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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION** Washington, D.C. 20549

FORM 10-QSB

** ̈**
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
  OF 1934 
  Quarterly report for the period ended June 30, 2003

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

Commission file number**000-21753**

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

**NEVADA**
      **88-0263701**State of Incorporation
      I.R.S. EmployerIdentification No.**918 SHERWOOD AVENUE****COQUITLAM B.C. CANADA**
      **V3K 1A6**Address of Principal Executive Offices
      Zip code


**604-540-8282**
  Issuer's Telephone Number

_________________________ 
  Former Address of Registrant

2nd Floor  5763 203 A Street, Langley
  B.C., V3A 1W7Address of Registrant

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

Securities registered under Section 12(g) of the Act: **COMMON STOCK, PAR VALUE $0.001 PER SHARE**

Title of class

**APPLICABLE ONLY TO CORPORATE ISSURER**

The number of shares outstanding of the issuer's only class
  of Common Stock $.001 par value 
  was 21,003,565 on November 10, 2003

1

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|INDEX
|-----
|     

|PART I Financial Information                                                                         |                                                            |         
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------
|                                                                                                     |                                                            |         
|Item 1. CONSOLIDATED FINANCIAL STATEMENTS.                                                           |                                                            |         
|                                                                                                     |                                                            |         
|Consolidated Balance Sheets as of September 30, 2003 (unaudited)                                     |                                                            |         
|                                                                                                     | and September 30, 2002 (audited) .                         | 3       
|                                                                                                     |                                                            |         
|Consolidated Statements of Operations for the three and nine-month
      periods ended               |                                                            |         
|                                                                                                     | September 30, 2003 and September 30, 2002 (unaudited)      | 4       
|                                                                                                     |                                                            |         
|Consolidated Statements of Cash Flows for the six months periods
      ended                         |                                                            |         
|                                                                                                     | September 30, 2003 and September 30, 2002, and (unaudited) | 5       
|                                                                                                     |                                                            |         
|Notes to the Financial Statements                                                                    | 6 to 13                                                    |         
|                                                                                                     |                                                            |         
|Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
      OF OPERATIONS AND FINANCIAL CONDITIONS | 14 to 21                                                   |         
|                                                                                                     |                                                            |         
|Item 3. CONTROLS AND PROCEDURES                                                                      | 21                                                         |         
|                                                                                                     |                                                            |         
|Part II OTHER INFORMATION                                                                            | 22                                                         |         
|                                                                                                     |                                                            |         
|1.                                                                                                   | LEGAL PROCEEDINGS                                          | 22      
|                                                                                                     |                                                            |         
|2.                                                                                                   | CHANGES IN SECURITIES                                      | 22      
|                                                                                                     |                                                            |         
|3.                                                                                                   | DEFAULT UPON SENIOR SECURITIES                             | 23      
|                                                                                                     |                                                            |         
|4.                                                                                                   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS        | 23      
|                                                                                                     |                                                            |         
|5.                                                                                                   | OTHER INFORMATION                                          | 23      
|                                                                                                     |                                                            |         
|6.                                                                                                   | EXHIBITS AND REPORTS ON FORM 8K                            | 23 to 25
|                                                                                                     |                                                            |         
|Signatures                                                                                           | 26                                                         |         

2

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**UltraGuard Water Systems Corp.**
  Consolidated Balance Sheets 
  (Expressed in US dollars)

|                                                                    | September 30 |   | December 31, |  
|------------------------------------------------------------------- | ------------ | - | ------------ | -
|                                                                    | 2003         |   | 2002         |  
|                                                                    | (Unaudited)  |   | (Audited)    |  
|                                                                    | $            |   | $            |  
|                                                                    |              |   |              |  
|ASSETS                                                              |              |   |              |  
|                                                                    |              |   |              |  
|Current Assets                                                      |              |   |              |  
|Cash and short-term
      investments                               | 1,135        |   | 40,206       |  
|Accounts receivable                                                 | 9,877        |   | 946          |  
|Inventory and contract
      work in progress                       | 6,901        |   | 6,638        |  
|Prepaid expenses
      and deposits                                 | 28,328       |   | 14,039       |  
|                                                                    |              |   |              |  
|Total Current Assets                                                | 46,242       |   | 61,828       |  
|Property and Equipment (Note 5)                                     | 225          |   | 286          |  
|Other Assets                                                        |              |   |              |  
|Manufacturing Technology
      (Note 4)                             | 1,104,852    |   | 1,026,876    |  
|                                                                    |              |   |              |  
|Total Assets                                                        | 1,151,318    |   | 1,088,990    |  
|                                                                    |              |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                |              |   |              |  
|                                                                    |              |   |              |  
|Current Liabilities                                                 |              |   |              |  
|Accounts payable                                                    | 210,069      |   | 123,947      |  
|Accrued liabilities                                                 | 38,172       |   | 40,157       |  
|Wages and vacation
      pay payable                                | 3,903        |   | 1,621        |  
|Customer deposits                                                   | -            |   | 11,719       |  
|Loans payable (Note
      6)                                        | 242,424      |   | 439,124      |  
|Amounts owing to
      related parties (Note 7)                     | 280,416      |   | 19,087       |  
|                                                                    |              |   |              |  
|Total Current Liabilities                                           | 774,984      |   | 635,655      |  
|                                                                    |              |   |              |  
|Stockholders Equity                                                |              |   |              |  
|                                                                    |              |   |              |  
|Common stock, (Note 8) $.001 par value,                             |              |   |              |  
|100,000,000 shares authorized,                                      |              |   |              |  
|21,003,565 and 10,852,565
      issued and outstanding respectively | 21,004       |   | 10,853       |  
|Additional paid-in
      capital                                    | 11,060,217   |   | 10,221,893   |  
|Donated capital                                                     | 31,928       |   | 31,928       |  
|Stock based compensation                                            | 470,901      |   | 385,799      |  
|Deferred compensation                                               | (432,920     | ) | -            |  
|Deficit                                                             | (10,774,795  | ) | (10,197,138  | )
|                                                                    |              |   |              |  
|Total Stockholders Equity                                          | 376,334      |   | 453,335      |  
|                                                                    |              |   |              |  
|Total Liabilities and Stockholders Equity                          | 1,151,318    |   | 1,088,990    |  
|                                                                    |              |   |              |  
|Contingencies (Notes 1 and 10)                                      |              |   |              |  

(See Accompanying Notes to the Financial Statements)

3

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**UltraGuard Water Systems Corp.**
  Consolidated Statements of Income 
  (Expressed in US dollars)
  (Unaudited)

|                                                | Three months  |   | Three months  |   | Nine months   |   | Nine months   |  
|----------------------------------------------- | ------------- | - | ------------- | - | ------------- | - | ------------- | -
|                                                | ended         |   | ended         |   | ended         |   | ended         |  
|                                                | September 30, |   | September 30, |   | September 30, |   | September 30, |  
|                                                | 2003          |   | 2002          |   | 2003          |   | 2002          |  
|                                                | $             |   | $             |   | $             |   | $             |  
|                                                |               |   |               |   |               |   |               |  
|Project Revenue                                 | 9,231         |   | 7,072         |   | 32,669        |   | 7,072         |  
|                                                |               |   |               |   |               |   |               |  
|Project Costs                                   | 8,000         |   | 3,808         |   | 26,812        |   | 3,808         |  
|                                                |               |   |               |   |               |   |               |  
|Total Gross Profit                              | 1,231         |   | 3,264         |   | 5,857         |   | 3,264         |  
|                                                |               |   |               |   |               |   |               |  
|Expenses                                        |               |   |               |   |               |   |               |  
|General and administrative                      | 208,800       |   | 114,983       |   | 437,768       |   | 351,096       |  
|Imputed interest                                | -             |   | 2,805         |   | -             |   | 31,928        |  
|Interest                                        | 10,377        |   | 38,523        |   | 32,110        |   | 89,608        |  
|Stock based compensation
      expense          | 28,368        |   |               |   | 85,103        |   | -             |  
|                                                |               |   |               |   |               |   |               |  
|Total Expenses                                  | 247,554       |   | 156,311       |   | 554,981       |   | 472,632       |  
|                                                |               |   |               |   |               |   |               |  
|Net Loss from Operations                        | 246,323       |   | 153,047       |   | 549,124       |   | 469,368       |  
|                                                |               |   |               |   |               |   |               |  
|Loss from discontinued operations (Note 3)      | -             |   | 596,239       |   | 28,534        |   | 902,653       |  
|                                                |               |   |               |   |               |   |               |  
|Net Loss for the Period                         | 246,323       |   | 749,286       |   | 577,657       |   | 1,372,021     |  
|                                                |               |   |               |   |               |   |               |  
|Net loss per share from continuing operations   | (0.02         | ) | (0.21         | ) | (0.04         | ) | (0.78         | )
|Net loss per share from discontinued operations | -             |   | (0.84         | ) | -             |   | (1.51         | )
|                                                |               |   |               |   |               |   |               |  
|Net Loss per Share                              | (0.02         | ) | (1.05         | ) | (0.04         | ) | (2.29         | )
|                                                |               |   |               |   |               |   |               |  
|Weighted Average Number of Shares Outstanding   |               |   |               |   |               |   |               |  
|after giving retroactive
      effect to a 1:50 |               |   |               |   |               |   |               |  
|consolidation of
      shares                   | 14,912,732    |   | 713,480       |   | 13,122,065    |   | 598,780       |  

