equipment – net |   | $      | — |   |

 

Depreciationexpense for the years ended June 30, 2003 and 2002 was $11,786 and $11,996,respectively.

 

**NOTE 3****                IMPAIRMENTOF INTANGIBLE ASSET**

 

OnDecember 25, 2000, the Company acquired from Guardtec, Inc. (formerly KyungkiSystem Co., Ltd.) (See Note 10(E)), a Korean corporation, the rights, title andinterest to GTC Firewall, including copyrights, trademarks, patents, objectcodes, source codes, enhancements, and updates or other modifications and usermanuals.  The product’s function was toprevent unauthorized entry into a network and to safeguard files by means ofencryption.  As consideration foracquisition of this technology, the Company issued 150,000 shares of its commonstock with a fair value of $150,000.  Asof June 30, 2002, this technology was considered to be impaired under SFAS No.121 because management has deemed that such technology was no longermarketable.  An impairment charge of$150,000 was recorded during the year ended June 30, 2002.

 

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**NOTE 4****                LINE OF CREDIT -BANK**

 

AtJune 30, 2003, the Company had a line of credit from a bank for short-termborrowings in the amount of $25,000, which bears interest at floatingrates.  This line is unsecured and hasan outstanding balance of $21,443. Total interest expenses associated with the line of credit amounted to$2,543 and $2,500 for the years ended June 30, 2003 and 2002, respectively.

 

**NOTE 5****                NOTESPAYABLE - STOCKHOLDERS**

 

Notespayable from stockholders, as of June 30, 2003, consisted of the following:

 
| $13,566 convertible note payable, 7.5%  interest rate, principal and interest  due November 30, 2004 |   | $      | 13,566 |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                                 |   |   |   |
| $13,584 convertible note payable, 7.5% interest rate,  principal and interest  due November 30, 2004 |   | 13,584 |   |
| $48,000 convertible note payable, 7.0% interest  rate, principal and interest  due May 19, 2004      |   | 15,000 |   |
|                                                                                                 |   | 42,150 |   |
| Current portion                                                                                      |   | 15,000 |   |
|                                                                                                 |   |   |   |
| Long –term portion                                                                              |   | $      | 27,150 |   |

 

Theholders of the above convertible notes above have the option to convert at anytime only the entire amount of the unpaid principal and interest of the noteinto common shares of the Company’s common stock at a conversion price of $0.35per share.

 

**NOTE 6****                DEFINEDCONTRIBUTION PLAN**

 

EffectiveJuly 1, 2002, the Company adopted a 401(k) plan which covers allemployees.  The Company has accrued$7,950 as a matching contribution and has not paid any matching contributionsduring the year.  Participants maycontribute up to 75% of their compensation, not to exceed the maximum dollaramount allowable by the Internal Revenue Code.

 

**NOTE 7****                RELATEDPARTY TRANSACTIONS**

 

***(A) Consulting Services***

 

Duringthe year ended June 30, 2003 and 2002, the Company incurred consulting fees forvarious corporate and administrative services performed by officers, directors,and stockholders.

 

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***(B) Legal Counsel***

 

TheCompany’s legal counsel is a stockholder of the Company.  For the years ended June 30, 2003 and2002, services rendered amounted to $43,314 and $80,689, respectively, and areincluded in operating expenses within professional fees.

 

***(C) Related Party Receivable***

 

Fromtime to time, the Company advances monies to officers and directors for travel,personal expenditures, and other matters. As of June 30, 2003, the advances totaled $15,319.  These advances are non-interest bearing andhave no specified terms of repayment.

 

**NOTE 8****                 COMMITMENTS ANDCONTINGENCIES**

 

***(A) Leases***

 

The Company leases corporateoffice space, transportation and office equipment under operating leases,expiring in August 2005.

 

Futureminimum lease payments as of June 30, for the operating lease are as follows:

 
| 2004 |   | $      | 33,698 |   |
|------|--------|--------|--------|--------|
| 2005 |   | 34,934 |   |
| 2006 |   | 3,020  |   |

 

Officerent expense for the years ended June 30, 2003 and 2002 amounted to $23,472 and$22,374, respectively.

