U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

[X]  Annual report under Section 13 or 15 (d) of the Securities  Exchange Act of
     1934 for the fiscal year ended December 31, 2004

[ ]  Transition  report under Section 13 or 15 (d) of the Securities  Exchange
     Act of 1934 for the transition period from _____________to _____________

                        Commission File Number: 000-50813

                     SAND HILL IT SECURITY ACQUISITION CORP.
                 (Name of Small Business Issuer in Its Charter)

             Delaware                                     20-0996152
 (State or Other Jurisdiction of                       (I.R.S. Employer
  Incorporation or Organization)                       Identification No.)

        3000 Sand Hill Road
        Building 1, Suite 240
        Menlo Park, California                              94025
(Address of Principal Executive Offices)                  (Zip code)

                                 (650) 926-7022
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:
                                      None
                                (Title of class)

         Securities registered under Section 12(g) of the Exchange Act:
                 Units consisting of one share of Common Stock,
                   par value $.01 per share, and two Warrants
                     Common Stock, $.01 par value per share
                   Warrants to purchase shares of Common Stock
                                (Title of class)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]          No  [   ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: None

The  aggregate  market  value  of  the  voting  and  non-voting  stock  held  by
non-affiliates  of the  registrant  as of  March  24,  2005,  was  approximately
$20,632,200. For purposes of this computation, all executive officers, directors
and 10% stockholders were deemed affiliates.  Such a determination should not be
construed  as an  admission  that  such  executive  officers,  directors  or 10%
stockholders are affiliates.

As of March 24,  2005,  5,110,000  shares of common  stock,  par value  $.01 per
share, were issued and outstanding.

Transitional Small Business Disclosure Format: Yes [ ]   No [X]


<PAGE>

                     SAND HILL IT SECURITY ACQUISITION CORP.

                                                                          Page

PART I        ................................................................1
   Item 1.    Description of Business.........................................1
   Item 2.    Description of Property........................................12
   Item 3.    Legal Proceedings..............................................13
   Item 4.    Submission of Matters to a Vote of Security Holders............13
PART II       ...............................................................13
   Item 5.    Market for Common Equity and Related Stockholder Matters.......13
   Item 6.    Management's Discussion and Analysis or Plan of Operation......14
   Item 7.    Financial Statements...........................................15
   Item 8.    Changes In and Disagreements With Accountants or
              Accounting and Financial Disclosure............................26
   Item 8A.   Controls and Procedures........................................26
PART III      ...............................................................26
   Item 9.    Directors, Executive Officers, Promoters and
              Control Persons................................................26
   Item 10.   Executive Compensation.........................................29
   Item 11.   Security Ownership of Certain Beneficial Owners
              and Management.................................................29
   Item 12.   Certain Relationships and Related Transactions.................30
   Item 14.   Principal Accounting Fees and Services.........................35
SIGNATURES
EXHIBITS


<PAGE>
                                     PART I

     This  report  contains  forward-looking  statements  within the  meaning of
Section 27A of the  Securities Act of 1933, as amended (the  "Securities  Act"),
and  Section  21E of the  Securities  Exchange  Act of  1934,  as  amended  (the
"Exchange Act"). These  forward-looking  statements are subject to certain risks
and  uncertainties  that could cause actual  results to differ  materially  from
historical  results or  anticipated  results,  including  those set forth  under
"Management's Discussion and Analysis or Plan of Operation" and elsewhere in, or
incorporated by reference into, this report.

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     Sand Hill IT Security  Acquisition  Corp.  (the "Company") is a blank check
company formed to serve as a vehicle for the acquisition of a target business in
a specified  industry.  Our objective is to acquire an operating business in the
IT security  industry.  We were  incorporated in Delaware on April 15, 2004. Our
initial stockholders purchased 1,000,000 shares of common stock, $.01 par value,
for $25,000.  The  registration  statement for our initial public  offering (the
"Offering") was declared effective July 26, 2004. We consummated the Offering on
July 30, 2004. The net proceeds,  after deducting the underwriters  discount and
offering  expenses,  and including the sale of 510,000 units in the underwriters
over-allotment  option,  was $22,022,462.  $20,961,000 of these net proceeds has
been placed in a trust fund and invested in United States government securities.
The funds held in the trust  account  will not be released  until the earlier of
the date on which we consummate a business combination or liquidate our assets.

     We are not presently engaged in, and we will not engage in, any substantive
commercial business for an indefinite period of time following the Offering.  We
intend to utilize cash derived  from the proceeds of the  Offering,  our capital
stock, debt or a combination of these in effecting a business  combination.  Our
management has broad discretion with respect to the specific  application of the
net proceeds of the Offering and, as a result, the Offering was characterized as
a blank check offering.  While we may seek to effect business  combinations with
more than one target business, we will probably have the ability, as a result of
our limited resources, to effect only a single business combination.

CURRENT TRENDS

     Opportunities  for market  expansion  have emerged for businesses in the IT
security industry.  We believe that IT security is a favorable industry in which
to seek  acquisitions  and an  attractive  operating  environment  for a  target
business for several reasons, including:

     o    International  Data Corporation,  or IDC predicts that the IT security
          industry  will continue to grow at an annual  compound  growth rate of
          20% with security spending reaching $17.4 billion in 2006;

     o    IT security violations and incidents have increased from 3,000 in 1998
          to more than 80,000 in 2002 according to the CERT Coordination Center,
          or CERT; and

     o    The  following  macro  forces  create a strong  demand for IT security
          companies to provide solutions:

          o    Risk - fear of  terrorism,  vandalism  and  crime  and  the  wide
               recognition  of  the  dependence  of  business  and  governmental
               organizations on the viability of their networks;

          o    Regulation  - federal  regulation  of  financial  and health care
               sectors and state regulation to protect private data; and

          o    Liability  -  legal  exposure  from   negligent   disclosure  and
               accounting and other compliance violations.

     IT security is a broad industry  because it touches all aspects of networks
and  computers.  The  industry  is not a  single  market  but  encompasses  many
sub-sectors  at  different  stages of maturity.  Within the IT security  market,
industry  analyst  Trusted  Strategies,  an  independent  market  research  firm

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<PAGE>

specializing  in the IT security  industry,  has identified 600 companies and 46
defined market  segments.  In addition,  new technologies  requiring  innovative
security  solutions  (such as instant  messenger,  VOIP and Wi-Fi)  continue  to
emerge and  attract  investment  capital  and  market  entrants.  The  resulting
industry  landscape  is  highly  fragmented  and in a  constant  state  of flux.
Furthermore,  we believe  that a limited  IPO  market and access to capital  for
technology  companies in general and for IT security  companies  in  particular,
combined with an abundance of vendors has created significant  opportunities for
consolidation  and merger  and  acquisition  opportunities  in the  sector.  Our
company's  management  team has  significant  expertise and experience in the IT
security  industry,  as  well  as  in  acquisitions,  operations  and  corporate
governance,  which we believe  gives us the ability to  successfully  acquire an
operating business in this industry.

     The  emergence  of the  commercial  Internet  marked  the  creation  of the
enterprise  security  market.  This market  includes  products and services that
preserve the integrity of critical information, networking and data systems, and
applications  and  services.  Macro trends such as risk  management,  regulatory
compliance,  online  financial  services,  supply  chain  connectivity,   mobile
computing, and terrorism all drive demand for robust systems that can anticipate
and withstand evolving threats to enterprise networks, systems and information.

     Data  security was  originally a subset of the software  market--technology
companies   developed  programs  designed  to  address  specific  weaknesses  in
enterprise  networks.  In the current  environment,  enterprises have recognized
that they need to adopt a more  preventative  approach  to  corporate  security,
rather than  implementing  stop-gap  remedies,  because as the Internet grows in
complexity,   the  level  of  risk  and   security   incidents   has   increased
exponentially.  We believe the fragmented  state of the industry,  combined with
the convergence of security  technologies and IT infrastructure  has resulted in
the beginning of a consolidation trend that makes merger and acquisition targets
attractive.

     Although  we  may  consider  target  businesses  in any  segment  of the IT
security  industry,  we  currently  intend  to  concentrate  our  search  for an
acquisition candidate that offers comprehensive  security solutions for critical
business   infrastructure   that  include  analysis  and  assessment,   software
infrastructure,  policy  implementation,  detection  (monitoring)  services, and
response  services.   We  believe  the  following  segments  present  attractive
opportunities:

     o    Productivity and connectivity products embedding security

     o    Products aimed at small to mid sized enterprises and home users

     o    Anti-Virus/Worm protection

     o    Anti-Spam solutions

     o    Identity theft and management solutions

     o    Internet access filtering

     o    Management of security applications

     o    Integration  of  firewalls,   content  and  network  management,   and
          application delivery/gateways

     o    Secure mobile and wireless communications

     Using  security  products,  enterprises,  telecommunications  carriers  and
government  entities can facilitate a variety of security and network protection
objectives including securing communication over the Internet, enforcing network
access  policies  and  protecting  against  worm and virus  outbreaks as well as
sophisticated  intrusion  attempts  by hackers.  The  products  and  services of
companies in these targeted  segments can be deployed in cost  sensitive  branch
offices and remote  sites as well as in  mission-critical  environments  such as
enterprise central sites,  corporate  extranets,  major e-business Web sites and
carrier network  infrastructures.  We intend to target  companies with solutions
that can be purchased and operated by individual  users and  enterprises and can
also be used by  carriers  to secure  their  infrastructure  or deliver  managed
security services to their enterprise customers.

                                       2
<PAGE>

EFFECTING A BUSINESS COMBINATION

General

     Although substantially all of the net proceeds of the Offering are intended
to be generally  applied toward effecting a business  combination in a specified
industry, the proceeds have not otherwise being designated for any more specific
purposes.  Accordingly,  our stockholders do not have an opportunity to evaluate
the  specific  merits  or  risks  of any one or more  business  combinations.  A
business  combination  may involve the acquisition of, or merger with, a company
that does not need substantial additional capital but which desires to establish
a public  trading  market for its shares,  while avoiding what it may deem to be
adverse consequences of undertaking a public offering itself. These include time
delays,  significant expense, loss of voting control and compliance with various
Federal and state securities laws. In the alternative, we may seek to consummate
a business combination with a company that may be financially unstable or in its
early stages of development or growth.

We have not identified a target business

     To date, we have not selected any target  business on which to  concentrate
our search for a business combination. We intend to search for a target business
in the United States,  Europe and Asia. Subject to the limitations that a target
business is an  operating  business in the IT security  industry  and has a fair
market  value of at least 80% of our net assets at the time of the  acquisition,
as described below in more detail, we will have great flexibility in identifying
and  selecting a prospective  acquisition  candidate.  Accordingly,  there is no
basis for  investors  to  evaluate  the  possible  merits or risks of the target
business with which we may ultimately  complete a business  combination.  To the
extent we effect a business  combination with a financially  unstable company or
an  entity in its early  stage of  development  or  growth,  including  entities
without established records of sales or earnings, we may be affected by numerous
risks inherent in the business and operations of financially  unstable and early
stage or potential  emerging  growth  companies.  Although our  management  will
endeavor to evaluate the risks inherent in a particular  target business,  there
can be no assurance  that we will properly  ascertain or assess all  significant
risk factors.

Sources of target businesses

     We  anticipate  that  target  business  candidates  will be  brought to our
attention  from various  unaffiliated  sources,  including  investment  bankers,
venture capital funds, private equity funds, leveraged buyout funds,  management
buyout  funds and other  members of the  financial  community,  who may  present
solicited or unsolicited proposals.  Our officers and directors as well as their
affiliates may also bring to our attention target business candidates.  While we
do not presently  anticipate  engaging the services of  professional  firms that
specialize in business  acquisitions  on any formal  basis,  we may engage these
firms in the future, in which event we may pay a finder's fee, retainer or other
compensation.  In no event,  however,  will we pay any of our existing officers,
directors  or  stockholders  or any entity  with which they are  affiliated  any
finder's fee or other  compensation  for services  rendered to us prior to or in
connection with the consummation of a business combination.

Selection of a target business and structuring of a business combination

     Subject to the requirement  that our initial  business  combination must be
with a target  business with a fair market value that is at least 80% of our net
assets  at  the  time  of  such   acquisition,   our  management  has  virtually
unrestricted  flexibility  in  identifying  and selecting a  prospective  target
business.  In evaluating a prospective  target  business,  our  management  will
consider, among other factors, the following:

     o    financial condition and results of operation;

     o    growth potential;

     o    experience  and skill of  management  and  availability  of additional
          personnel;

     o    capital requirements;

     o    competitive position;

                                       3
<PAGE>

     o    stage of development of the products, processes or services;

     o    degree of current or  potential  market  acceptance  of the  products,
          processes or services;

     o    proprietary  features  and degree of  intellectual  property  or other
          protection of the products, processes or services;

     o    regulatory environment of the industry; and

     o    costs associated with effecting the business combination.

     These criteria are not intended to be exhaustive.  Any evaluation  relating
to the merits of a particular business  combination will be based, to the extent
relevant,  on the above factors as well as other considerations  deemed relevant
by our  management  in  effecting  a business  combination  consistent  with our
business objective. In evaluating a prospective target business, we will conduct
an extensive  due  diligence  review which will  encompass,  among other things,
meetings with incumbent  management  and  inspection of  facilities,  as well as
review of financial and other information which is made available to us.