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

(See Accompanying Notes to the Financial Statements)

4

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**UltraGuard Water Systems Corp.**
  Consolidated Statements of Cash Flows 
  (Expressed in US dollars) 
  (Unaudited)

|                                                                                        | Nine months   |   | Nine months   |  
|--------------------------------------------------------------------------------------- | ------------- | - | ------------- | -
|                                                                                        | ended         |   | ended         |  
|                                                                                        | September 30, |   | September 30, |  
|                                                                                        | 2003          |   | 2002          |  
|                                                                                        | $             |   | $             |  
|                                                                                        |               |   |               |  
|Cash Flows to Operating Activities                                                      |               |   |               |  
|Net Loss                                                                                | (577,657      | ) | (1,372,021    | )
|Adjustments to reconcile net loss to cash                                               |               |   |               |  
|Depreciation and
      amortization                                                     | 61            |   | 41,151        |  
|Foreign
      exchange                                                                  | (122          | ) | 13,743        |  
|Common stock issued
      for expenses, net of cancellations                            | 207,190       |   | (62,944       | )
|Accrual
      of interest                                                               | 27,480        |   | 97,663        |  
|Imputed interest                                                                        | -             |   | 31,928        |  
|Stock
      based compensation                                                          | 85,102        |   | 101,588       |  
|Change in non-cash working capital items                                                |               |   |               |  
|(Increase)
      decrease in accounts receivable                                        | (8,931        | ) | 626,545       |  
|(Increase) decrease
      in inventory and contract work in progress                    | (262          | ) | 58,913        |  
|(Increase)
      in prepaid expenses and deposits                                       | (14,289       | ) | (55,376       | )
|Increase (decrease)
      in accounts payable, accrued liabilities,                     |               |   |               |  
|wages
      and vacation pay payable and customers deposits                            | 81,273        |   | (74,443       | )
|                                                                                        |               |   |               |  
|Net Cash Used in Operating Activities                                                   | (200,155      | ) | (593,253      | )
|                                                                                        |               |   |               |  
|Cash Flows (to) from Investing Activities                                               |               |   |               |  
|Acquisition of short-term
      investment                                              | -             |   | (79,325       | )
|Proceeds from short-term
      investment - restricted                                  | -             |   | 244,599       |  
|Acquisition of manufacturing
      technology                                           | (6,776        | ) | -             |  
|Acquisition of patents
      and trademarks                                             | -             |   | (2,412        | )
|Acquisition of capital
      assets                                                     | -             |   | 63,857        |  
|Net Cash Used in Investing Activities                                                   | (6,776        | ) | 226,719       |  
|Cash Flows from (to) Financing Activities                                               |               |   |               |  
|Common stock issued                                                                     | -             |   | 218,000       |  
|Increase in loans
      payable                                                         | 45,384        |   | 87,926        |  
|Increase in amounts
      owing to related parties                                      | 122,476       |   | 90,720        |  
|Decrease in shares
      subscriptions received                                         | -             |   | (1,209        | )
|Net Cash Provided by Financing Activities                                               | 167,860       |   | 395,437       |  
|                                                                                        |               |   |               |  
|Increase (Decrease) in Cash                                                             | (39,071       | ) | 28,903        |  
|Cash - Beginning of the Period                                                          | 40,206        |   | (4,539        | )
|                                                                                        |               |   |               |  
|Cash - End of the Period                                                                | 1,135         |   | 24,364        |  
|                                                                                        |               |   |               |  
|Non-Cash Financing Activities                                                           |               |   |               |  
|400,000 shares were issued for asset purchase at $0.178 per share                       | 71,200        |   | -             |  
|600,000 shares were issued for expenses at $0.189 per share                             | 113,400       |   | -             |  
|16,564 shares were issued to settle debts at $0.10 per share                            | -             |   | 1,656         |  
|1,845,000 shares were issued for expenses at $0.13 per share                            | 239,850       |   | -             |  
|2,400,000 shares were issued for expenses at $0.0338 per share                          | 81,120        |   | -             |  
|300,000 shares were issued for expenses at $0.0338 per share                            | 10,140        |   | -             |  
|100,000 shares were issued for expenses at $0.07 per share                              | 7,000         |   | -             |  
|70,000 shares were issued to settle debt at $0.09 per share                             | 6,453         |   | -             |  
|1,556,000 shares were issued to settle debt at $0.08 per share                          | 130,711       |   | -             |  
|30,000 shares were issued for expenses at $0.12 per share                               | 3,600         |   | -             |  
|1,100,000 shares were issued for notes receivable and expenses at $0.10
      per share | 110,000       |   | -             |  
|1,750,000 shares were issued for consulting at $0.10 per share                          | 175,000       |   | -             |  
|210,000 shares were issued to settle debt at $0.26 in year 2001                         |               |   |               |  
|and cancelled in
      the 3rd quarter of 2002                                          |               |   | (54,600       | )
|20,000 shares were cancelled in 3rdquarter of 2002                                      |               |   | (12,000       | )
|100,000 shares were issued to settle debt at $0.02 per share                            |               |   | 2,000         |  
|13,800,000 shares were issued to settle debt at $0.01 per share                         |               |   | 138,000       |  
|                                                                                        |               |   |               |  
|Supplementary Information                                                               |               |   |               |  
|Cash paid for interest                                                                  | 4,592         |   | 324           |  
|Cash paid for income
      taxes                                                        | -             |   | -             |  

(See Accompanying Notes to the Financial Statements)

5

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|1. | Nature of Operations and Continuance of Business
      Up to February 2002 the Company focused its activities
        on the manufacturing and marketing of its Ultra GuardÚ ultra violet
        based patented water treatment system through its wholly owned Canadian
        subsidiary, UV Systems Technology Inc. (UVS). These products
        and systems are sold primarily for municipal waste disinfection treatment.
      During the period from acquiring UVS in August 1996
        to February 2002, operating activities had not generated profitability.
        These consolidated financial statements have been prepared in accordance
        with United States generally accepted accounting principles, on a going
        concern basis, which contemplates the realization of assets and the satisfaction
        of liabilities and commitments in the normal course of business. As at
        June 30, 2003, the Company has not recognized significant revenue, has
        a working capital deficit of $760,260, and has accumulated operating losses
        of $10,528,473 since its inception. The continuation of the Company is
        dependent upon the continuing financial support of creditors and stockholders
        and obtaining short-term and long-term financing, the completion of product
        development of its newly acquired technology and achieving profitability.
        These conditions raise substantial doubt about the Company's ability to
        continue as a going concern. These financial statements do not include
        any adjustments that might arise from this uncertainty. On February 5,
        2002, the Company reached an agreement with the Clearwater Group (Clearwater)
        to assume the UVS manufacturing responsibilities of any new Ultra GuardÚ
        water treatment systems to be supplied to UVSs strategic alliance
        partner, US Filter. Clearwater would also provide warranty services on
        any previously sold UltraGuardÚ water treatment systems. In January
        2001 the Company ceased manufacturing operations, reduced level of staff
        in production, engineering and support and moved its offices to Langley.
        In December 2003, UVS was sold.
      At a special meeting held on November 15, 2002 the Company
        reorganized. Its shares were consolidated on a 1:50 basis, the authorized
        capital increased to 100,000,000 shares and the name of the Company was
        changed to UltraGuard Water Systems Corp. In December 2002, the Company
        divested itself of the UVS operations (see Note 3) while retaining any
        royalty or other revenues that may be received from the sale or use of
        the UVS patented Ultra GuardÚ technology.
      During fiscal 2002, the Company commenced designing
        and developing the home use Point of Use and Point of Entry UV disinfection
        systems for drinking water. Point of Use systems are installed under a
        sink; Point of Entry units are installed at the water supply entry into
        the building. This UV product may include dual filtration cartridges in
        advance of the UV system.
      In December 2002, the Company purchased Innovative Fuel
        Cell Technologies Inc. (IFCT) (see Note 4), the holder of
        an option to purchase worldwide rights to manufacture and market a Magnesium
        Air Fuel Cell to power UV drinking water and ancillary systems. IFTC owns
        100% of the shares of an Austrian company, UltraGuard Water Systems GmbH
        (UG GmbH). UG GmbH was to be the manufacturer and marketer
        the UV and Fuel Cell products for the European and African market. During
        the period, due to lack of finances, the Company discontinued its operation
        in Europe and closed UG GmbH and will concentrate its efforts on the North
        American market where its UV products and fuel cell products will be manufactured
        through subcontractors and will be marketed in North America through the
        Internet, wholesalers and sales representatives.
      Funds were provided to the Company on February 19, 2003
        through an agreement entered into with a Germany resident. Under the agreement
        the German resident provided a US$50,000 loan bearing interest at 10%,
        payable within 6 months or convertible into the Companys common
        stock at $0.30 per share.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | Significant Accounting Policies
      Consolidated financial statements
      These financial statements include the accounts of the
        Company; its wholly owned Nevada based subsidiary and Innovative Fuel
        Cell Technologies Inc. The Companys Austrian based UltraGuard Water
        Systems GmbH (UG GmbH) operations have been discontinued. All significant
        intercompany transactions and balances have been eliminated and costs
        of the closing of UG GmbH have been recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