 

***(B) Consulting Agreements***

 

OnJuly 1, 1999, the Company entered into two-year consulting agreements withseven individuals.  On June 22, 2001 theagreements were renewed for one year and the number of consultants wasincreased to eleven.   Certainagreements were extended for a short period of time and all agreements werefulfilled and completed by June 30, 2003.  The terms of the agreements call for the individuals to provide thefollowing services:

 

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1)             Public relations, shareholderrelations, and general management consulting.

2)             Market research and materials,vendor relations.

3)             Research and development, productplanning and technical staff evaluations.

4)             Corporate planning and strategic alliances.

5)             Fundraising and strategic planning.

6)             General corporate governance.

 

Asof June 30, 2003 and 2002, the Company had $468,560 and $1,119,595 ofconsulting expense under such agreements and the accrued liability at June 30,2003 under such agreements aggregated $681,489.

 

InApril 2003, the Company entered into a one-year consulting agreement with aconsultant to provide general services to the Company.  As of June 30, 2003, the Company had accrued$24,000 relating to this agreement.

 

**NOTE 9****                STOCKHOLDERS’DEFICIENCY**

 

***(A) Private Placement***

 

During the year ended June 30, 2003, the Companycommenced a private placement share offering wherein it offered to accreditedinvestors units for a minimum amount of 3,000,000 shares and 1,500,000 warrantsand a maximum amount of 6,000,000 shares of common stock and 3,000,000warrants.  Each unit consists of 300,000shares of common stock at $.35 and 150,000 five-year warrants convertible at$.70, although the Company may accept, at their discretion, subscriptions forlesser amounts.  During the year endedJune 30, 2003 the Company closed this offering, of which the Company sold4,314,286 shares and 2,325,000 warrants for net proceeds of $1,313,699.  As of June 30, 2003 no warrants have beenexercised.  The fair market value of thewarrants, aggregating $721,809 was estimated on the grant date using theBlack-Scholes option pricing model as required by SFAS No. 123 with thefollowing weighted average assumptions: expected dividend yield 0%, volatility 355%, risk-free interest rate3.75%, expected option life 5 years. The Company issued 500,000 shares of common stock, valued at $175,000,in payment of offering costs incurred. The value assigned to this stock was based on the private placementoffering of $.35 per share.  The valueof the common stock has been charged to equity as direct costs to the offering.

 

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***(B) Stock Options***

 

Asummary of the options issued to certain advisors, consultants and directors asof June 30, 2003 is presented below:

 
|                   |   | **Number of  Options** |   | **Weighted  Average  Exercise Price** |   |
|------------------------|--------|------------------------|--------|---------------------------------------|--------|
| Stock Options          |   |                   |   |                                  |   |
| Balance, June 30, 2001 |   | 1,055,000              |   | $                                     | .30    |   |
| Granted                |   | —                 |   | —                                |   |
| Exercised              |   | —                 |   | —                                |   |
| Forfeited              |   | (5,000                 | )      | 1.00                                  |   |
| Balance, June 30, 2002 |   | 1,050,000              |   | .30                                   |   |
|                   |   |                   |   |                                  |   |
| Granted                |   | —                 |   | —                                |   |
| Exercised              |   | —                 |   | —                                |   |
| Forfeited              |   | —                 |   | —                                |   |
| Cancelled              |   | (1,050,000             | )      | —                                |   |
| Balance, June 30, 2003 |   | —                 |   | $                                     | — |   |

 

**NOTE 10****               INCOMETAXES**

 

TheCompany’s tax expense differs from the “expected” tax expense for the yearsended June 30, 2003 and 2002, as follows:

 
|                                                                            |   | **2003** |     | **2002** |   |
|---------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                            |   |     |     |     |   |
| U.S. Federal income tax provision (benefit)                                     |   | $        | (658,477 | )        | $      | (698,853 | ) |
| Effect of research and development costs and amortization of  organization cost |   | (13,759  | )        | 28,435   |   |
| Effect of net operating loss carryback                                          |   | —   |     | —   |   |
| Tax benefit                                                                     |   | (672,236 | )        | (670,418 | )      |
| Valuation allowance                                                             |   | 672,236  |     | 670,418  |   |
|                                                                            |   |     |     |     |   |
|                                                                            |   | $        | —   |     | $      | — |   |