     The time and costs required to select and evaluate a target business and to
structure and complete the business  combination cannot presently be ascertained
with  any  degree  of  certainty.   Any  costs  incurred  with  respect  to  the
identification  and  evaluation  of a prospective  target  business with which a
business combination is not ultimately completed will result in a loss to us and
reduce  the  amount of  capital  available  to  otherwise  complete  a  business
combination.

Fair market value of target business

     The initial  target  business that we acquire must have a fair market value
equal to at least  80% of our net  assets at the time of such  acquisition.  The
fair market value of such  business will be determined by our board of directors
based upon  standards  generally  accepted by the financial  community,  such as
actual and potential sales,  earnings and cash flow and book value. If our board
is not able to independently determine that the target business has a sufficient
fair market value, we will obtain an opinion from an  unaffiliated,  independent
investment  banking  firm  that  is a  member  of the  National  Association  of
Securities  Dealers,  Inc. with respect to the  satisfaction  of these criteria.
Since any opinion, if obtained,  would merely state that fair market value meets
the 80% of net  assets  threshold,  it is not  anticipated  that  copies of such
opinion  would be  distributed  to our  stockholders,  although  copies  will be
provided  to  stockholders  who  request  it. We are not  required  to obtain an
opinion from an investment banking firm as to the fair market value if our board
of directors  independently  determines  that the target business has sufficient
fair market value.

Probable lack of business diversification

     While we may seek to effect business combinations with more than one target
business,  our initial business  combination must be with a target business that
satisfies the minimum  valuation  standard at the time of such  acquisition,  as
discussed above.  Consequently,  it is probable that we will have the ability to
effect only a single business  combination.  Accordingly,  the prospects for our
success  may be  entirely  dependent  upon the  future  performance  of a single
business.  Unlike other entities that may have the resources to complete several
business  combinations of entities operating in multiple  industries or multiple
areas of a single  industry,  it is probable that we will not have the resources
to diversify our  operations or benefit from the possible  spreading of risks or
offsetting of losses. By consummating a business  combination with only a single
entity, our lack of diversification may:

     o    subject  us  to  numerous   economic,   competitive   and   regulatory
          developments,  any or all of  which  may  have a  substantial  adverse
          impact upon the particular industry in which we may operate subsequent
          to a business combination, and

     o    result in our dependency upon the development or market  acceptance of
          a single or limited number of products, processes or services.

                                       4
<PAGE>

Limited ability to evaluate the target business' management

     Although we intend to closely  scrutinize  the  management of a prospective
target  business  when  evaluating  the  desirability  of  effecting  a business
combination,  there  can be no  assurance  that  our  assessment  of the  target
business'  management  will prove to be correct.  In  addition,  there can be no
assurance  that  the  future   management   will  have  the  necessary   skills,
qualifications or abilities to manage a public company.  Furthermore, the future
role of our  officers  and  directors,  if any,  in the target  business  cannot
presently be stated with any certainty. While it is possible that one or more of
our  directors  will remain  associated  in some  capacity  with us  following a
business  combination,  it is unlikely  that any of them will devote  their full
efforts to our affairs subsequent to a business combination. Moreover, we cannot
assure you that our officers and directors will have  significant  experience or
knowledge  relating to the operations of the particular  target business or that
they will be  familiar  with  their  responsibilities  under the  United  States
securities laws.

     Following  a  business  combination,  we may  seek  to  recruit  additional
managers to supplement the incumbent  management of the target  business.  There
can be no  assurance  that  we will  have  the  ability  to  recruit  additional
managers, or that additional managers will have the requisite skills,  knowledge
or experience necessary to enhance the incumbent management.

Opportunity for stockholder approval of business combination

     Prior to the  completion  of a  business  combination,  we will  submit the
transaction  to  our  stockholders  for  approval,  even  if the  nature  of the
acquisition is such as would not ordinarily require  stockholder  approval under
applicable  state law. In  connection  with  seeking  stockholder  approval of a
business  combination,  we will furnish our stockholders with proxy solicitation
materials  prepared in  accordance  with the Exchange  Act,  which,  among other
matters, will include a description of the operations of the target business and
audited historical financial statements of the business.

     In connection with the vote required for any business  combination,  all of
our initial  stockholders,  including  all of our officers and  directors,  have
agreed to vote the 1,000,000 shares of common stock they owned immediately prior
to the Offering in accordance with the vote of the public  stockholders owning a
majority of the shares of our common stock sold in our initial public  offering.
This voting  arrangement does not apply to shares included in units purchased in
the  Offering or purchased  following  the Offering in the open market by any of
our initial  stockholders,  officers  and  directors.  We will  proceed with the
business  combination only if public stockholders who own at least a majority of
the shares of common  stock sold in the  Offering  vote in favor of the business
combination and public  stockholders  owning less than 20% of the shares sold in
the Offering exercise their conversion rights.

Conversion rights

     At the time we seek stockholder  approval of any business  combination,  we
will  offer each  public  stockholder  the right to have their  shares of common
stock  converted  to  cash  if  the  stockholder   votes  against  the  business
combination and the business  combination is approved and completed.  The actual
per-share  conversion  price  will be equal to the  amount  in the  trust  fund,
inclusive  of  any  interest,  as  of  the  record  date  for  determination  of
stockholders entitled to vote on the business combination, divided by the number
of shares sold in the Offering.  Without taking into any account interest earned
on the trust fund, the initial  per-share  conversion  price would be $5.10.  An
eligible stockholder may request conversion at any time after the mailing to our
stockholders  of the proxy statement and prior to the vote taken with respect to
a proposed  business  combination  at a meeting held for that  purpose,  but the
request will not be granted  unless the  stockholder  votes against the business
combination and the business combination is approved and completed.  Any request
for  conversion,  once made,  may be withdrawn at any time up to the date of the
meeting.  It is anticipated  that the funds to be  distributed  to  stockholders
entitled  to convert  their  shares  who elect  conversion  will be  distributed
promptly after  completion of a business  combination.  Public  stockholders who
convert  their  stock into their share of the trust fund still have the right to
exercise  the  warrants  that they  received  as part of the units.  We will not
complete any business combination if public stockholders,  owning 20% or more of
the shares sold in the Offering, exercise their conversion rights.

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<PAGE>

Liquidation if no business combination

     If we do not  complete a business  combination  within 18 months  after the
consummation  of the Offering  (January 30, 2006), or within 24 months (July 30,
2006) if the extension criteria described below have been satisfied,  we will be
dissolved and will distribute to all of our public  stockholders,  in proportion
to their respective  equity  interests,  an aggregate sum equal to the amount in
the trust fund, inclusive of any interest,  plus any remaining net assets of the
Company. Our initial stockholders have waived their rights to participate in any
liquidation  distribution  with  respect to shares of common stock owned by them
immediately prior to the Offering.

     If we were to expend all of the net  proceeds of the  Offering,  other than
the  proceeds  deposited  in the trust  fund,  and without  taking into  account
interest,  if any, earned on the trust fund, the initial  per-share  liquidation
price would be $5.10. The proceeds  deposited in the trust fund could,  however,
become subject to the claims of our creditors which could be prior to the claims
of our public stockholders.  There can be no assurance that the actual per-share
liquidation price will not be less than $5.10,  plus interest,  due to claims of
creditors.  Humphrey P. Polanen,  our chairman of the board and chief  executive
officer,  has agreed pursuant to an agreement with us and the representatives of
the  underwriters  in  the  Offering,   that,  if  we  liquidate  prior  to  the
consummation  of a business  combination,  he will be  personally  liable to pay
debts and obligations to vendors or other entities that are owed money by us for
services  rendered or products  sold to us in excess of the net  proceeds of the
Offering not held in the trust account. There can be no assurance, however, that
Mr. Polanen would be able to satisfy those obligations.

     If we enter  into a letter  of  intent,  an  agreement  in  principle  or a
definitive  agreement to complete a business combination prior to the expiration
of 18 months after the consummation of the Offering  (January 30, 2006), but are
unable to complete the business  combination within the 18-month period, then we
will have an  additional  six months  (July 30,  2006) in which to complete  the
business  combination  contemplated  by  the  letter  of  intent,  agreement  in
principle or definitive  agreement.  If we are unable to do so by the expiration
of the  24-month  period from the  consummation  of the  Offering,  we will then
liquidate.  Upon  notice  from us, the  trustee of the trust fund will  commence
liquidating the investments  constituting  the trust fund and will turn over the
proceeds  to  our  transfer  agent  for  distribution  to our  stockholders.  We
anticipate that our instruction to the trustee would be given promptly after the
expiration of the applicable 18-month or 24-month period.

     Our public  stockholders  are entitled to receive funds from the trust fund
only in the event of our  liquidation  or if the  stockholders  seek to  convert
their  respective  shares  into  cash  upon  a  business  combination  that  the
stockholder  voted  against and which is actually  completed  by us. In no other
circumstances  shall a stockholder  have any right or interest of any kind to or
in the trust  fund.  There  will be no  distribution  from the  trust  fund with
respect to our warrants.

COMPETITION

     In identifying,  evaluating and selecting a target  business,  we expect to
encounter  intense  competition from other entities having a business  objective
similar to ours. Many of these entities are well  established and have extensive
experience  identifying and effecting business  combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other
resources than us and our financial  resources  will be relatively  limited when
contrasted with those of many of these  competitors.  While we believe there are
numerous potential target businesses that we could acquire with the net proceeds
of the  Offering,  our ability to compete in acquiring  certain  sizable  target
businesses will be limited by our available financial  resources.  This inherent
competitive  limitation gives others an advantage in pursuing the acquisition of
a target business. Further:

     o    our obligation to seek stockholder  approval of a business combination
          may delay the completion of a transaction;

     o    our obligation to convert into cash shares of common stock held by our
          public  stockholders  in certain  instances  may reduce the  resources
          available to us for a business combination; and

     o    our  outstanding  warrants and options,  and the future  dilution they
          potentially  represent,  may not be viewed favorably by certain target
          businesses.

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<PAGE>

     Any of these  obligations  may place us at a  competitive  disadvantage  in
successfully  negotiating  a  business  combination.  Our  management  believes,
however,  that our status as a public entity and potential  access to the United
States public equity markets may give us a competitive  advantage over privately
held entities  having a similar  business  objective as us in acquiring a target
business with significant growth potential on favorable terms.

     If we succeed in  effecting a business  combination,  there will be, in all
likelihood,  intense  competition from competitors of the target business in the
IT security industry and elsewhere.  There can be no assurance that,  subsequent
to a  business  combination,  we will have the  resources  or ability to compete
effectively.

FACILITIES

     We maintain our executive offices at 3000 Sand Hill Road, Building 1, Suite
240, Menlo Park,  California  94025.  The cost for this space is included in the
$7,500  per-month  fee Sand  Hill  Security,  LLC  charges  us for  general  and
administrative  services pursuant to a letter agreement between us and Sand Hill
Security,  LLC.  Sand Hill  Security,  LLC is an  affiliate  of  certain  of our
directors  and  executive  officers.  We  believe,  based on rents  and fees for
similar services in the Menlo Park,  California  metropolitan area, that the fee
charged by Sand Hill  Security,  LLC is at least as  favorable  as we could have
obtained  from an  unaffiliated  person.  We consider  our current  office space
adequate for our current operation.

EMPLOYEES

     We have three executive officers,  each of whom are members of our board of
directors. These individuals are not obligated to contribute any specific number
of hours per week and intend to devote only as much time as they deem  necessary
to our affairs.  The executive officers are also involved with business ventures
other than the  Company.  The amount of time they will devote in any time period
will  vary  based  on  the   availability  of  suitable  target   businesses  to
investigate.  We do not  intend  to have any full  time  employees  prior to the
consummation of a business combination.

RISKS ASSOCIATED WITH OUR BUSINESS

     In addition to other  information  included in this report,  the  following
factors should be considered in evaluating our business and future prospects.

We are a development  stage company with a limited operating history and will be
unable to generate any revenues until we complete a business combination.

     We are a  development  stage  company  that has earned no revenues to date.
Since we have a  limited  operating  history,  there is no basis  upon  which to
evaluate our ability to achieve our business  objective,  which is to acquire an
operating  business  in the IT  security  industry.  We will  not  generate  any
revenues (other than interest income on the proceeds of the Offering)  until, at
the earliest, after the consummation of a business combination.

The  Company's  management  has broad  discretion  with  respect to the specific
application of the net proceeds of the Offering.

     Although  substantially  all of the net  proceeds of the Offering are to be
generally  applied  toward  consummating  a  merger  with or  acquisition  of an
operating  business  whose  primary  business  is in the IT  security  industry,
management has virtually unrestricted flexibility in identifying and selecting a
prospective  target business.  Stockholders  must therefore rely on management's
due diligence review and evaluation of potential acquisition  candidates.  There
can be no assurances  that, if we complete the acquisition of a target business,
such acquisition will be successful.

If we are  forced  to  liquidate  before  a  business  combination,  our  public
stockholders  could  receive  less than  their  purchase  price  per share  upon
distribution of the trust fund and our warrants will expire worthless.

     If we are  unable to  complete  a  business  combination  and are forced to
liquidate our assets, the per-share liquidation  distribution could be less than
the purchase price per share that purchasers paid for our securities  because of

                                       7
<PAGE>

the expenses of the Offering,  our general and  administrative  expenses and the
anticipated costs of seeking a business combination.  Furthermore, there will be
no distribution with respect to our outstanding warrants and,  accordingly,  the
warrants  will expire  worthless  if we  liquidate  before the  completion  of a
business combination.