6

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|2 | Significant Accounting Policies
        (continued)
      Cash and cash equivalents
      Cash and cash equivalents include cash on hand, in banks
        and all highly liquid investments with maturity of three months or less
        when purchased. Cash equivalents are stated at cost, which approximates
        market.
      Property and equipment
      Property and equipment are recorded at cost. Depreciation
        is computed on a straight-line method using an estimated useful life of
        five years.
      Revenue recognition
      Product sales are recognized at the time goods are shipped.
        System and project revenue are recognized utilizing the percentage of
        completion method that recognizes project revenue and profit during construction
        based on expected total profit and estimated progress towards completion
        during the reporting period. All related costs are recognized in the period
        in which they occur.
      Estimates and assumptions
      The preparation of financial statements in conformity
        with generally accepted accounting principles requires management to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities in the financial statements and accompanying notes. Actual
        results could differ from these estimates.
      Foreign currency
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  | Basic and Diluted Net Income (Loss) Per
        Share
      The Company computes net income (loss) per share in
        accordance with SFAS No. 128, "Earnings per Share". This statement requires
        presentation of both basic and diluted earnings per share (EPS) on the
        face of the income statement. Basic EPS is computed by dividing net income
        (loss) available to common shareholders (numerator) by the weighted average
        number of common shares outstanding (denominator) during the period. Diluted
        EPS gives effect to all dilutive potential common shares outstanding during
        the period including stock options, using the treasury stock method, and
        convertible preferred stock, using the if-converted method. In computing
        Diluted EPS, the average stock price for the period is used in determining
        the number of shares assumed to be purchased from the exercise of stock
        options or warrants. Diluted EPS excludes all dilutive potential common
        shares if their effect is anti dilutive.                                                                                                                                                                                                                                                                                                                        

7

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|2. | Significant Accounting Policies (continued)
      Accounting for Stock-Based Compensation
      The Company accounts for stock based compensation in
        accordance with SFAS No. 123, Accounting for Stock-Based Compensation.
        This statement requires that stock awards granted subsequent to January
        1, 1995, be recognized as compensation expense based on their fair value
        at the date of grant. Alternatively, a company may account for granted
        stock awards under Accounting Principles Board Opinion (APB) No. 25, Accounting
        for Stock Issued to Employees, and disclose pro forma income amounts
        which would have resulted from recognizing such awards at their fair value.
        The Company has elected to account for stock-based compensation for employees
        under APB No. 25 and make the required pro forma disclosures for compensation
        expense in accordance with SFAS No. 123. The Company accounts for stock
        issued for services to non-employees in accordance with SFAS No. 123.
        Compensation expense is based on the fair market value of the stock award
        or fair market value of the goods and services received whichever is more
        reliably measurable.
      Interim Financial Statements
      These interim unaudited financial statements have been
        prepared on the same basis as the annual financial statements and in the
        opinion of management, reflect all adjustments, which include only normal
        recurring adjustments, necessary to present fairly the Companys
        financial position, results of operations and cash flows for the periods
        shown. The results of operations for such periods are not necessarily
        indicative of the results expected for a full year or for any future period.
      Comprehensive Loss
      SFAS No. 130, Reporting Comprehensive Income,
        establishes standards for the reporting and display of comprehensive loss
        and its components in the financial statements. As at June 30, 2003, the
        Company has no items that represent comprehensive loss and, therefore,
        has not included a schedule of comprehensive loss in the financial statements.
      Recent Accounting Pronouncements
      FASB has also issued SFAS No. 147 and 149 but they will
        not have any relationship to the operations of the Company therefore a
        description and its impact on the Company's operations has not been disclosed.
      In December 2002, the FASB issued SFAS No. 148, "Accounting
        for Stock-Based Compensation  Transition and Disclosure," which
        amends SFAS No. 123 to provide alternative methods of transition for a
        voluntary change to the fair value based method of accounting for stock-based
        employee compensation. In addition, SFAS No. 148 expands the disclosure
        requirements of SFAS No. 123 to require more prominent disclosures in
        both annual and interim financial statements about the method of accounting
        for stock-based employee compensation and the effect of the method used
        on reported results. The transition provisions of SFAS No. 148 are effective
        for fiscal years ended after December 15, 2002. The disclosure provisions
        of SFAS No. 148 are effective for financial statements for interim periods
        beginning after December 15, 2002. The Company adopted SFAS No. 148 on
        January 1, 2003 and its impact did not have a material effect on its financial
        position or results of operations.
      In May 2003, the FASB issued SFAS No. 150, "Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and Equity". SFAS No.150 establishes standards for how an issuer classifies
        and measures certain financial instruments with characteristics of both
        liabilities and equity. It requires that an issuer classify a financial
        instrument that is within its scope as a liability (or an asset in some
        circumstances). The requirements of SFAS No. 150 apply to issuers' classification
        and measurement of freestanding financial instruments, including those
        that comprise more than one option or forward contract. SFAS No. 150 does
        not apply to features that are embedded in a financial instrument that
        is not a derivative in its entirety. SFAS No. 150 is effective for financial
        instruments entered into or modified after May 31, 2003, and otherwise
        is effective at the beginning of the first interim period beginning after
        June 15, 2003, except for mandatory redeemable financial instruments of
        non-public entities. It is to be implemented by reporting the cumulative
        effect of a change in an accounting principle for financial instruments
        created before the issuance date of SFAS No. 150 and still existing at
        the beginning of the interim period of adoption. Restatement is not permitted.
        The adoption of this standard is not expected to have a material effect
        on the Company's results of operations or financial position.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3. | Discontinued Operations
      At a meeting of the Board of Directors on October 1,
        2002 the Company set out a reorganization and restructuring plan, which
        included the disposal of UV Systems Technology Inc (UVS). The debt load
        being carried by the Company as a result of the UVS operations were impairing
        the Companys ability to obtain investment funds or make any other
        financing arrangements. On December 30, 2002, the Company disposed of
        its 100% owned asset, UVS. Under the terms of these agreements, the Company
        sold 100% of the shares of UVS to 659999 BC Ltd, a Canadian private company
        in exchange for the transfer and assignment to the Company of all outstanding
        and future royalties from Clearwater Technologies Inc (Clearwater)
        and any other rights UVS may have under the License Agreement, which covered
        the UltraGuard®patents and technology. UVS entered into
        this Licence Agreement with Clearwater on February 5, 2002. No value was
        placed on this agreement. Full details of these Agreements between UVS
        and 659999 BC Ltd were filed with the Securities and Exchange Commission
        on Form 8-K dated January 15, 2003. Clearwater has now cancelled its relationship
        with UVS.
      During the period the Company discontinued its Austrian
        based UG GmbH operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