 

Thetax effects of temporary differences that gave rise to significant portions ofdeferred tax assets and liabilities at June 30, 2003 and 2002 are as follows:

 

35

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|                                               |   | **2003**   |    | **2002**   |   |
|----------------------------------------------------|--------|------------|---------|------------|--------|
| Deferred tax assets:                               |   |       |    |       |   |
| Research and development costs                     |   | $          | 287,789 |       | $      | 282,485 |   |
| Net operating loss carryforward and start-up costs |   | 1,867,085  |    | 1,200,153  |   |
| Total gross deferred tax assets                    |   | 2,154,874  |    | 1,482,638  |   |
| Less valuation allowance                           |   | (2,154,874 | )       | (1,482,638 | )      |
|                                               |   |       |    |       |   |
| Net deferred tax assets                            |   | $          | —  |       | $      | — |   |

 

Asof June 30, 2003, the Company had start-up costs and net operating losscarryforwards of approximately $6,337,865, for U.S. Federal income tax purposesavailable to offset future taxable income expiring on various dates through2022.

 

Thevaluation allowance as of June 30, 2003 and 2002 was $2,154,874 and $1,482,638,respectively.  The net change in thevaluation allowance during the year ended June 30, 2003 was an increase ofapproximately $672,236.

 

**NOTE 11****               GOINGCONCERN**

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern.  TheCompany incurred a net loss of $1,960,774 and negative cash flows fromoperating activities of $1,252,033, has a stockholders’ deficiency of $710,460and a working capital deficiency of $683,310 at June 30, 2003.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.

 

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its working capital requirements, and the success of its future operations.  Management’s current plans are: (1) to further commercialize its own products,(2) to market new products, including products from other manufacturers,  and  (3) to continue to operate and improve e-commerce sites to sell its products.  Management believes that the action presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

 

36

 

**NOTE 12****               SUBSEQUENTEVENTS**

 

InAugust 2003, the Company’s Board of Directors approved stock options toOfficers, Directors and Employees of the Company.  Officers were granted options to purchase an aggregate of up to1,224,000 shares of Common Stock of the Company.  408,000 shares are vested and the balance vest equally monthlyover the next 24 months.  Directors weregranted options to purchase an aggregate of up to 2,160,000 shares of CommonStock of the Company.  720,000 sharesare vested and the balance vest equally monthly over the next 24 months.  Employees were granted options to purchasean aggregate of up to 642,000 shares of Common Stock of the Company.  234,000 shares are vested and the balancevest equally monthly over the next 24 months. The exercise price of these stock options is $0.20, which was equal totheir fair market value at the date of grant. The term of all options is ten years. The vesting schedule and the period required for full exercisability ofthe stock options is at the discretion of the Board of Directors.

 

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**PART III**

 

**Item 9.  Directors, Executive Officers, Promoters andControl Persons.**

 

Directors,Executive Officers, Promoters and Control Persons The following informationreflects the background and experience of the directors and officers of theCompany. The term of office for each director is one year.

 
| **Name**            |   | **Age** |   | **Position**                       |   | **Served Since**   |
|---------------------|--------|---------|--------|------------------------------------|--------|--------------------|
|                |   |    |   |                               |   |               |
| Edward  W. Savarese |   | 56      |   | Chairman,  Chief Executive Officer |   | Inception          |
| Edward  H. Currie   |   | 61      |   | Director                           |   | June  25, 1999     |
| Irwin  Roth         |   | 71      |   | Director                           |   | January  2, 2003   |
| Joseph  Sigismonti  |   | 61      |   | Director  and President            |   | September  1, 2002 |
| Gerry  B. Berg      |   | 56      |   | Director,  Vice President and CFO  |   | September  1, 2002 |
| Alan  F. Miller     |   | 49      |   | Vice  President and CTO            |   | September  1, 2002 |
| Nolan  Bushnell     |   | 60      |   | Director                           |   | March  21, 2003    |