If third  parties  bring claims  against us, the proceeds held in trust could be
reduced and the per share  liquidation  price received by stockholders  could be
less than their purchase price per share.

     Our placing of funds in trust may not protect  those funds from third party
claims  against us. The proceeds  held in trust could be subject to claims which
could take priority over the claims of our public stockholders.  There can be no
assurance  that  the  per-share  liquidation  price  will  not be less  than the
purchase price per share that purchasers paid for our securities, plus interest,
due to claims of creditors.  If we liquidate before the completion of a business
combination,  Humphrey P. Polanen, our chairman of the board and chief executive
officer,  will be personally  liable under certain  circumstances to ensure that
the proceeds in the trust fund are not reduced by the claims of various  vendors
or other  entities  that are owed money by us for services  rendered or products
sold to us.  However,  we cannot  assure  you that Mr.  Polanen  will be able to
satisfy those obligations.

Since we have not yet  selected  any target  business  with which to  complete a
business  combination,  we are unable to currently ascertain the merits or risks
of the business which we may ultimately operate.

     Subject to the limitations that a target business be an operating  business
in the IT security  industry and have a fair market value of at least 80% of our
net  assets  at the  time  of the  acquisition,  we  will  have  flexibility  in
identifying and selecting a prospective  acquisition candidate. To the extent we
complete a business combination with a financially unstable company or an entity
in its  development  stage, we may be affected by numerous risks inherent in the
business operations of those entities.  Although our management will endeavor to
evaluate the risks  inherent in a particular  target  business,  there can be no
assurance that we will properly  ascertain or assess all of the significant risk
factors.  There also can be no assurance  that an investment in our company will
not ultimately prove to be less favorable to investors than a direct investment,
if an opportunity were available, in a target business.

Resources could be wasted in researching acquisitions that are not consummated.

     It  is  anticipated  that  the  investigation  of  each  specific  business
acquisition or merger and the negotiation,  drafting,  and execution of relevant
agreements, disclosure documents, and other instruments will require substantial
management time and attention and substantial costs for accountants,  attorneys,
and  others.  If a  decision  is  made  not  to  complete  a  specific  business
acquisition  or merger,  the costs  incurred  up to that point for the  proposed
transaction  would not be  recoverable.  Furthermore,  even if an  agreement  is
reached for the acquisition of or merger with a specific  business,  the failure
to consummate  that  transaction  (which  failure could occur as a result of any
number of reasons, including issues beyond our control) will result in a loss to
us of the related costs incurred.  Such a loss could materially adversely affect
subsequent attempts to locate and acquire or merge with another business.

We may issue  shares of our  capital  stock or debt  securities  to  complete  a
business combination, which would reduce the equity interest of our stockholders
and likely cause a change of control of our ownership.

     Our  certificate  of  incorporation   authorizes  the  issuance  of  up  to
50,000,000  shares of common  stock,  par value  $.01 per share,  and  5,000,000
shares of  preferred  stock,  par value  $.01 per  share.  There are  35,960,000
authorized  but  unissued   shares  of  our  common  stock  (after   appropriate
reservation  for the  issuance of shares upon full  exercise of our  outstanding
warrants,  the purchase  option  granted to I-Bankers  Securities  and Newbridge
Securities,  the  representatives  of the underwriters in the Offering,  and the
exercise of stock  options to be granted to Advisory  Board  members) and all of
the 5,000,000 shares of preferred stock available for issuance. Although we have
no  commitments  as of December  31, 2004 to issue our  securities,  except with
respect  to  100,000  shares of common  stock  reserved  for  issuance  upon the
exercise of stock options  granted to Advisory Board members,  which options are
not  exercisable  prior to a business  combination,  we will, in all likelihood,
issue a substantial number of additional shares of our common stock or preferred
stock,  or a combination of common and preferred  stock,  to complete a business
combination. The issuance of additional shares of our common stock or any number
of shares of our preferred stock:

     o    may significantly reduce the equity interest of our stockholders;

                                       8
<PAGE>

     o    will likely cause a change in control if a  substantial  number of our
          shares of common  stock are  issued,  which may  affect,  among  other
          things,  our ability to use our net operating loss carry forwards,  if
          any, and most likely also result in the  resignation or removal of our
          present officers and directors; and

     o    may adversely  affect  prevailing  market prices for our common stock,
          our warrants and the units.

     Similarly, if we issued debt securities, it could result in:

     o    default and foreclosure on our assets if our operating cash flow after
          a business combination were insufficient to pay our debt obligations;

     o    acceleration of our obligations to repay the  indebtedness  even if we
          have made all  principal  and interest  payments  when due if the debt
          security contained  covenants that required the maintenance of certain
          financial  ratios or  reserves  and any such  covenant  were  breached
          without a waiver or renegotiation of that covenant;

     o    our immediate payment of all principal and accrued  interest,  if any,
          if the debt security was payable on demand;

     o    covenants  that limit our  ability to acquire  capital  assets or make
          additional acquisitions; and

     o    our inability to obtain  additional  financing,  if necessary,  if the
          debt security  contained  covenants  restricting our ability to obtain
          additional financing while such security was outstanding.

Our current  officers and directors may resign upon  consummation  of a business
combination or earlier.  We may have limited  ability to evaluate the management
of the target business.

     Our ability to successfully  effect a business  combination will be totally
dependent  upon the  efforts of our key  personnel.  The future  role of our key
personnel in the target business,  however, cannot presently be ascertained.  In
addition,  current  key  personnel  may  choose to resign  from  service  to the
Company.  Although it is  possible  that some of our key  personnel  will remain
associated in various  capacities with the target business  following a business
combination,  it is also possible that the management of the target  business at
the time of the business combination will remain in place. Although we intend to
closely scrutinize the management of a prospective target business in connection
with evaluating the desirability of effecting a business combination,  we cannot
assure you that our assessment of management will prove to be correct.

Our officers and directors may allocate  their time to other  businesses,  which
could cause a conflict of interest as to which  business  they  present a viable
acquisition opportunity.

     Our  officers and  directors  are not required to commit their full time to
our affairs, which may result in a conflict of interest in allocating their time
between our  operations and other  businesses.  Some of these persons may in the
future become affiliated with entities, including other "blank check" companies,
engaged in business  activities similar to those intended to be conducted by us.
Our officers and directors may become aware of business  opportunities  that may
be appropriate  for  presentation to us as well as the other entities with which
they may be  affiliated.  Accordingly,  they may have  conflicts  of interest in
determining  to  which  entity  a  particular  business  opportunity  should  be
presented.  We cannot  assure you that these  conflicts  will be resolved in our
favor.

     All of our officers and directors own stock in our company, but have waived
their right to receive  distributions upon liquidation.  The shares and warrants
owned by our directors and officers will be worthless if we do not  consummate a
business combination.  The personal and financial interests of our directors and
officers may influence  their  motivation in identifying  and selecting a target
business  and  completing  a  business  combination  within  the time  allotted.
Consequently,   our  directors  and  officers'  discretion  in  identifying  and
selecting a suitable  target  business may result in a conflict of interest when
determining  whether the terms,  conditions and timing of a particular  business
combination are appropriate and in our stockholders' best interest.

                                       9
<PAGE>

If our common stock becomes subject to the SEC's penny stock rules, broker
dealers may experience difficulty in completing customer transactions and
trading activity in our securities may be adversely affected.

     If at any time we have net tangible  assets of  $5,000,000  or less and our
common  stock has a market price per share of less than $5.00,  transactions  in
our common stock may be subject to the "penny stock" rules promulgated under the
Exchange Act. Under these rules, broker-dealers who recommend such securities to
persons other than institutional accredited investors must:

     o    make a special written suitability determination for the purchaser;

     o    receive the purchaser's  written  agreement to a transaction  prior to
          sale;

     o    provide the purchaser  with risk  disclosure  documents  that identify
          certain risks  associated  with  investing in "penny stocks" and which
          describe the market for these "penny  stocks" as well as a purchaser's
          legal remedies; and

     o    obtain  a  signed  and  dated   acknowledgment   from  the   purchaser
          demonstrating  that the purchaser  has actually  received the required
          risk  disclosure  document before a transaction in a "penny stock" can
          be completed.

     If our common stock becomes subject to these rules, broker-dealers may find
it difficult to effectuate  customer  transactions  and trading  activity in our
securities  may be  adversely  affected.  As a result,  the market  price of our
securities  may be  depressed,  and you may find it more  difficult  to sell our
securities.

It is probable  that we will only be able to complete one business  combination,
which will cause us to be solely  dependent  on a single  business and a limited
number of products or services.

     We presently  have  approximately  $21.1 million on deposit in a trust fund
which we may use to  complete  a  business  combination.  Our  initial  business
combination  must be with a business with a fair market value of at least 80% of
our net assets at the time of such  acquisition.  Consequently,  it is  probable
that we will have the ability to complete  only a single  business  combination.
Accordingly, the prospects for our success may be:

     o    solely dependent upon the performance of a single business, or

     o    dependent  upon the  development  or market  acceptance of a single or
          limited number of products, processes or services.

     In this case,  we will not be able to diversify  our  operations or benefit
from the  possible  spreading  of risks or  offsetting  of losses,  unlike other
entities that may have the resources to complete several business combinations.

Because of our limited  resources and the  significant  competition for business
combination  opportunities,  we  may  not  be  able  to  consummate  a  business
combination.

     We expect to encounter  intense  competition  from other entities  having a
business objective similar to ours,  including venture capital funds,  leveraged
buyout funds and  operating  businesses  competing  for  acquisitions  in the IT
security  industry.  Many of  these  entities  are  well  established  and  have
extensive experience in identifying and effecting business combinations directly
or through  affiliates.  Many of these  competitors  possess greater  technical,
human  and  other  resources  than we do and  our  financial  resources  will be
relatively  limited  when  contrasted  with those of many of these  competitors.
While we believe that there are numerous  potential  target  businesses  that we
could acquire with the net proceeds of the  Offering,  our ability to compete in
acquiring  certain  sizable target  businesses  will be limited by our available
financial  resources.  This  inherent  competitive  limitation  gives  others an
advantage in pursuing the acquisition of certain target businesses. Further, the
obligation we have to seek  stockholder  approval of a business  combination may
delay the consummation of a transaction, and our obligation to convert into cash
the shares of common stock held by public  stockholders in certain instances may
reduce the resources  available for a business  combination.  Additionally,  our
outstanding warrants,  and the future dilution they potentially  represent,  may
not be viewed favorably by certain target businesses.  Any of these obligations,
combined  with the time  limitation  within  which we must  complete  a business
combination,  may  place  us  at  a  competitive  disadvantage  in  successfully
negotiating a business combination.

                                       10
<PAGE>

We may be unable to obtain  additional  financing,  if  required,  to complete a
business  combination  or to  fund  the  operations  and  growth  of the  target
business,  which could compel us to  restructure  the  transaction  or abandon a
particular business combination.

     Although  we  believe  that  the  net  proceeds  of the  Offering  will  be
sufficient  to allow us to consummate a business  combination,  in as much as we
have not yet identified any prospective target business, we cannot ascertain the
capital requirements for any particular  transaction.  If the cash on deposit in
our trust account is  insufficient,  either  because of the size of the business
combination or the depletion of the available net proceeds in search of a target
business,  or because we become  obligated  to convert  into cash a  significant
number of shares  from  dissenting  stockholders,  we will be  required  to seek
additional  financing.  There can be no assurance that such  financing  would be
available  on  acceptable  terms,  if at  all.  To the  extent  that  additional
financing  proves to be  unavailable  when  needed to  consummate  a  particular
business  combination,  we would be compelled to restructure  the transaction or
abandon that  particular  business  combination  and seek an alternative  target
business candidate. In addition, if we consummate a business combination, we may
require  additional  financing  to fund the  operations  or growth of the target
business.  The  failure  to secure  additional  financing  could have a material
adverse effect on the continued  development  or growth of the target  business.
None of our  officers,  directors  or  stockholders  is  required to provide any
financing to us in connection with or after a business combination.

Our initial  stockholders,  including  our  officers  and  directors,  control a
substantial  interest in us and thus may  influence  certain  actions  requiring
stockholder vote.

     As of February  1, 2005,  our initial  stockholders  (including  all of our
officers and directors)  collectively  owned 20.0% of our issued and outstanding
shares of common  stock.  Our board of directors is divided into three  classes,
each of which will generally serve for a term of three years with only one class
of directors  being  elected in each year.  It is unlikely that there will be an
annual meeting of stockholders to elect new directors prior to the  consummation
of a business  combination,  in which  case all of the  current  directors  will
continue in office at least until the consummation of a business  combination or
our  liquidation.  If  there  is an  annual  meeting,  as a  consequence  of our
"staggered"  board of directors,  only a minority of the board of directors will
be  considered  for  election  and our  initial  stockholders,  because of their
ownership  position,  will have  considerable  influence  regarding the outcome.
Accordingly,  our initial  stockholders  will continue to exert control at least
until the  consummation  of a business  combination.  In  addition,  our initial
stockholders  and  their  affiliates  and  relatives  are  not  prohibited  from
purchasing units,  warrants or shares in the aftermarket.  If they do, there can
be no  assurance  that our  initial  stockholders  will  not  have  considerable
influence upon the vote in connection with a business combination.

Our  outstanding  warrants and options may have an adverse  effect on the market
price of our  common  stock  and make it more  difficult  to  effect a  business
combination.