8

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

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

|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |       |              |     | September 30, |     | December 31,
|-- | ------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----- | ------------ | --- | ------------- | --- | ------------
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |       |              |     | 2003          |     | 2003        
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |       | Accumulated  |     | Net Book      |     | Net Book    
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Cost |       | Depreciation |     | Value         |     | Value       
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $    |       | $            |     | $             |     | $           
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |       |              |     | (Unaudited)   |     | (Audited)   
|   | Office furniture and equipment | 5,533                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | 5,308 |              | 225 |               | 286
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |       |              |     |               |     |             
|6. | Loans Payable                 
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | a)                             | Loans payable, including interest, in
        the amount of $261,423 were partially repaid during the three months ended
        September 30, 2003. The security pledged, 50% by West Peak Ventures of
        Canada Ltd (West Peak) and 50% by the Company President, Ken Fielding,
        to secure the loans was called and taken by the note holder. To compensate
        West Peak for its losses, the issued 1,556,000 common shares to West Peak
        in full payment for their losses amounting to $130,711. The Company agreed
        with Ken Fielding to set an unsecured loan payable in the amount of $130,712
        with interest at 6% per annum as compensation for his losses.
|   |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | b)                             | Loans payable, totaling $125,000 plus
        accrued interest of $30,000 was renegotiated in December 2002 as a non-interest
        bearing loan amount set at $155,000. Payments were to be made totaling
        $80,000 commencing February 15, 2003 with final payment due June 16, 2002,
        with the remaining $75,000 to be converted into common shares at a conversion
        price of 20% below the average bid price between December 7, 2002 and
        March 7, 2003, to be issued.                                                                                                                                                                                                 

9



---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|6. | Loans Payable (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | March 10, 2003. The payment
        due February 15, 2003 was not made. No payment was made on March 15, 2003
        or subsequently. On April 25, 2003, Chelverton Fund Limited filed a suit
        in the Supreme Court of British Columbia against the Company for non-payment
        of debt in the amount of $155,000 and on May 2, 2003, the Company was
        served with a writ of summons. The Company entered an appearance and filed
        a defense against this claim and attempted to negotiate a settlement.
        Chelverton filed additional information to support their claim and the
        Company responded with a no defense position. Currently the
        Company is discussing an amicable method of repayment with Chelverton,
        and have verbally provided a disclosure of the Companys current
        financial conditions so that Chelverton may fully understand the Companys
        inability to pay the debt at this time.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|7. | Amounts Owing to Related Parties
      These amounts, totaling $280,416, represent unpaid wages
        and consulting for two officer- directors in the amount of $149,704, which
        are due on demand, unsecured and non-interest bearing and include an amount
        of $130,712 due to Ken Fielding as a result of actions taken in Note 6.
        Imputed interest on previous non-interest bearing related party loans
        totalled $31,928 which was recorded as donated capital, calculated at
        10% per annum. In fiscal 2002, two officers/directors purchased with notes
        receivable and debt reduction, 3,000,000 shares of common stock of the
        Company at $0.0101 per share for a total consideration of $30,300.                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|8. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                                   |            |   |        |   | Additional |  
| | ------------------------------------------------- | ---------- | - | ------ | - | ---------- | -
| |                                                   | Issued     |   | Common |   | Paid-in    |  
| |                                                   | Shares     |   | Stock  |   | Capital    |  
| |                                                   | #          |   | $      |   | $          |  
| |                                                   |            |   |        |   |            |  
| | Balance, December 31, 2001 (audited)              | 26,887,601 |   | 26,888 |   | 8,266,082  |  
| | Issuance of stock
      for expenses pursuant to  |            |   |        |   |            |  
| | the
      exercise of employee stock options      | 16,564     |   | 16     |   | 1,640      |  
| | Issuance of stock
      for expenses              | 100,000    |   | 100    |   | 1,900      |  
| | Issuance of stock
      for cash pursuant to      |            |   |        |   |            |  
| | private
      placements                          | 4,350,000  |   | 4,350  |   | 230,650    |  
| | Issuance of stock
      for debt settlement       | 13,800,000 |   | 13,800 |   | 124,200    |  
| | Issuance of stock
      for expenses              | 1,000,000  |   | 1,000  |   | 9,000      |  
| | Stock returned to
      treasury for cancellation | (330,000   | ) | (330   | ) | (83,270    | )
| |                                                   |            |   |        |   |            |  
| | Balance Pre-Reverse Split                         | 45,824,165 |   | 45,824 |   | 8,550,201  |  
| |                                                   |            |   |        |   |            |  
| | Balance Post-Reverse Split 1:50 basis             | 916,488    |   | 917    |   | 8,595,109  |  

10

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|8. | Common Stock (contd)
|-- | ---------------------

| | Issuance of shares
      for debt                       | 3,000,000  |  | 3,000  |  | 27,300     |  
| | ------------------------------------------------------- | ---------- |  | ------ |  | ---------- | -
| | Issuance of shares
      to debt settlement             | 593,077    |  | 593    |  | 592,484    |  
| | Issuance of shares
      for purchase of                |            |  |        |  |            |  
| | Innovative Fuel
      Cell Technologies Inc.            | 5,000,000  |  | 5,000  |  | 1,007,000  |  
| | Issuance of shares
      owned by subsidiary            | *1,000,000 |  | 1,000  |  | 201,400    |  
| | Less, Treasury Stock                                    | -          |  | -      |  | (201,400   | )
| | Issuance of shares to private placement                 |            |  |        |  |            |  
| | purchasers with
      non-dilutive provision            | 343,000    |  | 343    |  | -          |  
| | Balance, December 31, 2002 (audited)                    | 10,852,565 |  | 10,853 |  | 10,221,893 |  
| | Issuance of shares
      for MagPower License Agreement | 400,000    |  | 400    |  | 70,800     |  
| | Issuance of shares
      for consulting expenses        | 2,300,000  |  | 2,300  |  | 332,100    |  
| | Issuance of shares
      for expenses                   | 445,000    |  | 445    |  | 28,545     |  
| | Issuance of shares
      for compensation               | 2,400,000  |  | 2,400  |  | 78,720     |  
| | Issuance of shares
      for Debt                       | 200,000    |  | 200    |  | 16,853     |  
| | Issuance of shares
      for West Peak Security Loss    | 1,556,000  |  | 1,566  |  | 129,155    |  
| | Issuance of shares
      for Notes Receivable           | 1,100,000  |  | 1,100  |  | 108,900    |  
| | Less funds not yet
      received                       | -          |  | -      |  | (100,000   | )
| | Issuance of shares
      for consulting Expenses        | 1,750,000  |  | 1,750  |  | 173,250    |  
| | Balance, September 30, 2003 (unaudited)                 | 21,003,565 |  | 21,004 |  | 11,060,217 |  

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

| |  |                                |  |         |  | Exercise |  |                                      | 
| |  | ------------------------------ |  | ------- |  | -------- |  | ------------------------------------ | 
| |  | Class                          |  | #       |  | Price    |  | Expiry Date(s)                       | 
| |  |                                |  |         |  |          |  |                                      | 
| |  | C- Post -Reverse Split -1:50 |  | 162,100 |  | $12.00   |  | September 23, 2005  October 3, 2010 | 

| |     | On October 3, 2000, 3,000,000 Class C warrants were issued pursuant
          to a Strategic Alliance and other agreements with US Filters Wallace
          and Tiernan Products Group, a wholly owned subsidiary of U.S. Filter
          (US Filter) to market and sell under license the Companys
          UltraGuard® ultraviolet disinfection technology for water and wastewater
          applications. The value of the 3,000,000 Class C Warrants issued totalled
          $656,700.
        In June 2001, the Company entered into a funding agreement with US
          Filter/Wallace and Tiernan Products Group. As a term of the funding
          agreement, the warrant exercise price on the above 3,000,000 warrants
          was reduced to $0.24 per share. The expiry date of these warrants was
          changed to October 3, 2010. In addition, 5,105,000 Class C warrants
          were issued with an exercise price of $0.24 per share and an expiry
          date of October 3, 2010.
        These additional warrants were issued because of certain funding criteria
          being met. The value of the 5,105,000 Class C warrants issued totalled
          $478,000. These amounts totaling $1,134,700 are being amortized to operations
          as a financing expense at a rate of $47,800 per annum and a marketing
          expense at a rate of $65,670 per annum.
        As a result of the 1:50 Reverse Split, the total number of C warrant
          issued; 8,105,000, with an exercise price of $0.24 per share have been
          reduced to 162,100 Class C warrants with an exercise price of $12.00
          per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | Employee Stock Option Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