 

Dr. EdwardW. Savarese is the founder of the Company and has been a director and Chairmanof the Board of Directors since its inception. He held the position of ChiefExecutive Officer of Imaging Technologies Corporation (formerly PersonalComputer Products, Inc.) from 1982 to 1998. From 1981 to 1982, he wasdirector of sales for SofTech Microsystems. His responsibilities includedestablishing and supervising an international sales organization for marketinga microcomputer operating system. From 1978 to 1981, Dr. Savarese wasemployed by Hewlett Packard Company, first as a sales representative forcomputer products, and later as district sales manager supervising a salesforce in the marketing of mini- and microcomputers. Dr. Savarese holds aDoctorate degree from Columbia University, Teacher’s College, withspecialization in educational technology and software and systems design. Healso holds a Master of Science in administration and management from PaceUniversity.

 

Dr. EdwardH. Currie has been a director of the Company since June 25, 1999. He hasmore than twenty years of senior management experience in domestic andinternational microcomputer-related software publishing and hardwaremanufacturing. Since 1988, Dr. Currie has been president and chiefexecutive officer of ImageSoft, Inc., an international software publisher.From 1981 to 1988, he was chairman, president, and chief executive officer ofLifeboat, a software publishing company. From 1978 to 1981, Dr. Currieserved as vice president of product management for the Microsystems Division ofPertec Computer Corp., a supplier of magnetic tape storage devices andmicrocomputer peripherals. From 1975 to 1978, he was Executive Vice Presidentand General Manager for MITS, the creator of the first microcomputer personalcomputer, which was subsequently acquired by Pertec. Dr. Currie is aco-founder of PC Magazine, the largest circulation magazine on the personalcomputer. He also is the founder of C++ Journal and publisher of The PostScriptJournal. He has published many articles, including technical articles in U.S.and international trade magazines. He holds BSEE, MS Physics, and Ph.D. Physicsfrom the University of Miami.

 

IrwinRoth was appointed a director of the Company on January 2, 2003. He isalso currently the CEO and Chairman of V Entertainment, Ltd., On-lineEntertainment Network, Inc. and GlobalNet Systems, Ltd. Mr. Rothhas been a practicing attorney for over 40 years in New York City, wherehe specializes in securities and entertainment law. In past years, he hasserved as a director and officer of numerous companies and is presentlyChairman and CEO of Color Q, Inc. Mr. Roth received a B.A. degree inPolitical Science in 1952 and a Juris Doctor degree in 1955 from the Universityof Michigan.

 

JosephSigismonti serves as a director and President and Chief Operating Officer forthe Company. He has been actively involved in the development, marketing, andsales of computer systems and related products for over 30 years. As anelectronics engineer, sales representative, line manager, and corporateexecutive, he has a proven track record in such well-known companies asMcDonnell Douglas, Hewlett Packard, Scientific Atlanta, and Perkin Elmer.Mr. Sigismonti has developed and directed large, high-technology marketingand sales forces worldwide. He has held positions as Vice President of salesand marketing; Vice President of worldwide sales; and Executive Vice Presidentof operations in companies serving various high-technology markets.Additionally, he was a principal and founder of companies providing services insales/marketing management training/consulting and import/export of electronic

 

38

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products.Mr. Sigismonti received his Bachelor of Science degree in electricalengineering from Pennsylvania State University.

 

GerryB. Berg serves as Vice President and Chief Financial Officer for the Company.Mr. Berg is an experienced financial manager. He has many years’experience serving as a financial consultant to private and public companiesand in executive capacities, including chief financial officer, for publiclytraded companies, including Imaging Technologies Corporation and GreenlandCorporation. Mr. Berg is a Certified Public Accountant and served sixyears with Deloitte+Touche. He holds a Bachelor’s degree in accounting from WalshCollege.