     We currently  have  9,130,000  shares of common stock reserved for issuance
upon exercise of issued and outstanding warrants, the option to purchase 270,000
units  that  we  granted  to  the  representatives  of the  underwriters  in the
Offering, and the options to be granted to Advisory Board members. To the extent
we issue shares of common stock to effect a business combination,  the potential
for the issuance of  substantial  numbers of additional  shares upon exercise of
these warrants and options could make us a less attractive  acquisition  vehicle
in the  eyes of a target  business  as such  securities,  when  exercised,  will
increase the number of issued and outstanding shares of our common stock, reduce
the ownership the  stockholders  would have had excluding the shares issued from
the  exercise of warrants  and  options,  and may reduce the value of the shares
issued to complete  the  business  combination.  Accordingly,  our  warrants and
options may make it more  difficult  to  effectuate  a business  combination  or
increase the cost of the target  business.  Additionally,  the sale, or even the
possibility  of sale,  of the shares  underlying  the warrants and options could
have an adverse  effect on the market price for our securities or on our ability
to obtain  future  public  financing.  If and to the extent  these  warrants and
options are exercised, stockholders may experience dilution to their holdings.

If our initial  stockholders  exercise their registration rights, it may have an
adverse  effect on the market  price of our common  stock and the  existence  of
theses rights may make it more difficult to effect a business combination.

     Our initial stockholders are entitled to demand that we register the resale
of their shares of common stock at any time after the date on which their shares
are  released  from  escrow.   If  our  initial   stockholders   exercise  their
registration  rights with respect to all of their shares of common  stock,  then

                                       11
<PAGE>

there  will be an  additional  1,000,000  shares of common  stock  eligible  for
trading in the public market.  The presence of this additional  number of shares
of common stock  eligible  for trading in the public  market may have an adverse
effect on the market  price of our  securities.  In addition,  the  existence of
these rights may make it more difficult to effectuate a business combination, or
may increase the cost of the target business,  as the stockholders of the target
business may be discouraged from entering into a business combination with us or
will  request  a  higher  price  for  their  securities  as a  result  of  these
registration  rights and the potential  future effect their exercise may have on
the trading market for our securities.

Our securities lack a significant trading market.

     Our  securities  are not  eligible  for trading on any national or regional
exchange. Our securities are eligible for trading in the over-the-counter market
on the OTC Bulletin  Board  pursuant to Rule 15c2-11 of the Exchange  Act.  This
market  tends to be  highly  illiquid,  in part  because  there  is no  national
quotation  system by which  potential  investors  can trace the market  price of
shares  except  through  information  received or generated by certain  selected
broker-dealers  that make a market  in these  particular  securities.  There are
currently no plans,  proposals,  arrangements or understandings  with any person
with regard to the development of a trading market in our securities.  There can
be no assurance that an active trading market in our securities will develop, or
if such a market develops,  that it will be sustained.  In addition,  there is a
greater  chance  for  market  volatility  for  securities  that trade on the OTC
Bulletin  Board as opposed to  securities  that trade on a national  exchange or
quotation  system.  This  volatility  may be  caused by a  variety  of  factors,
including the lack of readily  available  quotations,  the absence of consistent
administrative  supervision of "bid" and "ask"  quotations  and generally  lower
trading volume.

If we are deemed to be an  investment  company,  we may be required to institute
burdensome compliance  requirements and our activities may be restricted,  which
may make it difficult for us to complete a business combination.

     If we are deemed to be an investment company under the Investment
Company Act of 1940, our activities may be restricted, including:

     o    restrictions on the nature of our investments; and

     o    restrictions on the issuance of securities,


which may make it difficult for us to complete a business combination.

     In  addition,  we  may  have  imposed  upon  us  burdensome   requirements,
including:

     o    registration as an investment company under federal and state laws;

     o    adoption of a specific form of corporate structure; and

     o    reporting,  record keeping,  voting, proxy and disclosure requirements
          and other rules and regulations.

     We do not believe that our principal business activities will subject us to
the  Investment  Company Act of 1940.  To this end, the proceeds of the Offering
that are held in trust may only be invested  by the trust  agent in  "government
securities"  with specific  maturity dates. By restricting the investment of the
proceeds  to these  instruments,  we  intend  to meet the  requirements  for the
exemption  provided in Rule 3a-1 promulgated under the Investment Company Act of
1940.  If we were  deemed  to be  subject  to the  act,  compliance  with  these
additional  regulatory burdens would require additional expense that we have not
allotted for.

ITEM 2.  DESCRIPTION OF PROPERTY

     We maintain our executive offices at 3000 Sand Hill Road, Building 1, Suite
240, Menlo Park,  California  94025.  The cost for this space is included in the
$7,500  per-month  fee Sand  Hill  Security,  LLC  charges  us for  general  and
administrative  services pursuant to a letter agreement between us and Sand Hill
Security,  LLC. We believe,  based on rents and fees for similar services in the
Menlo  Park,  California  metropolitan  area,  that the fee charged by Sand Hill
Security,  LLC is at  least  as  favorable  as we could  have  obtained  from an
unaffiliated  person.  We consider  our current  office  space  adequate for our
current operation.

                                       12
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     We are not presently a party to any pending legal proceeding.

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

     There were no matters for  submission to a vote of security  holders during
the last fiscal year.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The units,  common stock and warrants are listed on the OTC Bulletin  Board
under the symbols  SHQCU,  SHQC and SHQCW,  respectively.  The  following  table
indicates the quarterly  high and low bid price for the units,  common stock and
warrants on the OTC Bulletin  Board for the periods  indicated  since such units
began  trading on July 27, 2004 and common stock and warrants  began  trading on
August 24, 2004.  Such  inter-dealer  quotations  do not  necessarily  represent
actual  transactions,   and  do  not  reflect  retail  mark-ups,  mark-downs  or
commissions.

<TABLE>
<CAPTION>
                                                        OTC
                                                   BULLETIN BOARD
                                                     BID PRICE

                                   UNITS                       COMMON STOCK                      WARRANTS
  -------------------- ------------------------------- ------------------------------ -------------------------------
         2004               HIGH            LOW             HIGH            LOW            HIGH            LOW
  -------------------- --------------- --------------- --------------- -------------- --------------- ---------------
<S>                    <C>             <C>             <C>             <C>            <C>             <C>
  Third Quarter            $ 6.25          $ 5.55          $ 5.10         $ 4.50          $ 0.80          $ 0.45

  Fourth Quarter           $ 6.20          $ 5.42          $ 4.95         $ 4.55          $ 0.70          $ 0.43

</TABLE>

     As of December 31, 2004, we had 2 holders of record of our units, 8 holders
of record of our common stock, and 1 holder of record of our warrants.

     We have not  paid  any  dividends  on our  common  stock to date and do not
intend to pay dividends in the foreseeable future, but intend to retain earnings
for future growth.

Equity Compensation Plan

     The following table provides information as of December 31, 2004, about our
common  stock that may be issued  upon the  exercise of  options,  warrants  and
rights under all of our existing equity compensation plans (including individual
arrangements):

<TABLE>
<CAPTION>
                                                                                                Number of securities remaining
                                         Number of securities to be    Weighted-average        available for future issuance under
                                         issued upon exercise of       exercise price of           equity compensation plans
                                         outstanding options,         outstanding options,    (excluding securities reflected in
                                          warrants and rights         warrants and rights                 column (a))
            Plan Category                        (a)                          (b)                             (c)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                           <C>                             <C>
Equity  compensation  plans  approved              --                        --                                  --
by security holders
Equity    compensation    plans   not         100,000                    $ 4.75                                  --
approved by security holders
                                     --------------------------                                ----------------------------------
                Total                         100,000                    $ 4.75                                  --
                                     ==========================                                ==================================
</TABLE>

     On  December 1, 2004,  the Board of  Directors  of the  Company  created an
Advisory  Board,  consisting of four  independent  members to advise the Company
with respect to the research and structuring of a business  combination  with an
operating  business  in  the  IT  security  industry.  The  Board  of  Directors

                                       13
<PAGE>

authorized  the Company to reserve  100,000  shares of common stock for issuance
pursuant to the exercise of stock options to purchase  shares of common stock at
an exercise  price of $4.75 per share,  to be granted to the initial  members of
the Advisory  Board.  Pursuant to the terms of the stock option  agreement,  the
options will vest (i) 50% one year from the grant of the option and (ii) 50% two
years from the grant of the option; however, the options will not be exercisable
prior to the consummation of a business combination by the Company.

Recent Sales of Unregistered Securities

     In April  2004,  we sold the  following  shares  of  Common  Stock  without
registration under the Securities Act:

<TABLE>
<CAPTION>

          Stockholders                     Number of Shares
------------------------------------------------------------
<S>      <C>                               <C>
         Humphrey Polanen                       459,441
         Sand Hill Security, LLC                100,000
         Keith Walz                             174,825
         Scott Broomfield                       174,825
         Cary Grossman                           48,951
         Dan Johnson                             20,979
         Alberto Micalizzi                       20,979
</TABLE>

     Such shares were issued in connection with our organization pursuant to the
exemption from  registration  contained in Section 4(2) of the Securities Act as
they were sold in a transaction not involving a public offering. The shares were
sold at purchase prices of $0.025 per share.

     On July 30, 2004, we closed the Offering of 3,600,000 Units, with each Unit
consisting of one share of our common stock and two  warrants,  each to purchase
one share of our common stock at an exercise price of $5.00 per share. The Units
were sold at an offering price of $6.00 per Unit,  generating  gross proceeds of
$21,600,000.  Additionally,  the underwriters' purchased 510,000 units, pursuant
to the exercise of the  over-allotment  option  granted in  connection  with the
Offering,  generating gross proceeds of $3,060,000.  The  representatives of the
underwriters  in  the  Offering  were  I-Bankers  Securities   Incorporated  and
Newbridge  Securities  Corporation.  The  securities  sold in the Offering  were
registered under the Securities Act pursuant to a registration statement on Form
S-1 (No.  333-114861).  The  Securities  and  Exchange  Commission  declared the
registration statement effective on July 26, 2004.

     We paid a total of $2,250,900 in  underwriting  discounts and  commissions,
including $648,000 for the underwriters'  non-accountable expense allowance, and
approximately $386,000 for other costs and expenses related to the Offering.

     After deducting the underwriting discounts and commissions and the Offering
expenses,  the total net  proceeds to us from the  Offering  were  approximately
$22,022,462,  of  which  $20,961,000  was  deposited  into a trust  fund and the
remaining  proceeds are available to be used to provide for business,  legal and
accounting due diligence on  prospective  business  combinations  and continuing
general and  administrative  expenses.  Through  December 31, 2004, we have used
$281,623 of the net proceeds that were not deposited  into the trust fund to pay
general and administrative  expenses.  The net proceeds deposited into the trust
fund  remain on deposit in the trust fund and have  earned  $139,510 in interest
through December 31, 2004.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial  Statements,   including  the  notes  thereto,  included
elsewhere in this report.

     We were formed on April 15, 2004, to serve as a vehicle to effect a merger,
capital stock exchange,  asset acquisition or other similar business combination
with an  operating  business in the IT security  industry.  We intend to utilize
cash derived from the proceeds of the  Offering,  our capital  stock,  debt or a
combination   of  cash,   capital  stock  and  debt,  in  effecting  a  business
combination. We consummated the Offering on July 30, 2004.

                                       14
<PAGE>

     The net loss of  $49,907  reported  for the  period  from  April  15,  2004
(inception) through December 31, 2004 consists primarily of $51,408 for director
and officer liability and other insurance,  $37,500 for a monthly administrative
services fee,  $53,826 for  professional  fees, and $49,210 for travel and other
expenses.  Interest accreted on the trust fund was $139,510,  and other interest
income was $2,529.

     We will  use  substantially  all of the net  proceeds  of the  Offering  to
acquire a target  business,  including  identifying  and evaluating  prospective
acquisition   candidates,   selecting  the  target  business,  and  structuring,
negotiating and  consummating the business  combination.  To the extent that our
capital stock is used in whole or in part as  consideration to effect a business
combination,  the  proceeds  held in the  trust  fund as well as any  other  net
proceeds  not  expended  will be used to finance  the  operations  of the target
business.  We believe that we have  sufficient  available  funds  outside of the
trust  fund  to  operate  through  July  30,  2006,  assuming  that  a  business
combination is not consummated during that time.

     Over the 24-month period subsequent to the consummation of the Offering, we
anticipate  approximately  $250,000 of expenses for legal,  accounting and other
expenses   related  to  the  due  diligence   investigations,   structuring  and
negotiating  of a business  combination,  $180,000  for the  administrative  fee
payable to Sand Hill Security, LLC ($7,500 per month for two years), $100,000 of
expenses for the due diligence and  investigation of a target business,  $75,000
of  expenses  in  legal  and  accounting  fees  relating  to our  SEC  reporting
obligations  and  $475,000  for general  working  capital  that will be used for
miscellaneous  expenses  and  reserves,  including  approximately  $180,000  for
director and officer liability insurance premiums,  inclusive of the amounts set
out in the  preceding  paragraph.  We do not  believe  we  will  need  to  raise
additional  funds in order to meet the  expenditures  required for operating our
business.  However,  we may need to raise  additional  funds  through  a private
offering of debt or equity securities if such funds are required to consummate a
business   combination.   We  would  only   consummate   such  a  fund   raising
simultaneously with the consummation of a business combination.