11

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

|8. | Common Stock (contd)
|-- | ---------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Shares       |  |                  |  | Weighted Average  | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ |  | ---------------- |  | ----------------- | 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Under Option |  | Weighted Average |  | Remaining Life of | 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | #            |  | Option Price $   |  | Options (Months)  | 
| |     | December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |             |  |                 |  |                  | 
| |     | Granted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 125,000      |  | .13              |  |                   | 
| |     | September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 125,000      |  | .13              |  | 32                | 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |  |                  |  |                   | 
| |     | The fair value of the employees
        purchase rights under SFAS 123 was estimated using the Black-Scholes model
        with the following assumptions on the above granted options: risk free
        interest rate was 5%, expected volatility of 100%, an expected life of
        3 years and no expected dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (d) | Independent Contractor/Consulting Agreement Plan of UltraGuard Water
          Systems Corp.
        On June 11, 2003 the Company registered and issued 1,500,000 shares
          on Form S-8 to three consultants for product marketing consulting expenses
          amounting to $195,000.
        These options were granted for services provided, or to be provided,
          to the Company. Statement of Financial Accounting Standards No. 123
          (SFAS 123") requires that an enterprise recognize, or at its option,
          disclose the impact of the fair value of stock options and other forms
          of stock based compensation in the determination of income. The Company
          has elected under SFAS 123 to continue to measure compensation cost
          on the intrinsic value basis set out in APB Opinion No. 25. As options
          are granted at exercise prices based on the market price of the Companys
          shares at the date of grant, no compensation cost is recognized. However,
          under SFAS 123, the impact on net income and income per share of the
          fair value of stock options must be measured and disclosed on a fair
          value based method on a pro forma basis.
        If compensation expense had been determined pursuant to SFAS 123,
          the Companys net loss and net loss per share would have been as
          disclosed below.
        During the period, the company adopted the disclosure requirements
          of Statement of Financial Accounting Standards No. 148, Accounting
          for Stock-Based Compensation  Transition and Disclosure an Amendment
          of FASB Statement No. 123 (SFAS 148), to require more prominent
          disclosures in both annual and interim financial statements regarding
          the method of accounting for stock-based employee compensation and the
          effect of the method used on reporting results. The pro forma information
          is as follows:

| |  |                                              | 3 months      |   | 9 months      |   | 12 months   |  
| |  | -------------------------------------------- | ------------- | - | ------------- | - | ----------- | -
| |  |                                              | ended         |   | ended         |   | ended       |  
| |  |                                              | September 30, |   | September 30, |   | December 31 |  
| |  |                                              | 2003          |   | 2003          |   | 2002        |  
| |  |                                              | $             |   | $             |   | $           |  
| |  |                                              | (Unaudited)   |   | (Unaudited)   |   | (Audited)   |  
| |  |                                              |               |   |               |   |             |  
| |  | Net loss                                     |               |   |               |   |             |  
| |  | As reported                                  | (246,322      | ) | (577,657      | ) | (657,617    | )
| |  | Stock Based Compensation  as
      reported | 28,368        |   | 85,103        |   | -           |  
| |  | Stock Based compensation  determined under  |               |   |               |   |             |  
| |  | fair market value                            | (29,328       | ) | (86,263       | ) | -           |  
| |  | Pro forma                                    | (247,192      | ) | (578,817      | ) | (657,617    | )
| |  |                                              |               |   |               |   |             |  
| |  | Basic net loss per share                     |               |   |               |   |             |  
| |  | As reported                                  | (.02          | ) | (.04          | ) | (.06        | )
| |  | Pro forma                                    | (.02          | ) | (.04          | ) | (.06        | )

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

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements

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

| |         | Nine months ended  |  | Nine months ended  |  
| | ------- | ------------------ |  | ------------------ | -
| |         | September 30, 2003 |  | September 30, 2002 |  
| |         |                    |  | United             |  
| |         | Canada             |  | States             |  
| |         | $                  |  | $                  |  
| |         |                    |  |                    |  
| | Revenue |                   |  | 32,669             |  
| | Expense |                   |  | 555,759            |  
| | Loss    |                   |  | (549,123           | )

| |                     | As of September 30, 2003 |  | As of September 30, 2002 | 
| | ------------------- | ------------------------ |  | ------------------------ | 
| |                     |                          |  | United                   | 
| |                     | Canada                   |  | States                   | 
| |                     | $                        |  | $                        | 
| | Identifiable assets |                         |  | 146,467                  | 
| | Goodwill, patents,  |                          |  |                          | 
| | manufacturing       |                          |  |                          | 
| | technology option   |                         |  | 1,104,852                | 
| | Total assets        |                         |  | 1,251,319                | 

|10. | Legal Proceedings
        On October 20, 1998 a suit was filed in the Supreme Court of British
          Columbia by Thomas OFlynn against the Company, Kenneth Fielding
          (the Company's President and Director), and Charles P. Nield (a former
          Director and Vice President of the Company), OFlynn alleges that
          in April of 1996, he purchased shares of the Common Stock based on a
          representation that they would be free trading in 40 days of "the filing
          of a prospectus." He further alleges that in September of 1996 he purchased
          additional shares of Common Stock based on the representation that the
          shares would be free trading within 40 days of the Common Stock becoming
          free trading. OFlynn alleges that the representation was a warranty
          and was incorrect. He further alleges that he suffered a loss because
          the share price decreased while he was holding the shares. He seeks
          damages for breach of warranty, negligence, misrepresentation and breach
          of fiduciary duty. The amount claimed is not specified. The Company
          filed an answer denying the claims and will continues to actively defend
          the suit. The suit has remained inactive since early 1999. There has
          been no loss provision set-up pursuant to this action against the Company.
        On April 25, 2003, Chelverton Fund Limited filed a suit in the Supreme
          Court of British Columbia against the Company for non-payment of debt
          in the amount of $155,000. The Company entered an appearance and filed
          a defence against this claim and attempted to negotiate a settlement.
          Chelverton filed additional information that supported their claim and
          the Company responded with a no defines position. Currently
          the Company continues to discuss an amicable method of repayment with
          Chelverton, and have provided a complete disclosure of the Companys
          current financial conditions so that Chelverton may fully understand
          the Companys inability to pay the debt at this time and continues
          a close dialogue with Chelverton principals.
        On June 6, 2003 a group of shareholders (Shareholder Group) filed
          a consent resolution, which among other things elected a new slate of
          directors and revised the company by-laws. The Company refused to accept
          the consent resolution or by-laws as in the opinion of the Companys
          legal counsel, the consent resolutions were not in accordance with Nevada
          Statutes or the filing requirements of the Security and Exchange Commission.
          At a directors meeting held June 9, 2003, the Company elected two additional
          directors; Edward White and Erin Strench to the Company board, bringing
          the total number of directors to five. On June 16, 2003 the Shareholder
          Group filed for and obtained a temporary restraining order (TRO) against
          the Company and its five directors prohibiting the Company from among
          other things, issuing stock, transferring assets, changing management
          and other actions that would affect the status quoof the Company.
          In addition, two shareholders issued writs against various directors,
          alleging breach of fiduciary duty in respect of the issue of certain
          common shares each to John Gaetz, Ken Fielding and others. On June 24,
          2003, in discussions between legal counsel for plaintiff, respondent
          and the hearing Judge; Judge Adams, the TRO was vacated and a date of
          July 2, 2003 was set for a new TRO hearing to be held in Reno, Nevada.
          At the July 2, 2003 TRO hearing Judge Adams did not grant a TRO and
          requested the plaintiff and respondent file a series of three briefs
          outlining their position. The first brief was filed on July 11, 2003
          by our counsel. The plaintiff responded on July 18, 2003 and our counsel
          filed the final brief on July 25, 2003. At the time of filing this 10QSB
          quarterly report, the Judge had not ruled on the TRO. The Companys
          counsel has responded to the various other suits filed against the Company
          and its directors. During the quarter ended September 30, 2003, counsel
          for the Company has been successful in moving this action from Nevada
          State jurisdiction to federal jurisdiction. No further action is occurring
          at this time
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS AND
  FINACIAL CONDITIONS

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

BASIS OF PRESENTATION

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

MANAGEMENTS DISCUSSION

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

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

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

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

14

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the UV System. During this first quarter of 2003, the Company
  was informed that testing is scheduled to start June I, 2003. As this project
  was sold by the Companys wholly owned subsidiary, UV Systems Technology
  Inc (UVS) and the Company sold UVS in December 2002, the status on this project
  will no longer be reported.