 

AlanF. Miller serves as Vice President and Chief Technical Officer for the Company.He has over 20 years of engineering experience. He has held a variety ofhigh technology engineering positions since 1980 for companies includingContinental Controls Corporation, Data Electronics, Inc., ImagingTechnologies Corporation (formerly Personal Computer Products, Inc.),Internet Magic, Inc., and Staff Training Solutions. He has worked on avariety of products and technologies, including: component level testing fornational defense systems, analog and digital turbine controls, memory products,robotics, laser printers, facsimile machines, internet technologies, etc. In1984, he received a Bachelor of Science degree in computer science fromNational University in San Diego.

 

Mr. Bushnellwas appointed a director of the Company on March 21, 2003. He is thefounder and currently the CEO of uWink.com, Inc., a provider of Internet-networked games and e-commerce terminals to retail establishments such asairports, bars and restaurants. Mr. Bushnell, considered the “Father ofthe Video Game Industry,” is best known as the founder of Atan Corporation andChuck E. Cheese’s Pizza Time Theater. Mr. Bushnell received his B.S. inelectrical Engineering in 1968 from the University of Utah where he is a“Distinguished Fellow” and also attended Stanford University Graduate School.

 

**Item 10. ExecutiveCompensation.**

 

Otherthan Dr. Savarese, there was no executive or director who has receivedcompensation in excess of $100,000 since the incorporation date of the Company.The following table sets forth information as of June 30, 2003.

 
|                                 |   |                   |   | **Annual Compensation Awards** |   | **Long-Term Compensation  Payouts** |   |
|--------------------------------------|--------|------------------------|--------|--------------------------------|--------|-------------------------------------|--------|
| **Name and Principal   Position(a)** |   | **Year****(1)****(b)** |   | **Salary  (c)**                |   | **Bonus  (d)**                      |   | **Other  Annual  Compen-  sation  ($)  (e)** |   | **Restricted  Stock  Award(s)  ($)  (f)** |   | **Securities  Underlying  Options/SARs  (#)  (g)** |   | **LTIP  Payouts  ($)  (h****)** |   |
|                                 |   |                   |   |                           |   |                                |   |   |   |   |   |   |   |   |   |
| **Edward  W. Savarese**              |   | 2001                   |   | 120,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| Chief Executive  Officer             |   | 2002                   |   | 180,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
|                                 |   | 2003                   |   | 180,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| **Joseph  Sigismonti**               |   | 2001                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| President                            |   | 2002                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
|                                 |   | 2003                   |   | 156,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| **Gerry  B. Berg**                   |   | 2001                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| Vice-President                       |   | 2002                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
|                                 |   | 2003                   |   | 144,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| **Allan  F. Miller**                 |   | 2001                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
| Vice-President                       |   | 2002                   |   | -0-                            |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |
|                                 |   | 2003                   |   | 144,000                        |   | -0-                                 |   | -0- |   | -0- |   | -0- |   | -0- |   |

 

As of June 30, 2003 no officer ofthe Company has an employment agreement with the Company.

 

39

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**Option/SAR Values**

 
| **Name** |   | **Shares  Acquired on  Exercise** |       | **Value  Realized** |       | **Number of Securities  Underlying  Unexercised Options/SARs**** ****at FY-End** |       | **Value of  Unexercised In—  the-Money Options/SARs  at FY-End** |       |
|----------|--------|-----------------------------------|------------|---------------------|------------|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
|     |   |                              |       |                |       |                                                                                  |       |                                                                       |       |
| NONE     |   |                              | ** ** |                | ** ** |                                                                                  | ** ** |                                                                       | ** ** |

 

**Item 11.  Security Ownership of Certain BeneficialOwners and Management.**

 

Security Ownership ofCertain Beneficial Owners and Management The following table sets forth informationas of June 30, 2003, regarding the beneficial ownership of the Company’s commonstock by (i) each person who is known to CGC to own beneficially more thanfive percent (5%) of the outstanding shares of the common stock of the Company,(ii) each director, (iii) each named executive officer, and(iv) all officers and directors as a group.