     We are obligated,  commencing  July 26, 2004, to pay to Sand Hill Security,
LLC, an affiliate of our  directors  and  executive  officers,  a monthly fee of
$7,500 for general and administrative services. In addition, in April 2004, Sand
Hill  Security,  LLC advanced an  aggregate of $40,000 to us, on a  non-interest
bearing basis, for payment of offering  expenses on our behalf.  This amount was
repaid in August 2004 out of the proceeds of the Offering.

Off-balance Sheet Arrangements

     There were no off-balance sheet arrangements during the period from
April 15, 2004 (inception) through December 31, 2004, that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources that is material to our
investors.

ITEM 7.  FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm





                                       15

<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Shareholders of
Sand HIll IT Security Acquisition Corp.
Houston, Texas

     We have  audited the  accompanying  balance  sheet of Sand Hill IT Security
Acquisition  Corp. (a corporation in the  development  stage) as of December 31,
2004,  and the related  statement of operations,  stockholders'  equity and cash
flows for the period from April 15, 2004 (inception) to December 31, 2004. These
financial  statements are the  responsbility  of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted our audit in accordance with auditing  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are  free  of  material  misstatement.  The  Company  has
determined  that it is not required to have, nor were we engaged to perform,  an
audit of its  internal  control  over  financial  reporting.  An audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position  of Sand Hill IT  Security
Acquisition  Corp. at December 31, 2004, and the results of their operations and
their cash flows for the period from April 15, 2004  (inception) to December 31,
2004 in conformity with accounting  principles  generally accepted in the United
States of America.


/s/ HEIN & ASSOCIATES LLP

March 15, 2005
Houston, Texas

                                       16
<PAGE>

                    SAND HILL IT SECURITY ACQUISITION CORP.

                    (A Corporation in the Development Stage)

                                  BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                December 31, 2004
                                                                            -------------------------
<S>                                                                               <C>
ASSETS

CURRENT ASSETS:

Cash............................................................................ $      783,133

Treasury bill held in trust ....................................................     21,100,510

Prepaid expenses................................................................        132,131
                                                                                        -------
     Total current assets.......................................................     22,015,774
                                                                                     ----------
TOTAL ASSETS.................................................................... $   22,015,774
                                                                                     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

     Accounts payable and accrued expenses...................................... $       15,772
                                                                                         ------
Total Liabilities...............................................................         15,772
                                                                                         ------

STOCKHOLDERS' EQUITY:

Preferred stock, $0.01 par value

     Authorized 5,000,000 shares; none issued...................................             --

Common stock, $0.01 par value

     Authorized 50,000,000 shares

     Issued and outstanding, 5,110,000 shares...................................         51,100

Additional paid-in capital......................................................     21,998,809

Deficit accumulated during the development stage................................       (49,907)

TOTAL STOCKHOLDERS' EQUITY......................................................     22,000,002
                                                                                     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $   22,015,774
                                                                                     ==========
</TABLE>

                 See accompanying notes to financial statements.

                                       17
<PAGE>

                     SAND HILL IT SECURITY ACQUISITION CORP.

                    (A Corporation in the Development Stage)

                             STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                               Period from April 15,
                                                                                2004 (inception) to
                                                                                 December 31, 2004
                                                                            -------------------------
<S>                                                                               <C>
Formation and operating costs............................................        $     (191,946)
                                                                                 --------------


Operating loss...........................................................              (191,946)
                                                                                 --------------

Interest income..........................................................               142,039
                                                                                 --------------

Net loss.................................................................        $     (49,907)
                                                                                 ==============

Weighted Average Shares Outstanding......................................             3,468,784
                                                                                 ==============

Net Loss Per Share (Basic and Diluted)...................................        $       (0.01)
                                                                                 ==============
</TABLE>



                 See accompanying notes to financial statements.

                                       18

<PAGE>

                     SAND HILL IT SECURITY ACQUISITION CORP.

                    (A Corporation in the Development Stage)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Period from April 15,
                                                                             2004 (inception) to
                                                                              December 31, 2004
                                                                            --------------------
<S>                                                                         <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net loss................................................................      $       (49,907)
  Accretion of treasury bill..............................................              (75,510)
  Increase in prepaid expenses............................................             (132,131)
  Increase in accounts payable and accrued expenses.......................               15,772
  Compensation expense related to issuance of Advisory Board options......                2,447
Net cash provided by (used in) operating activities.......................             (239,329)

CASH FLOW FROM INVESTING ACTIVITIES
  Purchase of treasury bill in trust account..............................          (21,025,000)

Net cash used in investing activities.....................................          (21,025,000)

CASH FLOW FROM FINANCING ACTIVITIES
  Proceeds from sale of common stock to initial shareholders..............               25,000
  Gross proceeds from public offering.....................................           24,660,000
  Costs of public offering................................................           (2,637,538)
  Proceeds from stockholder loan..........................................               40,000
  Repayment of  stockholder loan..........................................              (40,000)
                                                                                 --------------
Net cash provided by financing activities.................................           22,047,462
                                                                                 --------------
NET INCREASE IN CASH......................................................              783,133
CASH AT BEGINNING OF PERIOD...............................................                   --
                                                                                 --------------
CASH AT END OF PERIOD.....................................................      $       783,133
                                                                                 ==============
</TABLE>


                 See accompanying notes to financial statements.

                                       19

<PAGE>

                     SAND HILL IT SECURITY ACQUISITION CORP.

                    (A Corporation in the Development Stage)

                        STATEMENT OF STOCKHOLDERS' EQUITY

          Period from April 15, 2004 (inception) to December 31, 2004

<TABLE>
<CAPTION>

                                                                                                  Deficit
                                                                                                 Accumulated
                                                                                Additional         During
                                                                                  Paid-In        Development
                                                         Shares      Amount       Capital           Stage              Total
                                                       ----------    -------     ----------       ------------      --------------
<S>                                                      <C>         <C>         <C>              <C>               <C>
Balance, April 15, 2004 (inception)...............     $       --     $    --    $        --       $         --      $          --

Sale of 1,000,000 shares of common
stock to initial stockholders at
$0.025 per share..................................      1,000,000     $10,000    $    15,000                         $      25,000

Sale of 3,600,000 shares of common
stock to public stockholders at
$6.00 per share, net of
offering expenses of $2,637,538...................      3,600,000    $36,000    $18,926,462                         $  18,962,462

Sale of 510,000 shares of common stock
to underwriters at $6.00 per share................        510,000    $ 5,100    $ 3,054,900                         $   3,060,000

Amortization of Advisory Board
Compensation......................................                              $     2,447                          $      2,447

Net loss for the period April 15, 2004
(inception) to December 31, 2004..................                                                $ (49,907)         $    (49,907)
                                                       ----------    -------    ------------      ----------         -------------
Balance, December 31, 2004........................     $5,110,000    $51,100    $ 21,998,809      $ (49,907)         $ 22,000,002
                                                       ==========    =======    ============      ==========         =============
</TABLE>



                 See accompanying notes to financial statements.

                                       20

<PAGE>

                     SAND HILL IT SECURITY ACQUISITION CORP.
                    (A Corporation in the Development Stage)

                          NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION, BUSINESS OPERATIONS

     Sand Hill IT Security  Acquisition  Corp. was  incorporated  in Delaware on
April 15,  2004 as a blank check  company  whose  objective  is to merge with or
acquire an operating business in the IT Security industry. The Company's initial
stockholders'  purchased  1,000,000 shares of common stock, $0.01 par value, for
$25,000 on April 20, 2004.

     The registration  statement for the Company's  initial public offering (the
"Offering") was declared effective on July 26, 2004. The Company consummated the
Offering  on July  30,  2004 and  received  proceeds,  net of the  underwriters'
discount, of $22,022,462.  Subsequently, the  underwriters  exercised their over
allotment option and the Company received an additional  $2,861,100 in proceeds,
net of the underwriters' discount. The Company's management has broad discretion
with respect to the specific  application  of the net proceeds of the  Offering,
although  substantially  all of the net proceeds of the Offering are intended to
be generally  applied  toward  consummating  a merger with or  acquisition of an
operating business in the IT security industry ("Business  Combination").  There
is no assurance that the Company will be able to successfully  affect a Business
Combination. An amount equal to $21,025,000 was deposited in an interest bearing
trust account  ("Trust Fund") until the earlier of (i) the  consummation  of its
first  Business  Combination  or (ii)  liquidation  of the  Company.  Under  the
agreement  governing the Trust Fund, funds may only be invested in United States
government  securities  with a  maturity  of 180 days or less.  The  trust  fund
balance has been invested in a United States  Treasury Bill,  which is accounted
for as a trading  security and is recorded at its market value of  approximately
$21,100,510  at  December  31,  2004.  The  excess of market  value over cost is
included in interest  income in the  accompanying  Statement of Operations.  The
remaining  proceeds of the Offering may be used to pay for  business,  legal and
accounting due diligence on prospective  mergers or acquisitions  and continuing
general and administrative expenses.

     The Company,  after  signing a definitive  agreement for the merger with or
acquisition of a target  business,  will submit such transaction for stockholder
approval.  In the event that stockholders  owning 20% or more of the outstanding
stock  excluding,   for  this  purpose,  those  persons  who  were  stockholders
immediately prior to the Offering,  vote against the Business  Combination,  the
Business Combination will not be consummated.  All of the Company's stockholders
prior to the  Offering,  including  all of the  officers  and  directors  of the
Company ("Initial  Stockholders"),  have agreed to vote their founding shares of
common  stock in  accordance  with the vote of the  majority  in interest of all
other  stockholders  of the Company  ("Public  Stockholders")  with respect to a
Business  Combination.  After  consummation  of  the  Company's  first  Business
Combination, these voting safeguards no longer apply.

     With  respect  to the first  Business  Combination  which is  approved  and
consummated,  any Public Stockholder who voted against the Business  Combination
may demand that the Company redeem his or her shares.  The per share  redemption
price  will  equal  the  amount  in the  Trust  Fund as of the  record  date for
determination  of  stockholders  entitled  to vote on the  Business  Combination
divided by the number of shares of common stock held by Public  Stockholders  at
the  consummation  of the Offering.  Accordingly,  Public  Stockholders  holding
19.99% of the aggregate  number of shares owned by all Public  Stockholders  may
seek  redemption  of their shares in the event of a Business  Combination.  Such
Public  Stockholders  are  entitled to receive  their per share  interest in the
Trust Fund computed without regard to the shares held by Initial Stockholders.

     The  Company's  Certificate  of  Incorporation  provides for the  mandatory
liquidation of the Company,  without stockholder approval, in the event that the
Company  does not  consummate a Business  Combination  within 18 months from the
date of the  consummation of the Offering  (January 30, 2006), or 24 months from
the consummation of the Offering (July 30, 2006) if certain  extension  criteria
have been  satisfied.  In the event of  liquidation,  it is likely  that the per
share  value  of  the  residual  assets  remaining  available  for  distribution
(including  Trust Fund  assets)  will be less than the initial  public  offering
price per share in the Offering (assuming no value is attributed to the Warrants
contained in the Units to be offered in the Offering as described in Note 3).


                                       21
<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The financial  statements include the accounts of the Company.  The Company
commenced  operations  effective  July 31, 2004.  All activity  through July 30,
2004, is related to the Company's formation and preparation of the Offering. The
Company has selected December 31 as its fiscal year end.

Use of Estimates

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

Cash Equivalents

     The  Company   considers  all  highly  liquid   investments  with  original
maturities of three months or less to be cash equivalents.

Concentration of Credit Risk

     Financial  instruments that potentially  subject the Company to credit risk
consist  of cash and cash  equivalents.  The  Company's  policy  is to limit the
amount of credit exposure to any one financial institution and place investments
with financial  institutions  evaluated as being creditworthy,  or in short-term
money market funds which are exposed to minimal interest rate and credit risk.

Income Taxes

     The Company recognizes deferred tax assets and liabilities for the expected
future tax  consequences  of events that have been  recognized  in the Company's
financial statements or tax returns. Under this method,  deferred tax assets and
liabilities  are  determined  based  on the  difference  between  the  financial
statement  carrying  amounts and the tax bases of assets and  liabilities  using
enacted tax rates in effect in the years in which the  differences  are expected
to reverse.  At December 31, 2004, a deferred  income tax asset  relating to the
Company's net operating loss is offset by a full valuation  allowance based upon
a lack of earnings history for the Company.

Earnings per Common Share

     Basic  earnings  per share  ("EPS")  is  computed  by  dividing  net income
applicable to common stock by the weighted  average  common  shares  outstanding
during  the  period.  Diluted  EPS  reflects  the  additional  dilution  for all
potentially dilutive securities such as stock warrants.

Recently Issued Accounting Standards

     In November 2002, the Financial  Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's  Accounting and Disclosure  Requirements for
Guarantees,   including   Indirect   Guarantees  of   Indebtedness   of  Others"
(Interpretation  No.  45").  Interpretation  No. 45  elaborates  on the existing
disclosure  requirements for most guarantees,  including loan guarantees such as
standby letters of credit. It also clarifies that at the time a company issues a
guarantee,  the company must recognize an initial  liability for the fair market
value of the  obligations it assumes under that guarantee and must disclose that
information  in  its  interim  and  annual  financial  statements.  The  initial
recognition  and  measurement  provisions  of  Interpretation  No. 45 apply on a
prospective  basis to  guarantees  issued or modified  after  December 31, 2002.
Interpretation No. 45 did not have an effect on the financial statements.