After successful PDU testing in September & October 1998
  at the City of Peterborough wastewater treatment plant, we received an order
  in March 1999 valued at over C$1,100,000

(approximately $748,000.). The UV system will disinfect effluent
  flow in excess of 36 million gallons per day. The UV system delivery was completed
  in January 2002 and installed during February and March for operation starting
  May 15, 2002. Problems were encountered with the field wiring which affected
  the operating software. As well, problems were encountered with the installation
  of some of the structural components. In the second quarter, four of the five
  channels (48 of the 60 lamps) had been operated for about 30 days using the
  non-flow paced computer system. Clearwater reported that during this period,
  performance requirements were being met. Negotiation of the work and guarantees
  required by the customer to complete the balance of the system was being conducted
  between the City of Peterborough, Clearwater, our product-manufacturing licensee
  and with USFilter and Clearwater. These negotiations have been unsuccessful.
  In November the Company received notification that the City of Peterborough
  was canceling the UV system contract. The Company advised the City that we do
  not accept this cancellation and will strenuously defend our rights under the
  contract purchased order. We have made the appropriate loss provisions in our
  financial statements for year ending 2002, to reflect this cancellation. As
  this project was sold by the Companys wholly owned subsidiary, UV Systems
  Technology Inc (UVS) and the Company sold UVS in December 2002, the status on
  this project will no longer be reported.

Purchase orders for two additional UV systems valued at approximately
  C$150,000 approximately were produced during the 2000-2001 period and delivered
  into the Province of Ontario. Additional orders for shipment to Louisiana and
  Virginia were received, with an aggregate value of about $258,000. These two
  systems were delivered in 2001.

Royalty Income. On January 26, 2001, we entered into
  a Strategic Alliance Agreement (and associated agreements) (the Agreements)
  with US Filters Wallace and Tiernan Products group (USFilter) to market
  our Ultra Guard® wastewater UV System in North, South and Central America
  and the Caribbean, filed with the SEC on Form 8-K on February 27, 2001.

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

Note: Numbers and values enclosed in brackets ( ) reflect
  post rollback figures.

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

As a term of a subsequent Funding Agreement, the exercise
  prices on the 3,000,000 (60,000) warrants was reduced to $0.24 ($12.00) per
  share. In addition, 5,105,000 (102,100) Class C warrants (the Additional Warrants)
  were issued as a result of this Funding Agreement. All warrants issued to USFilter
  may be exercised until October 10, 2010. The total number of Class A warrants
  issued to USFilter is 8,105,000 (162,100) at a price of $0.24 ($12.00) per share.
  In summary as result of the 1:50 reverse split USFilter now holds 162,100 Class
  A warrant exercise price of $12.00.

If the Strategic Alliance Agreement is terminated for convenience,
  the warrants will expire on the second anniversary of the effective date of
  the termination for convenience. In addition, on January 25 of each year during
  the term of the Strategic Alliance Agreement, the Company will grant to U.S.
  Filter/Wallace & Tiernan additional warrants to purchase common stock, based
  upon the orders for Systems booked or significantly influenced by U.S. Filter/Wallace
  & Tiernan during the preceding 12 months. Provided at least US$1,000,000
  of orders for Systems have been booked or influenced, U.S. Filter/Wallace &
  Tiernan would become entitled to purchase 50,000 shares and also 500 shares
  for each US$10,000 of orders for Systems booked or significantly influenced
  by U.S. Filter/Wallace & Tiernan in excess of US$1,000,000 during the preceding
  12 months. Any warrants issued will be issued at the average of the 10 days
  preceding the date of determining the number of share due.

15

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Registration Rights Agreement. The Company and U.S.
  Filter/Wallace & Tiernan also entered into a Registration Rights Agreement.
  The Registration Rights Agreement entitles U.S. Filter/Wallace & Tiernan
  to demand registrations (two long form registrations and, if available, short
  form registrations at specified intervals) and piggyback registrations for the
  shares of the Company common stock issued upon exercise of the warrants.

Security Agreement. The Company and UV Systems have
  granted to U.S. Filter/Wallace & Tiernan a security interest in certain
  rights in and to their patents, trademarks, trade secrets, copyrights, soft
  ware and know how, and contracts related to the use or exploitation of these
  rights in connection with the sale, distribution, promotion, marketing or manufacture
  of Systems for installation within the Territory. The security interest secures
  an obligation to make a $100,000 payment under the Strategic Alliance Agreement
  upon a termination for convenience, or a termination, rejection, disclaiming
  or repudiation of the License Agreement in connection with insolvency proceedings
  within three years of entering the Strategic Alliance Agreement on January 26,
  2001(Termination Period).

On August 27, 2003, prior to the expiration of the three year
  Termination Period, USFilter advised the Company they were terminating the Agreement,
  alleging that the Company had breached the Agreement in signing a manufacturing
  Agreement with Clearwater Technologies Inc (see Agreement details below) and
  had failed to deliver Trust documents related to the manufacturing technology
  for the UV system as was required by the Agreements. The Company is reviewing
  these allegations and as of the date of this quarterly report, has not responded
  although the Company principals have had verbal communication on the matter.
  As Clearwater is responsibility for manufacturing and sale of product worldwide
  and USFilter became Clearwaters marketing agent, the effect of this termination
  should be minimum as sales through USFilter have been significantly lower then
  was anticipated at the time of signing the Strategic Marketing Agreement in
  January 2001

Other Licensees In September 2001 we licensed the Korean
  company, VITROSYS, the exclusive rights to manufacture and sell our SLR Ultraviolet
  disinfection systems within the Republic of Korea and a non-exclusive right
  to manufacture for sale into other territories not currently represented by
  the Companys agents. VITROSYS will pay a royalty on each UV system sold.
  The royalty fee is variable, dependant on the selling price of the UV system.
  Under the License Agreement, the Company provided full manufacturing drawings,
  software technology and expertise, and a specified number of hours of training
  at the Companys facilities. As a requirement of the License Agreement,
  VITROSYS will be required to purchase from the Company, a key component for
  each SLR system. This key component is defined as the royalty verification component.
  Its purchase will trigger a sale and resultant royalty payment liability. The
  Korean market for UV is expected to increase as a result of legislation that
  will require all municipal and Industrial wastewater to be disinfected. To date
  Vitrosys have secured a number of projects for which they purchased 40 royalty
  verification components. The Company cannot confirm that this number of units
  has been sold and therefore cannot calculate the amount of royalty payments
  payable

During the first quarter of 2002 the Company took actions
  to reduce its overheads. Having completed the delivery of the UV systems that
  were produced during 2000 and up to January 26, 2002, we searched for a partner
  to work with for production of future UV systems orders. We found Clearwater
  Technologies Inc., based in Langley, B.C. Canada (Clearwater) to
  perform these and other activities. On February 5, 2002 we signed an agreement
  with Clearwater Technologies Inc wherein Clearwater agreed to assume the manufacturing
  of new UV projects and to supply these to our Strategic Alliance partner, USFilter.
  Clearwater is engaged in the water industry, targeting the treatment of potable
  water for smaller towns to which they provide complete packaged treatment plants.
  Clearwater agreed to assume the manufacturing of any new UV project sold to
  our Strategic Alliance partner, USFilter. Clearwater will also provide warranty
  services on the previously delivered UV products. The Company will be paid a
  royalty on sales, the percentage scaled upward as the total sale volume increases.
  This association with Clearwater as our manufacturing partner permitted the
  company to move from its factory and reduce staff level in production,
  engineering and support. A number of key production staff moved to the Clearwater
  facility to assist in setting up for this manufacturing responsibility. The
  remaining staff at the Company worked in a liaison and support role between
  USFilter and Clearwater.

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

Future revenue from the UltraGuard wastewater technology will
  be royalties based and will be received from Clearwater as a result of sales
  made to USFilter, and sales of the systems made to others. Two UV

16

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systems projects have been delivered in March 2003 by Clearwater,
  however payment is not due until the UV systems have been accepted by the purchaser.
  At this time Clearwater has neglected or avoided the payment of any royalties
  which are due to UV Systems Technology Inc and would be payable to the Company
  under the terms of the sale of UV Systems Technology inc (see below), which
  states that all royalty payments received by UV Systems Technology inc will
  be paid to the Company. UV Systems Technology inc has filed suit against Clearwater
  for failure to pay funds due on royalty, equipment leases, failure to perform
  warranty work and breach of the various agreements. The Company will closely
  monitor this action to protect its current and future royalty receivables.

On October 1, 2002 the directors mandated a debt and corporate
  restructuring of the Company. This mandate included the disposing of UVS and
  its associated debt, and the reduction of all other debt carried by the Company.
  Given the Companys inability to raise the additional funds necessary to
  continue the operations of UVS and with UVS liabilities exceeding assets by
  a significant amount, the board of directors and investors determined that by
  selling UVS the Company could continue viable operations pursuing its focus
  on the point of entry (POE) and point of use (POU) ultraviolet systems.