 
|   |   | **Name of  Beneficial Owner**                                                                                          |   | **No. Shares** |   | **%Ownership(1)** |   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|-------------------|--------|
|   |   |                                                                                                                   |   |           |   |              |   |
| 1.     |   | Edward  W. Savarese   2075 Corte del Norte   Carlsbad, CA 92009                                                        |   | 4,178,572      |   | 23.36             | %      |
| 2.     |   | Edward  H. Currie   657 158th Street   Whitestone, NY 11357                                                            |   | 75,000         |   | 0.42              | %      |
| 3.     |   | Joseph  Sigismonti   21132 Calle Ocaso   Lake Forest, CA 92630                                                         |   | 121,929        |   | 0.68              | %      |
| 4.     |   | Alan  F. Miller   2075 Corte del Norte

Carlsbad,  CA 92009                                                            |   | 60,715         |   | 0.34              | %      |
| 5.     |   | Gerry  B. Berg   2075 Corte del Norte   Carlsbad, CA 92009                                                             |   | 71,429         |   | 0.40              | %      |
| 6.     |   | Irwin  Roth  2075 Corte del Norte   Carlsbad, CA 92009                                                                 |   | 50,000         |   | 0.28              | %      |
| 7.     |   | Nolan  Bushnell   5443 Beethoven Street  Los Angeles, CA 90066                                                         |   | 25,000         |   | 0.14              | %      |
| 8.     |   | Woo  Young Kim together with his control Software Technology, Inc.   Dongwood Bld 784-13   Seoul, Korea 35-080         |   | 1,256,428      |   | 7.02              | %      |
| 9.     |   | Theodore  Stern as the beneficial owner of Bomoseen Associates, L.P.   One PPG Plaza, Suite 2970  Pittsburgh, PA 15222 |   | 2,325,001      |   | 12.46             | %(2)   |
| 10.    |   | All  Officers and Directors as a Group                                                                                 |   | 4,582,645      |   | 25.62             | %      |

 

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(1)           Forthe shareholders Nos. 1-8 and 10, assumes that these owners exercise theirwarrants but no one else does. In that none of these shareholders own anywarrants their respective percentage ownership is based upon a total of17,890,006 shares of common stock that are issued and outstanding at June 30,2003.

 

40

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(2)           Withrespect to this shareholder, his percentage ownership is based upon theexercise of his warrants for the purchase of 775,001 shares but assumes that noother owners exercise their warrants.

** **

**Item 12. CertainRelationships and Related Transactions.**

 

***(A) Consulting Services***

 

Duringthe year ended June 30, 2003 and 2002, the Company incurred consulting fees forvarious corporate and administrative services performed by officers, directors,and stockholders.

 

***(B) Legal Counsel***

 

TheCompany’s legal counsel is a stockholder of the Company.  For the years ended June 30, 2003 and2002, services rendered amounted to $43,314 and $80,689, respectively, and areincluded in operating expenses within professional fees.

 

***(C) Related Party Receivable***

 

From time to time, the Company advances monies to officers anddirectors for travel, personal expenditures, and other matters. As of June 30,2003, the advances totaled $15,319. These advances are non-interest bearing and have no specified terms ofrepayment.

 

**Item 13. Exhibits andReports on Form 8-K.**

 

None.

 