                                       22
<PAGE>

     In January 2003, the Financial  Accounting  Standard Board ("FASB")  issued
Interpretation No. 46 (FIN 46"),  "Consolidation of Variable Interest Entities."
FIN 46  clarifies  the  application  of  Accounting  Research  Bulletin  No. 51,
"Consolidated  Financial  Statements,"  and addresses  consolidation by business
enterprises  of  variable  interest  entities  (more  commonly  known as Special
Purpose  Entities  or SPE's).  In December  2003,  FASB issued FIN No. 46R which
replaced FIN 46 and clarified ARB 51. This  interpretation  provides guidance on
how to  identify  a variable  interest  entity and  determine  when the  assets,
liabilities,  non-controlling  interests and results of operations of a variable
interest entity should be consolidated by the primary  beneficiary.  The primary
beneficiary  is the  enterprise  that will  absorb a  majority  of the  variable
interest entity's expected losses or receive a majority of the expected residual
returns  as a result  of  holding  variable  interests.  This FIN  requires  the
consolidation of results of variable  interest  entities in which the Company is
the primary  beneficiary of the variable  interest  entity.  The Company has not
owned an  interest  in a variable  interest  entity  that met the  consolidation
requirements  and as such the adoption of FIN No. 46R did not have any effect on
the financial  condition,  results of  operations,  or liquidity of the Company.
Interests  in  entities  acquired  or created  after  December  31, 2003 will be
evaluated based on FIN No. 46R criteria and consolidated, if required.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation-Transition  and  Disclosure",  an  amendment  of  FASB
Statement  No. 123  ("SFAS  148").  SFAS 148  amends  FASB  Statement  No.  123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition for an entity that voluntarily changes to the fair value based method
of  accounting  for  stock-based  employee  compensation.  It  also  amends  the
disclosure  provisions of that Statement to require  prominent  disclosure about
the effects on reported net income of an entity's  accounting  policy  decisions
with respect to  stock-based  employee  compensation.  Finally,  this  Statement
amends  Accounting  Principles  Board ("APB")  Opinion No. 28,  "Interim No. 28,
"Interim  Financial  Reporting",  to require  disclosure  about those effects in
interim financial  information.  SFAS 148 is effective for financial  statements
for fiscal years ending after December 15, 2002. SFAS 148 did not have an effect
on the financial statements.

     Stock-Based  Compensation.  On December 16, 2004, the FASB issued Statement
of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),  "Share-Based
Payment" ("SFAS No. 123(R)").  SFAS No. 123(R) will require companies to measure
all  employee  stock-based  compensation  awards  using a fair value  method and
record such expense in the financial  statements.  In addition,  the adoption of
SFAS No. 123(R)  requires  additional  accounting and disclosure  related to the
income  tax  and  cash  flow  effects   resulting   from   share-based   payment
arrangements.  For public entities that file as small business filers,  SFAS No.
123(R) is effective beginning as of the first interim or annual reporting period
that begins after December 15, 2005.  There was no impact on the Company's basic
financial statements resulting from the issuance of SFAS No. 123(R).

3. PUBLIC OFFERING

     On July 30, 2004,  the Company sold 3,600,000  units  ("Units") in a public
offering,  which included granting the underwriters' an over-allotment option to
purchase up to an  additional  540,000  Units.  Subsequently,  the  underwriters
exercised  their  over-allotment  option and  purchased  an  additional  510,000
shares. Each Unit consists of one share of the Company's common stock, $0.01 par
value,  and two Redeemable  common stock Purchase  Warrants  ("Warrants").  Each
Warrant will entitle the holder to purchase from the Company one share of common
stock at an exercise price of $5.00 commencing on the later of the completion of
a Business Combination or July 25, 2005 and expiring July 25, 2009. The Warrants
will be  redeemable by the Company at a price of $0.01 per Warrant upon 30 days'
notice after the Warrants  become  exercisable,  only in the event that the last
sale  price of the common  stock is at least  $8.50 per share for any 20 trading
days within a 30 trading day period ending on the third day prior to the date on
which notice of the redemption is given.  In connection  with the Offering,  the
Company issued an option for $100 to the underwriters' to purchase 270,000 Units
at an exercise price of $7.50 per Unit. The Units issuable upon exercise of this
option are  identical  to those  included in the Offering  except that  exercise
price of the Warrants included in the Units is $6.65 per share.

4. COMMITMENT

     The  Company  presently  occupies  office  space  provided  by  an  Initial
Stockholder.  Such affiliate has agreed that,  until the acquisition of a target
business  by the  Company,  it will make such office  space,  as well as certain
office and secretarial services, available to the Company, as may be required by

                                       23
<PAGE>

the Company  from time to time.  The  Company  has agreed to pay such  affiliate
$7,500 per month for such services commencing on July 31, 2004.

5. NOTE PAYABLE

     Sand Hill  Security,  LLC,  an Initial  Stockholder  and  affiliate  of the
officers and directors of the Company, entered into a revolving credit agreement
with the Company in the amount of $60,000.  Advances  under the credit  facility
amounted to $40,000  during 2004. The loan was repaid out of the net proceeds of
the Offering.

6. PREFERRED STOCK

     The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $.01, with such  designations,  voting and other rights and preferences as
may be determined from time to time by the Board of Directors as of December 31,
2004, no shares of preferred stock have been issued.

7. INVESTMENTS HELD IN TRUST

     Investments  held in trust as of December  31, 2004 is  comprised of a zero
coupon United States treasury bill with a face value of $21,124,800 purchased at
a discount of 99.53% due  January 27,  2005.  The  investment  is carried on the
Company's financial statements at $20,100,510,  which includes accreted interest
of $75,510.

8. EARNINGS PER SHARE

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share as of December 31, 2004.

<TABLE>
<CAPTION>

<S>         <C>                                                      <C>
            BASIC:
            Numerator:  Net loss                                     $(49,907)

            Denominator:  Average common shares outstanding          3,468,784

            Basic earnings per share                                  $ (0.01)


            DILUTED:

            Numerator:  Net loss                                     $(49,907)

            Denominator:  Average common shares outstanding          3,468,784

            Diluted earnings per share                                $ (0.01)
</TABLE>

There is no dilution because of the loss.

     Operations commenced subsequent to the Offering,  therefore, average common
shares  outstanding  reflect shares issued in the Offering.  No computation  for
diluted  earnings per share was prepared for the common stock Purchase  Warrants
and the  underwriters'  option that were  outstanding  at  December  31, 2004 to
purchase an aggregate of 9,030,000  share of common stock at $5.00 per share and
$6.65 per share, respectively,  because the warrants' exercise price was greater
than the  average  market  price of the  common  shares  and  conversion  of the
warrants and underwriters'  option would have had an antidilutive effect on loss
per share.

7. STOCK OPTION PLAN

     On  December 1, 2004,  the Board of  Directors  of the  Company  created an
Advisory  Board,  consisting of four  independent  members to advise the Company
with respect to the research and structuring of a business  combination  with an
operating  business  in  the  IT  security  industry.  The  Board  of  Directors
authorized  the Company to reserve  100,000  shares of common stock for issuance
pursuant to the exercise of stock options to purchase  shares of common stock at
an exercise  price of $4.75 per share,  to be granted to the initial  members of
the Advisory  Board.  Pursuant to the terms of the stock option  agreement,  the
options will vest (i) 50% one year from the grant of the option and (ii) 50% two
years from the grant of the option; however, the options will not be exercisable
prior to the consummation of a business combination by the Company.

     The Company has 9,130,000 shares of common stock reserved for issuance upon
exercise of issued and  outstanding  warrants,  the option to  purchase  270,000
units  that  we  granted  to  the  representatives  of the  underwriters  in the
Offering, and the options granted to Advisory Board Members.

                                       24
<PAGE>

     The fair value of these  options was estimated at the date of grant using a
Black-Scholes option pricing ("Black-Scholes") model with the following weighted
average  assumptions  for 2004:  (i) risk-free  interest  rate of 4.17%,  (ii) a
dividend yield of 0.00%, (iii) volatility factors of the historical market price
of the Company's common stock of 10.1% and (iv) a weighted average expected life
of 5 years.

     The Black-Scholes  model was developed for use in estimating the fair value
of traded options that have no vesting  restrictions and are fully transferable.
In addition,  option  valuation  models  require the input of highly  subjective
assumptions,  including the expected  volatility.  Because the  Company's  stock
options  have  characteristics  significantly  different  from  those of  traded
options and because changes in the subjective  input  assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

          THE  ESTIMATED  FAIR VALUE OF THE OPTIONS IS AMORTIZED TO EXPENSE OVER
     THE VESTING PERIOD OF THE STOCK OPTIONS.

          A SUMMARY OF THE STATUS AND  ACTIVITY  OF THE  COMPANY'S  FIXED  STOCK
     OPTION PLANS IS PRESENTED BELOW:

<TABLE>
<CAPTION>

                                                                                       Weighted Average      Weighted Average
                                                                     Shares            Exercise Prices          Fair Value
                                                                 ---------------     -------------------    -----------------
<S>  <C>                                                         <C>                 <C>                    <C>
     Stock options outstanding at April 15, 2004.............                -                    $    -                $    -
        Options granted......................................           60,000                      4.75                   .98
        Options cancelled....................................                -                         -                     -
                                                                 ---------------
     Stock options outstanding at December 31, 2004                     60,000                    $ 4.75                $  .98

     Common shares authorized under the 2004 Stock Plan......          100,000
        Outstanding options..................................          (60,000)
        Outstanding stock grants.............................                -
     Options available for grant at December 31, 2004........           40,000
                                                                        ======
     Shares exercisable at December 31, 2004.................            60,000                  $  4.75
</TABLE>

The weighted average remaining contractual life of options is 5 years.


                                       25
<PAGE>

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

          None.

ITEM 8A. CONTROLS AND PROCEDURES

     Under  the  supervision  and  with  the  participation  of our  management,
including  our chief  executive  officer and chief  financial  officer,  we have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and procedures as of December 31, 2004 (the  "Evaluation  Date"),  and,
based on their  evaluation,  our chief  executive  officer  and chief  financial
officer have concluded  that these controls and procedures  were effective as of
the Evaluation Date. There were no significant  changes in our internal controls
or in other factors that could significantly affect these controls subsequent to
the Evaluation Date.

                                    PART III

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

     Our current directors and executive officers are as follows:

<TABLE>
<CAPTION>
          Name             Age                        Position
------------------------------------------------------------------------------
<S>                        <C>   <C>
 Humphrey P. Polanen       55    Chief Executive  Officer and Chairman of the
                                 Board of Directors
 Keith Walz                37    President, Chief Financial Officer and
                                 Director
 Scott Broomfield          48    Executive Vice President of Corporate
                                 Development and Director
 Cary M. Grossman          51    Director
 Daniel Johnson, Jr.       56    Director
 Alberto Micalizzi         36    Director
</TABLE>

HUMPHREY  P.  POLANEN  has been our  chairman  of the board and chief  executive
officer  since  our  inception.  He  has  had a  career  as an  entrepreneur  in
technology,  a global  executive  for  leading  technology  companies  and as an
international  corporate  lawyer.  From January 2000 until  December  2003,  Mr.
Polanen served as founder and Managing Director of Internet Venture Partners,  a
strategic   consulting  and  venture  capital  management  firm  for  technology
companies. From February 1998 through February 1999, he was President and CEO of
Trustworks  Systems,  a Netherlands  based network  security  software  company.
Between 1995 and 1998 he was General Manager of two operating  product divisions
(the Internet Commerce & Security Business Units) of Sun Microsystems,  where he
was  responsible for executing Sun's vision of being the global leader in secure
networks and systems and his divisions'  products won security  industry  awards
for product of the year for three  consecutive  years. Mr. Polanen addressed the
World Economic Forum,  The World Bank Annual Meeting and the U.S.  Congress,  as
Sun's  spokesperson  on Internet  security while General  Manager of Sun's first
Internet Commerce Division and later the Network Security Division. From 1981 to
1995, he was with Tandem  Computers  (acquired by  Compaq/Hewlett-Packard),  the
market leader in secure failsafe  systems for large  enterprises,  where he held
several  positions  of  leadership  in  new  ventures,  business  and  corporate
development,  creating  distribution  channels in Asia Pacific,  Latin  America,
North America and Europe. In addition, as Director of Ventures he structured and
was a board  member of several  international  ventures in which  Tandem held an
equity stake and three of which Tandem subsequently acquired. In addition to his
career with large technology  companies,  Mr. Polanen has been active with early
stage  companies as an  entrepreneur,  advisor and board  member.  He has been a
board member or on the advisory board of IT security companies:  Cranite Systems
(wireless  security),   Certco  (Digital  Identity  Management)  and  Trustworks
Systems.  As a founder of the  Heritage  Bank of Commerce in 1994,  Mr.  Polanen
helped to create a new business bank in Silicon Valley from the startup phase to
a successful IPO on the Nasdaq exchange in September 1998. Heritage Bank now has
four operating  banks and one billion  dollars in assets.  In 2001 Heritage Bank
acquired  the Bank of Los Altos in a $40 million  transaction.  Mr.  Polanen has
been a member of the board of directors since the bank's  inception and has been
chair of the board's audit  committee for ten years.  He is also a member of the
board's  governance and  compensation  committees.  Mr. Polanen is a graduate of
Hamilton  College  and the  Harvard  Law  School,  where he was an editor of the
Harvard International Law Journal.