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

On December 20, 2002 the Company negotiated the repayment
  of debt in the amount of $593,077 owed to the Elco Bank Clients in exchange
  for 593,077 share of the Companys common stock $1.00.

On December 30, 2002 the Company acquired 100 % of Innovative
  Fuel Cell Technologies Inc, a Nevada Incorporated company, the holder of an
  option to purchase a worldwide license from MagPower Systems Inc (MagPower)
  for their air magnesium fuel cell technology. The purchase price in the option
  agreement was C$100,000,and 400,000 shares of the Companys common stock,
  increased respectively in March 2003 to C$102,500 and 500,000 shares of the
  Companys common stock. The increase in the price and the number of shares
  of common stock was as a result of negotiations to extend the use right to include
  ancillary uses among other things lighting and radio in areas where a UV disinfection
  systems has been installed. The Fuel Cell will provide the necessary power to
  operate ultraviolet disinfection systems, lighting and radio in areas of the
  world where no other forms of electrical power is unavailable. The product has
  applications in remote areas of all countries worldwide. Applications in developing
  countries such as Africa, some of the Middle East countries and China, where
  large numbers of the population are not serviced by an electrical grid and do
  not have a safe water supply, are market areas.

On December 31, 2002 the Company entered into various agreements
  to complete the disposition of UVS and to remove of the excessive UVS liabilities
  carried on the Companys financial statements. The reader should refer
  to the Companys financial statements attached hereto for a complete understanding.
  Manufacturing and marketing of the UVS technology had been discontinued by the
  Company and was licensed to Clearwater Industries in early 2002. The purchasers
  of UVS were 659999 BC Ltd a corporation controlled by two officers and directors
  of the Company. Terms of the sale included the transfer by UVS to the Company
  of all current and future revenue that may accrue as a result of the UVS technology,
  which was all revenue the Company could have accrued had it not sold UVS. The
  intent of 659999 BC Ltd is to keep UVS inactive. Full details of these agreements
  are available on Form 8K filed with the SEC on January 15, 2003.

The Company issued six million shares of its common stock
  to the shareholders of Innovative Fuel Cell Technologies Inc (Innovative)
  for 100% of Innovative. Included in the Innovative assets was the Austrian Company,
  UltraGuard Water Systems GmbH (GmbH). The incorporation of GmbH was made
  by Innovative in contemplation of its sale of Innovative to the Company. GmbH
  is set up to manufacture and market Point of Use UV produces in Germany and
  the European Union Countries (EU) to exploit the EU and other European
  markets potential. The market potential was increased when the European

17

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Commission recently brought in strict guidelines (EU
  Water Framework Directive). In was planned that GmbH would manufacture the Fuel
  Cell products for the various world markets.

During the second quarter GmbH completed the manufacturing
  of its first prototype POU unit and completed five unit for testing. GmbH was
  working with three Austrian firms, which supply design engineering and perform
  the manufacturing and assembly. The Austrian Government, through on of its support
  divisions, the TMG, has provided financial support to the three Austrian firms
  to offset a portion of the design and manufacturing cost. The POU unit has been
  designed to the applicable ultraviolet disinfection equipment codes of Germany
  and Austria. The expected major marketplace is Germany where effective January
  2004 member states must ensure that drinking water meets stringent guidelines
  to protect the quality of the water (both hot and cold) that consumers receive
  from their taps; the Point of Use. During this third quarter it was determined
  that the Company was unable to continue the financial support of GMBH and elected
  to shutdown the GmbH operations. The appropriate write-off entries have
  been reflected in the Companys financial statements.

Grant of License

On March 14, 2003 the Companys wholly owned subsidiary,
  Innovative Fuel Cell Technology Inc entered into a Licensing Agreement (Agreement)
  with MagPower Systems Inc (MagPower) for certain rights to a Magnesium-Air Fuel
  Cells (Fuel Cell) for use as a power source for The Companys UV products.
  On March 21, 2003 Innovative Fuel Cell Technology Inc assigned the Agreement
  to the Company. Under the Agreement, MagPower granted to the Company an exclusive
  right to a worldwide territory (Territory) to use the Fuel Cell in the manufacture,
  use and sale, exclusively with its products within the Territory. In addition
  the Company, with the consent of MagPower is at liberty to sub-license others
  to manufacture the rights to sell and install the Fuel Cell for use with the
  Companys products so long as any such sub-licensee has executed an industry
  standard non-disclosure agreement. MagPower granted to the Company the further
  right to sell and use the Fuel Cell for purposes other than in combination with
  the Companys products, (i.e. for powering lights and radios) in communities,
  towns or villages where the Company has installed its products so long as prior
  to any such initial sale there is not another licensee of the MagPowers
  Product for that community, town or village.

Term of the License Agreement

Subject to the provisions for early termination as set out
  in the License Agreement, the License Agreement will remain in full force and
  effect for a period of five (5) years from the date set forth above with an
  option to renew by the Company without further license fee payable, for a further
  term of five (5) years. Provided further the Company shall have the right to
  renew this License Agreement for two further five year terms, subject to the
  MagPower and the Company, agreeing on a further licensing fee, royalty fee and
  revised annual production requirements for each of the second and third renewal
  periods.

Initial Payments:

The Company will pay MagPower the amount of one hundred and
  two thousand five hundred (C$102,500.00) dollars under the following terms and
  conditions:

|A) | The sum of C$2,500.00 already paid for the option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|B) | With the signing of the Agreement, the Company paid to MagPower five thousand
      (C$5,000.00) dollars                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|C) | On or March 21st, 2003 the Company paid to MagPower the amount
      of five thousand (C$5,000.000) dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|D) | Commencing May 1st, 2003 and on the first
        day of each and every applicable month the Company shall pay an amount
        of seven thousand five hundred (C$7,500.00) dollars to MagPower. Applicable
        month shall include and mean each and every month up to and including
        the month that MagPower provides the technical drawing for the Product
        to the Company. Upon receipt of the Technical Drawings, the Company is
        required to pay MagPower on the first day of every month thereafter the
        amount of fifteen thousand (C$15,000.00) dollars until MagPower has received
        the accumulative total purchase amount.

(2) Royalties: As consideration for the license granted under
  the Technology, the Company agrees to pay MagPower during the term of this License
  Agreement an ongoing royalty of twenty five (C25.00 CDN) dollars for each Product
  manufactured. Such Royalties shall be payable on a quarterly basis with a minimum
  number of units per annum of Two Thousand (2,000), with said minimum commencing
  in the second year of the term of this Licensing Agreement.

(3) With the signing of this Agreement the Company issued to
  the MagPower free and clear of any liens and/or encumbrances except as required
  under SEC Security Regulatory requirements, two hundred thousand (200,000) common
  shares of the Company. On May 1st, 2003 the Company issued to MagPower
  free and clear of any liens and/or encumbrances except as required under SEC
  Security Regulatory requirements one hundred thousand (100,000) common shares
  of the Company. Upon receipt of the technical drawings, Licensee shall issue
  to the MagPower free and clear of any liens and/or encumbrances except as required
  under SEC Security Regulatory requirements, two hundred thousand (200,000) common
  shares of the Company.

18

---

(4) Interest on Late Payments: Interest on all late initial
  payments, royalties and any other sums due to the MagPower shall be charged
  at the rate of 3% per month until payment is received.

(5) No Deductions for Tax: Always respecting the tax payments
  requirements within the domicile country of the Licensee and the MagPower and
  all requirement as and if they apply to paying taxes on payments to be made
  by Licensee to MagPower, all payments to the MagPower shall be made without
  any deduction of any kind on the payments under this License Agreement. The
  Company undertakes to take all reasonable steps to assist the MagPower to obtain
  the benefit of any double taxation, which may apply to any of the payments under
  this License Agreement and to minimize the impact of any taxation in respect
  of such payments. A full copy of the License Agreement is referenced in ITEM
  6  EXHIBITS and is available on the first quarter filings at EDGAR.

About Magnesium Fuel Cells

Magnesium air fuel cells provide greater safety and cost savings
  over the better-known hydrogen fuel cells. Both cell produce electricity through
  an electrochemical reaction but magnesium-based fuel cells are more environmentally
  friendly, easier to recycle, more versatile and more efficient because they
  are simpler and safer. Magnesium-Air Fuel Cells are cleaner; they support the
  global push for a sustainable environment. They are easily recycled, clean and
  consume no fossil fuels, produce no toxic emissions, thus reducing harmful greenhouse
  effects. To recharge the cell, you basically remove the spent magnesium core,
  replace it with a new core and add salt or seawater electrolyte.