**Exhibits.**

 
| (3a)   |   | Articles and Bylaws of the Company incorporated  by reference to Exhibits 2 and 2.3 of Form 10-SB/A1 dated April 11, 2000.                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                     |
| (3b)   |   | Certificate of Amendment of Articles of  Incorporation of e-World Security, Inc. incorporated by reference to Exhibit  2.1 of Form 10-SB/A1 dated April 11, 2000.                                                        |
|   |   |                                                                                                                                                                                                                     |
| (10a)  |   | Technology Purchase Agreement incorporated by  reference to Exhibit 6.1 of Form 10-SB/A1 dated April 11, 2000.                                                                                                           |
|   |   |                                                                                                                                                                                                                     |
| (10b)  |   | Consulting Agreement incorporated by reference to  Exhibit 6.2 of Form 10-SB/A1 dated April 11, 2000.                                                                                                                    |
|   |   |                                                                                                                                                                                                                     |
| (10c)  |   | Consulting  Agreement between the Company and Edward Savarese, dated October 1, 2000,  effective July 1, 1999 incorporated by reference to Form 10-K dated January  30, 2001 and March 30, 2001 (for subsequent events). |
|   |   |                                                                                                                                                                                                                     |
| (10d)  |   | Consulting  Agreement between the Company and Edward Currie, dated March 13, 2001,  effective July 1, 1999 incorporated by reference to Form 10-K dated January  30, 2001 and March 30, 2001 (for subsequent events).    |
|   |   |                                                                                                                                                                                                                     |
| (10e)  |   | Consulting  Agreement between the Company and Joseph Sigismonti, October 1, 2000,  effective July 1, 1999 incorporated by reference to Form 10-K dated January  30, 2001 and March 30, 2001 (for subsequent events).     |
|   |   |                                                                                                                                                                                                                     |
| (10f)  |   | Share  Purchase Agreement between the Company and Guardtec, Inc., dated December 19,  2000 incorporated by reference to Form 10-K dated January 30, 2001 and March  30, 2001 (for subsequent events).                    |
|   |   |                                                                                                                                                                                                                     |
| (10g)  |   | Technology  License Agreement between the Company and Guardtec, Inc., dated December 25,  2000 incorporated by reference to Form 10-K dated January 30, 2001 and March  30, 2001 (for subsequent events).                |
|   |   |                                                                                                                                                                                                                     |
| (10h)  |   | Manufacturer  Licensee Program Agreement between the Company and South Coast Distribution  Limited and Distributec Limited dated May 28, 2003 incorporated by reference  to Form SB-2 dated August 8, 2003.              |
| (10i)  |   | License  Agreement between the Company and F4i ICA Limited dated August 5, 2003                                                                                                                                          |
|   |   |                                                                                                                                                                                                                     |
| 31.1   |   | Certifications  of Chief Executive Officer and Chief Financial Officer                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                     |
| 31.2   |   | Certifications  of Chief Executive Officer and Chief Financial Officer                                                                                                                                                   |

 

**ITEM 14.  CONTROLS ANDPROCEDURES**

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

 

Changesin internal controls.  No significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls were made as a result of the evaluation.

 

41

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**SIGNATURES**

 

**Signatures**

 

In accordance with therequirements of the Securities Act of 1933, the registrant certifies that ithas reasonable grounds to believe that it meets all of the requirements forfiling on Form 10-KSB and authorized this statement to be signed on its behalfby the undersigned, in the city of Carlsbad, State of California, on October 3,2003.

 
|   | COM-GUARD.COM, INC. |                      |
|--------|--------------------------|---------------------------|
|   |                     |                      |
|   | BY:                      | /s/  Edward W. Savarese   |   |
|   |                     | EDWARD W. SAVARESE        |   |
|   |                     | *Chief Executive Officer* |   |   |
|        |                          |                           |  |  |  |

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this amended Annual Report on Form 10-KSB has been signed below by the following persons in the capacities and on the dates indicated.

 
| /s/  Edward W. Savarese |   |                                                                                     |             |
|-------------------------|--------|------------------------------------------------------------------------------------------|------------------|
| EDWARD W. SAVARESE      |   | Chairman  of the Board, and Chief Executive Officer                                      | October  3, 2003 |
|                    |   |                                                                                     |             |
| /s/ Joseph Sigismonti   |   |                                                                                     |             |
| JOSEPH SIGISMONTI       |   | President                                                                                | October  3, 2003 |
|                    |   |                                                                                     |             |
| /s/  Gerry B. Berg      |   | Vice-President  and Chief Financial Officer (Principal Financial and Accounting Officer) |             |
| GERRY B. BERG           |   | October  3, 2003                                                                         |
|                    |   |                                                                                     |             |
| /s/  Edward H. Currie   |   |                                                                                     |             |
| EDWARD H. CURRIE        |   | Director                                                                                 | October  3, 2003 |
|                    |   |                                                                                     |             |
| /s/ Irwin Roth          |   |                                                                                     |             |
| IRWIN ROTH              |   | Director                                                                                 | October  3, 2003 |
|                    |   |                                                                                     |             |
| /s/  Nolan Bushnell     |   |                                                                                     |             |
| NOLAN BUSHNELL          |   | Director                                                                                 | October  2, 2003 |

 

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