                                       26
<PAGE>

KEITH WALZ has been our Chief  Financial  Officer  since  January 10, 2005 and a
member of our board since  inception.  Mr. Walz is President of ABN AMRO Capital
(USA) and a Managing Director in ABN AMRO's Global Private Equity division.  Mr.
Walz joined ABN AMRO Capital  (USA) at inception in 1996.  As a Senior  Partner,
Mr. Walz  participated  in the sourcing,  evaluation,  and monitoring of over 35
investments,  representing $200 million of capital invested. Mr. Walz focused on
Enterprise Software and Network Infrastructure investments.  Mr. Walz has served
on the  Board of  Directors  of over a dozen  companies  in  which  ABN AMRO has
invested.  Also, he has held operating roles with ABN AMRO portfolio  companies,
including  Chairman  and CEO of  Worldweb.net  and  was a  member  of the  Argus
Systems,  Board of Directors, a developer of Trusted Computer Operating Systems.
Prior to joining ABN AMRO Capital,  Mr. Walz was a Vice  President in ABN AMRO's
Investment Banking division,  responsible for financial reporting, analysis, and
systems.  Prior to  joining  ABN AMRO he spent two years as a finance  associate
with  Tyson  Foods,  Inc.,  where he focused on  enhancing  enterprise  business
processes and systems through the use of client/server  computing  technologies.
Mr. Walz is also a director of GT Nexus,  Yellowbrix,  and Oasis Technology.  He
received  an M.B.A.  from  DePaul  University  and a B.S.  in  Finance  from the
University of Arkansas.

SCOTT BROOMFIELD has been a member of our board since inception.  Mr. Broomfield
has been the CEO of Visuale, a private business process software company that he
recently  sold to Onyx Software  Corporation  (NASDAQ:  ONXS).  Prior to joining
Visuale and from 1997 until 2001, Mr. Broomfield was the CEO of Centura Software
Corporation (NASDAQ:  MBNEQ.PNK)  (formerly Gupta Technologies,  a NASDAQ traded
company), a $50 million software business  specializing in secure,  embedded and
mobile databases and application  development tools. During his tenure as CEO of
Gupta,  Mr.  Broomfield  completed the  acquisition of Raima  Corporation and in
three years built its market  capitalization  from $6 million to $700 million by
early 2000. Prior to Centura, he was a Managing Director of Hickey & Hill, Inc.,
a  turnaround  consultancy.  At  Hickey  & Hill  he was in  charge  of the  high
technology  restructuring practice. Mr. Broomfield structured the acquisition of
Polyscan  and the  equity  recapitalization  for ETEC  Corporation.  He was also
instrumental in the following company divestitures:  Dazix, Domain Technologies,
Priam,  Everex and Zitel,  where he acquired 2 businesses to reposition Zitel in
the  market.  Prior to  Hickey & Hill,  Mr.  Broomfield  was the CFO of  Trilogy
Technology  Corporation  which was sold to Digital  Equipment  Corporation.  Mr.
Broomfield  holds an MBA from Santa Clara University and is a member of Business
Executives  for  National  Security  (BENS),  where he was the co-chair of BENS'
cyber security task force and Y2K initiatives.

CARY M.  GROSSMAN has been a member of our board since  inception  and served as
our Chief Financial  Officer from inception  through January 10, 2005. Since May
19, 2004, Mr. Grossman has been the Chairman and Co-Chief  Executive  Officer of
Coastal Bancshares Acquisition Corp. (OTCBB: CBAS), a blank check company formed
to acquire or merge with a commercial bank or bank holding company. Mr. Grossman
has been Executive Vice President and Chief Financial Officer of Gentium, S.p.A,
an Italian  biopharmaceutical  company, since August 2004. He is also a director
of I-Sector Corp., an internet telephony company, since December 2004. From 2002
until 2003 he served as Executive Vice President and Chief Financial  Officer at
U S Liquids,  Inc, an AMEX listed  environmental  services company. Mr. Grossman
left U S Liquids,  Inc. in 2003 as a result of the  acquisition  of three of its
businesses  by a private  equity  firm and was  President  and  Chief  Executive
Officer of the acquiring  company,  ERP  Environmental  Services  until November
2003. From 1997 until 2002, Mr. Grossman served  Pentacon,  Inc. (NSYE:  JIT), a
provider of inventory  management  services and  distributor  of  components  to
Fortune 50 original  equipment  manufacturers,  as a board member and in several
senior executive positions including :Chairman of the Board of Directors, Acting
Chief Financial Officer (2001-2002) and Lead Director  (1998-2001) from the time
the Pentacon went public in March 1998 until becoming Chairman in 2001. Pentacon
acquired  five  businesses  when it completed  its initial  public  offering and
subsequently  acquired four other businesses.  Pentacon and substantially all of
its  subsidiaries  filed a Joint  Chapter 11 Plan of Debtors in 2002.  From 1991
until 2002,  Mr.  Grossman was the  Managing  Partner of  McFarland,  Grossman &
Company,  Inc., an investment  banking and financial advisory firm he co-founded
in 1991. Prior to that, Mr. Grossman  practiced public  accounting for 15 years.
He  earned  a  Bachelor  of  Business  Administration  in  Accounting  from  The
University of Texas, and is a Certified Public Accountant.

DANIEL  JOHNSON,  JR. has been a member of our board  since  inception  and is a
senior  partner  in the  Silicon  Valley  law firm  Fenwick  and West,  where he
specializes in patent litigation and other complex  intellectual  property cases
and is a member of the Executive  Committee.  He has acted as lead trial counsel
in numerous technology cases involving,  among other things,  Internet software,

                                       27
<PAGE>

firmware,  non-volatile memory,  printed circuit board design,  digital cellular
technology  and  lasers.  Mr.  Johnson  has also  advised  client  companies  on
acquisition matters, including Netscreen in its acquisition by Juniper Networks.
Mr.  Johnson is recognized as an outstanding  trial lawyer by numerous  national
and international associations and publications.  He is a co-author of the Rules
of Civil Procedure in Patent Cases for the Northern District of California,  has
participated  in numerous  panels on trial advocacy and has presented on the use
of multi-media at trial on behalf of the American Bar  Association.  Mr. Johnson
is a graduate of Yale  University  Law School,  J.D.,  and of the  University of
California, Berkeley, A.B., in political science, with honors.

ALBERTO  MICALIZZI has been a member of our board since inception.  Dr Micalizzi
is the  Chairman of Dynamic  Decisions  Group Ltd, an  independent  quantitative
research house providing advisory activity to large  institutional  investors in
the fields of equity research and asset management. Mr. Micalizzi joined Dynamic
Decision  Group Ltd in  September  2001.  He is  Professor of Finance at Bocconi
University,  Milan  (Italy),  and  Researcher  at the  Centre  for  Quantitative
Finance,  Imperial College,  London University (UK), where he specializes in the
Bio-Pharma and  Telecom-Technology  sector sectors.  Until July 2001, he was the
CEO of the Real Options Group, an  international  research center  affiliated to
several US and European universities and business schools. From December 1998 to
March  2000,  Mr.  Micalizzi  worked with an  association  of  researchers  that
developed  into  the Real  Ophons  Group.  In 1997 he was  appointed  by  Nomura
International  (Milan) as an external  advisor for the  designing of  structured
products in the bond market.  In 1999 he was  appointed  by Andersen  Consulting
(London) as an advisor on the  valuation of start up businesses in the e-venture
segment.  Other advisory experiences include Eli Lilly,  Schering Plough, Glaxo,
La  Roche,  Danone  Group and Ernst & Young.  Dr.  Micalizzi  earned a degree in
Business  Administration at Bocconi  University  (Milan,  Italy), is a Chartered
Professional  Accountant  (CPA) and  received  his Ph.D in Finance  at  Imperial
College, London University (UK).

     The Company is not aware of any  "family  relationships"  among  directors,
executive  officers,  or persons  nominated  or chosen by the  Company to become
directors or executive officers.

     The  Company  is not  aware of any  event  (as  listed  in Item  401(d)  of
Regulation  S-B  promulgated by the  Securities  and Exchange  Commission)  that
occurred  during the past five years that are material to an  evaluation  of the
ability or integrity  of any  director,  person  nominated to become a director,
executive officer, promoter or control person of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Exchange Act  requires  the  Company's  officers and
directors,  and  persons  who own  more  than 10% of a  registered  class of the
Company's  equity  securities  (the  "10%  Stockholders")  to  file  reports  of
ownership and changes of ownership with the  Securities and Exchange  Commission
("SEC"). Officers, directors and 10% Stockholders of the Company are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms so
filed.  Based solely on  correspondence  with, and a review of copies of Section
16(a) forms received from executive  officers and directors and 10% Stockholders
(if any), the Company does not believe that,  during the last fiscal year any of
the Reporting Persons was deficient in filing reports of ownership or changes in
ownership with the SEC.

Audit Committee

     We do not have a standing audit committee or an audit  committee  financial
expert  serving on our board of directors.  As our plan of  operations  involves
identifying a target  business and completing a business  combination  with such
business,  we presently do not have material  operations  and do not  experience
complex  accounting issues.  Accordingly,  our board of directors has determined
that it is not necessary for us to have a standing  audit  committee or an audit
committee financial expert at this time.

Code of Ethics

     In August 2004, our board of directors  adopted a code of business  conduct
and ethics that  applies to our  directors,  officers  and  employees as well as
those of our  subsidiaries.  A copy of our code of ethics  has been  filed as an
exhibit  to our  Quarterly  Report on Form 10-Q for the period  ending  July 30,
2004, and is available on our website at www.sandhillsecurity.com.

                                       28
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

     No  executive  officer has  received  any cash  compensation  for  services
rendered.  Commencing  on July 31,  2004  through  the  acquisition  of a target
business, we will pay Sand Hill Security, LLC, an affiliate of our directors and
executive officers, a fee of $7,500 per month for providing us with office space
and certain office and secretarial  services.  Other than this $7,500  per-month
fee, no compensation of any kind,  including  finder's and consulting fees, will
be  paid  to any of  our  initial  stockholders,  or  any  of  their  respective
affiliates  for  services  rendered to us prior to or with respect to a business
combination.  However,  our  initial  stockholders  will be  reimbursed  for any
out-of-pocket expenses incurred in connection with activities on our behalf such
as  identifying  potential  target  businesses  and  performing due diligence on
suitable  business  combinations.  There  is no  limit  on the  amount  of these
out-of-pocket  expenses and there will be no review of the reasonableness of the
expenses by anyone other than our board of directors, which includes persons who
may  seek  reimbursement,   or  a  court  of  competent   jurisdiction  if  such
reimbursement is challenged.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth  information  regarding  the  beneficial
ownership of our common stock as of February 1, 2005 by:

     o    each person known by us to be the beneficial  owner of more than 5% of
          our outstanding shares of common stock;
     o    each of our officers and directors; and
     o    all our officers and directors as a group.

     Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.

<TABLE>
<CAPTION>
                                                 Amount and       Approximate
                                                 Nature of       Percentage of
                                                 Beneficial       Outstanding
  Name and Address of Beneficial Owner (1)       Ownership        Common Stock
-------------------------------------------    -------------     -------------
<S>                                            <C>               <C>
Humphrey Polanen                                  459,441             9.0%
Sand Hill Security, LLC (2)                       100,000             2.0%
Keith Walz                                        174,825             3.4%
Scott Broomfield (3)                              174,825             3.4%
Cary Grossman (4)                                  48,951             1.0%
Dan Johnson                                        20,979                *
Alberto Micalizzi (5)                              20,979                *
Sapling, LLC (6)                                  400,000             7.8%
All directors  and executive  officers as
a group (6 individuals)                         1,000,000            19.6%
</TABLE>
________________________
* less than 1%

     (1)  Unless  otherwise  indicated,  the  business  address  of  each of the
          following is 3000 Sand Hill Road,  Building 1, Suite 240,  Menlo Park,
          California 94025.
     (2)  Sand  Hill  Security,  LLC  Membership  Interests  are held by (i) the
          Polanen and Nicodimos Family Trust, of which Mr. Polanen is a trustee,
          (ii) the  Broomfield  Family  Trust,  of  which  Mr.  Broomfield  is a
          trustee,  (iii) Dan Johnson,  (iv) Keith Walz, (v) Alberto  Micalizzi,
          and  (vi) the  Grossman  Family  Limited  Partnership,  of  which  Mr.
          Grossman is a general partner.
     (3)  Mr.  Broomfield's  shares are held by the Broomfield  Family Trust, of
          which Mr. Broomfield is a Co-Trustee.

                                       29
<PAGE>

     (4)  Mr. Grossman's shares are held by Grossman Family Limited Partnership,
          of which Mr. Grossman is a general partner.
     (5)  Mr.  Micalizzi's  business  address is Corso  Italia 66,  20136 Milan,
          Italy.
     (6)  The business  address for Sapling,  LLC is 535 Fifth Ave., 31st floor,
          New York, New York 10003.

     All of the shares of our common  stock  owned by the  initial  stockholders
have been placed in escrow with  American  Stock  Transfer & Trust  Company,  as
escrow agent, until the earliest of:

     o    July 30, 2007;

     o    our liquidation; or

     o    the  consummation  of a liquidation,  merger,  stock exchange or other
          similar transaction that results in all of our stockholders having the
          right to exchange their shares of common stock for cash, securities or
          other property  subsequent to our consummating a business  combination
          with a target business.

     During the escrow  period,  the holders of these shares will not be able to
sell or transfer their securities  except to their spouses and children,  trusts
or family  partnerships  established for their benefit,  or to a transferee that
does not affect  beneficial  ownership  but will retain all other  rights as our
stockholders,  including,  without limitation, the right to vote their shares of
common stock and the right to receive cash dividends,  if declared. If dividends
are declared and payable in shares of common stock,  such dividends will also be
placed  in  escrow.  If we are  unable  to  effect a  business  combination  and
liquidate,  none of our  initial  stockholders  will  receive any portion of the
liquidation  proceeds  with  respect to common  stock owned by them prior to the
Offering.

     Mr. Polanen may be deemed to be our "parent" and "promoter," as these terms
are defined under the federal securities law.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Prior to the Offering,  we issued  1,000,000  shares of our common stock to
the  individuals  set forth  below for $25,000 in cash,  at an average  purchase
price of approximately $0.025 per share, as follows:

<TABLE>
<CAPTION>
           Name                  Number of Shares      Relationship To Us
           ----                  ----------------      ------------------
<S>  <C>                         <C>                   <C>
     Humphrey Polanen                 459,441          Chief  Executive  Officer  and  Chairman of the Board of
                                                       Directors
     Sand Hill Security, LLC          100,000          Affiliate of our directors and executive officers
     Keith Walz                       174,825          President, Chief Financial Officer and Director
     Scott Broomfield                 174,825          Executive  Vice President of Corporate  Development  and
                                                       Director
     Cary Grossman                     48,951          Director
     Dan Johnson                       20,979          Director
     Alberto Micalizzi                 20,979          Director
</TABLE>

     The holders of the  majority of these shares are entitled to make up to two
demands  that we register  these  shares  pursuant to an  agreement  executed in
connection  with the  Offering.  The holders of the majority of these shares may
elect to exercise these registration  rights at any time after the date on which
these  shares of common  stock are released  from  escrow.  In  addition,  these
stockholders  have  certain  "piggy-back"  registration  rights on  registration
statements  filed  subsequent  to the date on which these shares of common stock
are released from escrow.  We will bear the expenses incurred in connection with
the filing of any such registration statements.

     Sand Hill  Security,  LLC, an  affiliate  of certain of our  directors  and
executive  officers,  has agreed  that,  commencing  July 31,  2004  through the
acquisition of a target business, it will make available to us a small amount of
office space and certain office and secretarial services, as we may require from
time to time. We have agreed to pay Sand Hill Security, LLC $7,500 per month for
these services. In addition, in April 2004, Sand Hill Security,  LLC advanced an
aggregate  of $40,000 to us, on a  non-interest  bearing  basis,  for payment of
offering  expenses on our  behalf.  This amount was repaid in August 2004 out of
the proceeds of the Offering.

                                       30
<PAGE>

     We  will   reimburse  our  officers  and   directors  for  any   reasonable
out-of-pocket  business  expenses  incurred by them in  connection  with certain
activities on our behalf such as identifying and  investigating  possible target
businesses  and  business  combinations.  There  is no limit  on the  amount  of
accountable  out-of-pocket  expenses  reimbursable by us, which will be reviewed
only by our board or a court of competent  jurisdiction if such reimbursement is
challenged.

     Other  than  the  $7,500  per  month  administrative  fee and  reimbursable
out-of-pocket expenses payable to our officers and directors, no compensation or
fees of any kind,  including finders and consulting fees, will be paid to any of
our initial stockholders, officers or directors who owned our common stock prior
to the Offering,  or to any of their respective affiliates for services rendered
to us prior to or with respect to the business combination.

     All ongoing and future transactions  between us and any of our officers and
directors or their  respective  affiliates will be on terms believed by us to be
no less favorable than are available  from  unaffiliated  third parties and will
require  prior  approval  in each  instance  by a majority of the members of our
board who do not have an interest in the transaction.


                                       31

<PAGE>

ITEM 13.  EXHIBITS

         (a)   The following exhibits are filed as part of report K:

               Exhibit No.    Description
               ----------     -----------

               1.1            Underwriting Agreement by and between the Company,
                              I-Bankers  Securities  Incorporated  and Newbridge
                              Securities Corporation dated July 26, 2004*

               3.1            Certificate  of  Incorporation   (incorporated  by
                              reference   to  Exhibit   3.1  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               3.2            By-laws  (incorporated by reference to Exhibit 3.2
                              of the  Company's  Registration  Statement on Form
                              S-1,  registration no. 333-114861,  filed with the
                              Securities and Exchange Commission)

               4.1            Specimen   Unit   Certificate   (incorporated   by
                              reference   to  Exhibit   4.1  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.2            Specimen Common Stock Certificate (incorporated by
                              reference   to  Exhibit   4.2  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.3            Specimen  Warrant  Certificate   (incorporated  by
                              reference   to  Exhibit   4.3  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.4.1          Unit  Purchase  Option  No.  UPO-2  dated July 30,
                              2004, granted to Newbridge Securities Corporation*

               4.4.2          Unit  Purchase  Option  No.  UPO-3  dated July 30,
                              2004, granted to James E. Hosch*

               4.4.3          Unit  Purchase  Option  No.  UPO-4  dated July 30,
                              2004, granted to Maxim Group, LLC*

               4.4.4          Unit  Purchase  Option  No.  UPO-5  dated July 30,
                              2004,  granted to  Broadband  Capital  Management,
                              LLC*

               4.4.5          Unit  Purchase  Option  No.  UPO-6  dated July 30,
                              2004,    granted    to    I-Bankers     Securities
                              Incorporated*

               4.5            Warrant  Agreement between American Stock Transfer
                              & Trust Company and the Registrant*


                                       32
<PAGE>

               10.1           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Humphrey P. Polanen*

               10.2           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Cary M. Grossman*

               10.3           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Daniel J. Johnson*

               10.4           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Keith A. Walz*

               10.5           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Scott Broomfield*

               10.6           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Alberto Micalizzi*

               10.8           Investment   Management  Trust  Agreement  between
                              American  Stock  Transfer & Trust  Company and the
                              Registrant*

               10.9           Stock  Escrow  Agreement  between the  Registrant,
                              American  Stock  Transfer & Trust  Company and the
                              Initial Stockholders*

               10.10          Registration Rights Agreement among the Registrant
                              and the Initial Stockholders*

               10.11          Letter Agreement  between Sand Hill Security,  LLC
                              and Registrant regarding administrative support*

               10.12          Revolving Credit Agreement in the principle amount
                              of $60,000  between the  Registrant  and Sand Hill
                              Security, LLC*

               10.13          Warrant  Purchase   Agreement  among  Humphrey  P.
                              Polanen and Newbridge  Securities  Corporation and
                              I-Bankers Securities Incorporated (incorporated by
                              reference  to  Exhibit   10.13  of  the  Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               31.1           Certification of Chief Executive  Officer pursuant
                              to Section 302 of the Sarbanes-Oxley Act of 2002*

                                       33
<PAGE>

               31.2           Certification of Chief Financial  Officer pursuant
                              to Section 302 of the Sarbanes-Oxley Act of 2002*

               32.1           Certification of Chief Executive Officer and Chief
                              Financial  Officer  pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002*

--------------
* filed herewith


                                       34

<PAGE>

     (b) Reports on Form 8-K

     No  reports on Form 8-K were  filed  during the last  quarter of the period
covered by this report.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

     The firm of Hein & Associates  LLP acts as our  principal  accountant.  The
following  is a summary of fees paid to our  principal  accountant  for services
rendered.

AUDIT FEES

     During the fiscal year ended  December 31, 2004, the fees for our principal
accountant are $23,600 in connection with our initial public offering (financial
statements  included in the Form S-1 and  Current  Report on Form 8-K filed with
the  Securities  and Exchange  Commission on August 3, 2004),  the review of our
June 30 and  September 30 Quarterly  Reports on Form 10-QSB and the audit of our
December 31, 2004 Annual Report on Form 10-KSB.

AUDIT-RELATED FEES

     During 2004, our principal  accountant did not render assurance and related
services  reasonably  related  to the  performance  of the  audit or  review  of
financial statements.

TAX FEES

     During 2004, our principal accountant did not render services to us for tax
compliance, tax advice and tax planning.

ALL OTHER FEES

     During 2004,  there were no fees billed for products and services  provided
by the principal accountant other than those set forth above.

AUDIT COMMITTEE APPROVAL

     We  currently  do not  have an audit  committee.  Our  Board  of  Directors
approved the engagement of Hein Associates as our independent  registered public
accounting firm by unanimous consent on September 30, 2004.


                                       35

<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  has duly caused this annual  report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.

                                    Sand Hill IT Security Acquisition Corp.
                                    (Registrant)



Date: March 29, 2005                By:   /s/ Humphrey P. Polanen
                                         ------------------------
                                         Humphrey P. Polanen
                                         Chief Executive Officer

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

<TABLE>
<CAPTION>
                  SIGNATURE                                    OFFICE                            DATE
                  ---------                                    ------                            ----
<S>                                               <C>                                         <C>
                                                  Chief Executive Officer and
                                                  Director (Principal Executive
 /s/ Humphrey P. Polanen                          Officer)                                    March 29, 2005
 -------------------------------------------
Humphrey P. Polanen


                                                  President, Chief Financial
                                                  Officer and Director (Principal
/s/ Keith Walz                                    Financial and Accounting Officer)           March 29, 2005
--------------------------------------------
 Keith Walz



                                                  Executive Vice President of                 March 29, 2005
                                                  Corporate Development and
s/s Scott Broomfield                              Director
--------------------------------------------
Scott Broomfield


/s/ Cary M. Grossman                              Director                                    March 29, 2005
--------------------------------------------
Cary M. Grossman


/s/ Daniel Johnson, Jr.                           Director                                    March 29, 2005
--------------------------------------------
 Daniel Johnson, Jr.


/s/ Alberto Micalizzi                             Director                                    March 29, 2005
--------------------------------------------
Alberto Micalizzi
</TABLE>



                                      S-1
<PAGE>

                               INDEX TO EXHIBITS



               Exhibit No.    Description
               ----------     -----------

               1.1            Underwriting Agreement by and between the Company,
                              I-Bankers  Securities  Incorporated  and Newbridge
                              Securities Corporation dated July 26, 2004

               3.1            Certificate  of  Incorporation   (incorporated  by
                              reference   to  Exhibit   3.1  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               3.2            By-laws  (incorporated by reference to Exhibit 3.2
                              of the  Company's  Registration  Statement on Form
                              S-1,  registration no. 333-114861,  filed with the
                              Securities and Exchange Commission)

               4.1            Specimen   Unit   Certificate   (incorporated   by
                              reference   to  Exhibit   4.1  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.2            Specimen Common Stock Certificate (incorporated by
                              reference   to  Exhibit   4.2  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.3            Specimen  Warrant  Certificate   (incorporated  by
                              reference   to  Exhibit   4.3  of  the   Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               4.4.1          Unit  Purchase  Option  No.  UPO-2  dated July 30,
                              2004, granted to Newbridge Securities Corporation

               4.4.2          Unit  Purchase  Option  No.  UPO-3  dated July 30,
                              2004, granted to James E. Hosch

               4.4.3          Unit  Purchase  Option  No.  UPO-4  dated July 30,
                              2004, granted to Maxim Group, LLC

               4.4.4          Unit  Purchase  Option  No.  UPO-5  dated July 30,
                              2004,  granted to  Broadband  Capital  Management,
                              LLC

               4.4.5          Unit  Purchase  Option  No.  UPO-6  dated July 30,
                              2004,    granted    to    I-Bankers     Securities
                              Incorporated

               4.5            Warrant  Agreement between American Stock Transfer
                              & Trust Company and the Registrant


                                       E-1
<PAGE>

               10.1           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Humphrey P. Polanen

               10.2           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Cary M. Grossman

               10.3           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Daniel J. Johnson

               10.4           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Keith A. Walz

               10.5           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Scott Broomfield

               10.6           Letter  Agreement among the Registrant,  Newbridge
                              Securities and I-Bankers  Securities  Incorporated
                              and Alberto Micalizzi

               10.8           Investment   Management  Trust  Agreement  between
                              American  Stock  Transfer & Trust  Company and the
                              Registrant

               10.9           Stock  Escrow  Agreement  between the  Registrant,
                              American  Stock  Transfer & Trust  Company and the
                              Initial Stockholders

               10.10          Registration Rights Agreement among the Registrant
                              and the Initial Stockholders

               10.11          Letter Agreement  between Sand Hill Security,  LLC
                              and Registrant regarding administrative support

               10.12          Revolving Credit Agreement in the principle amount
                              of $60,000  between the  Registrant  and Sand Hill
                              Security, LLC

               10.13          Warrant  Purchase   Agreement  among  Humphrey  P.
                              Polanen and Newbridge  Securities  Corporation and
                              I-Bankers Securities Incorporated (incorporated by
                              reference  to  Exhibit   10.13  of  the  Company's
                              Registration  Statement on Form S-1,  registration
                              no.  333-114861,  filed  with the  Securities  and
                              Exchange Commission)

               31.1           Certification of Chief Executive  Officer pursuant
                              to Section 302 of the Sarbanes-Oxley Act of 2002

                                       E-2
<PAGE>

               31.2           Certification of Chief Financial  Officer pursuant
                              to Section 302 of the Sarbanes-Oxley Act of 2002

               32.1           Certification of Chief Executive Officer and Chief
                              Financial  Officer  pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002






                                      E-3