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

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

Payments due under the license purchase agreement covering
  payments due for May, June, July and have not been made and are overdue. The
  Company is working with MagPower to maintain the License during this period
  of arrears.

In February 2003, the Company completed a redesign of its
  website. This website includes details of the fuel cell technology, the point
  of use UV systems and the wastewater systems. Go to www.ultraguard.com
  to view these products.

Loans payable, including interest at a rate of 10%, totaling
  in aggregate $261,423 were partially repaid during the three months ended September
  30, 2003. The security pledged for obtaining these loans; 50% by West Peak Ventures
  of Canada Ltd (West Peak) and 50% by the Company President, Ken Fielding, was
  called and taken by the note holder. To compensate West Peak for its losses,
  the Company issued 1,556,000 common shares to West Peak in full payment for
  their losses amounting to $130,711. The Company agreed with Ken Fielding to
  set an unsecured loan payable in the amount of $130,712 with interest at 6%
  per annum as compensation for his losses. The overall result of this transaction,
  will reduce loans payable by $130,711 and interest costs associated with this
  amount and will reduce the interest rate on the remaining$130,712 balance of
  the loan from 10% to 6%.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
  30, 2003.

Nine months ended September 30, 2003 compared to Nine months
  ended September 30, 2002. As a result of the disposition of UV Systems Technology
  Inc. in 2002, the income statement reflects the line-by-line operations of UltraGuard
  Water Systems Corp., excluding UV Systems Technology Inc. (See Note 3 of the
  Financial Statements for additional information).

Revenues. During nine months ended September 30, 2003, we
  reported revenues of $32,669 compared to revenue of $7,072 being reported in
  the nine months of fiscal 2002, an increase of 462%. The increase was primarily
  from the sales of UV system components.

19

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Direct Project Costs. Project costs recorded during the nine
  months of fiscal 2003 amounted to $26,812 compared to $3,808 recorded during
  the nine months of fiscal 2002, an increase of 704%. The increase was mainly
  due to the costs of UV system components sold.

Gross Profit. Gross profit increased by $5,857 during the
  nine months of fiscal 2003, compared to $3,264 recorded during the comparable
  period of fiscal 2002. The increase was mainly from the sales of UV system components.

General and Administrative Expense. For the nine months ended
  September 30, 2003, we reported general and administrative expense of $437,768,
  an increase of $116,107, or 33% from $351,096 reported in the comparable period
  of the prior year. This increase resulted primarily from the increased consulting
  fees for product marketing and legal fees for the various lawsuits the Company
  is currently responding to.

Imputed Interest. For the nine months ended September 30,
  2003, we reported nil imputed interest compared to $29,123 in the comparable
  period of the prior year, a decrease of $29,123 or 100%. No imputed interest
  s currently being charged on the amounts due to related parties.

Interest. For the nine months ended September 30, 2003, we
  reported interest of $32,110, a decrease of $57,498 or 64%, from $89,608 reported
  in the comparable prior fiscal period. The decrease was as a result of the reduction
  of loans at the end of 2002 and during the third quarter of 2003.

Stock Based Compensation Expense. For the nine months ended
  September 30, 2003, we reported stock compensation expense of $85,103 resulting
  from the Strategic Alliance signed with USFilter/WT. The equivalent expense
  for the prior fiscal period is included in the loss of discontinued operations.
  (See Note 3 of the Financial Statements for additional information).

Loss on Discontinued Operations. For the nine months ended
  September 30, 2003, we reported a loss of $28,534 on discontinued operations
  compared to $902,653 for the prior fiscal period, or a 97% decrease. (See Note
  3 of the Financial Statements for additional information).

Net Loss for the Period. For the nine months ended September
  30, 2003, we reported a net loss for the period of $577,657, a decrease of $502,964,
  or 58% over $1,372,021 in the comparable period of fiscal 2002. The decrease
  in net loss was primarily due to the loss of discontinued operations as a result
  of the disposal of investment in UV Systems Technology Inc. in 2002. In addition,
  decreases were also as a result of increased revenue, decreased imputed interest,
  and decreased interest for the fiscal period 2003.

Net Loss per Share. For the nine months ended September 30,
  2003, we reported a net loss per share for the period of $0.04, a decrease of
  $2.25, or 98%, from $2.29 in the comparable period of the prior fiscal period.
  The net loss per share decreased as a result of the decrease in the net loss
  in fiscal 2003 and the decreased net loss being allocated over an increased
  number of shares outstanding and share equivalents in fiscal 2003.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED September
  30, 2003

Three months ended September 30, 2003 compared to the three
  months ended September 30, 2002 As a result of the disposition of UV Systems
  Technology Inc. in 2002, the income statement reflects the line-by-line operations
  of UltraGuard Water Systems Corp., excluding UV Systems Technology Inc. (See
  Note 3 of the Financial Statements for additional information).

General and Administrative Expense. For the three months ended
  September 30, 2003, we reported general and administrative expense of $208,800
  an increase of $93,817, or 82% from $114,983 reported in the comparable period
  of the prior year. This increase resulted primarily to the increased consulting
  fees for product marketing and legal fees for the various lawsuits the Company
  is currently responding to.

Imputed Interest. For the three months ended September 30,
  2003, we reported nil imputed interest compared to $2,805 in the comparable
  period of the prior year, a decrease of $2,805 or 100%. No imputed interest
  s currently being charged on the amounts due to related parties.

Interest. For the three months ended September 30, 2003, we
  reported interest of $10,377, a decrease of $28,146 or 73%, from $38,523 reported
  in the comparable prior fiscal period. The decrease was the result of the reduction
  of loans at the end of 2002.

20

---

Stock Based Compensation Expense. For the three months ended
  September 30, 2003, we reported stock compensation expense of $28,368 resulting
  from the Strategic Alliance signed with USFilter/WT. The equivalent expense
  for the prior fiscal period is included in the loss of discontinued operations.
  (See Note 3 of the Financial Statements for additional information).

Loss on Discontinued Operations. For the three months ended
  September 30, 2003 we reported nil on discontinued operations compared to $596,239
  the prior fiscal September 30, 2002 period, a 100% decrease. (See Note 3 of
  the Financial Statements for additional information).

Net Loss for the Period. For the three months ended September
  30, 2003, we reported a net loss for the period of $246,323, a decrease of $596,286,
  or 67% over $749,286 in the comparable period of fiscal 2002. The decrease in
  net loss was primarily due to the loss of discontinued operations in fiscal
  2002 due to the disposal of investment in UV Systems Technology Inc.

Net Loss per Share. For the three months ended September 30,
  2003, we reported a net loss per share for the period of $0.02, a decrease of
  $1.03, or 98%, from $1.05 in the comparable period of the prior fiscal period.
  The net loss per share decreased as a result of the decrease in the net loss
  being allocated over an increased number of shares outstanding and share equivalents
  in fiscal 2003 and also due to the decrease in net loss in fiscal 2003.

LIQUIDITY

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

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

During 2003 we financed our operations in part, from proceeds
  of sales of restricted common stock, convertible loans and loans from related
  parties and minority shareholders of UVS.

We expect that, during fiscal 2003, as and if sales increase,
  we will continue to depend on receipt of additional funds through public or
  private equity or debt sales or other lender financing to fund the subcontract
  manufacturing of products sold, and general operational and sales expenses.
  Except as previously indicated, no arrangements are currently in place to raise
  funds, although we actively continue to seek sources. Failure to receive these
  funds may be expected to have a material adverse effect on our company.

ITEM 3. - CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company
  conducted an evaluation, under the supervision and with the participation of
  the Chief Executive Officer and Chief Financial Officer, of the Company's disclosure
  controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
  Securities Exchange Act of 1934 (the "Exchange Act"). Based on this evaluation,
  the Chief Executive Officer and Chief Financial Officer concluded that the Company's
  disclosure controls and procedures are effective to ensure that information
  required to be disclosed by the Company in reports that it files or submits
  under the Exchange Act is recorded, processed, summarized and reported within
  the time periods specified in Securities and Exchange Commission rules and forms.
  There was no change in the Company's internal control over financial reporting
  during the Company's most recently completed fiscal quarter that has materially
  affected, or is reasonably likely to materially affect, the Company's internal
  control over financial reporting.

21

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PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On October 20, 1998 a suit was filed in the Supreme Court of
  British Columbia by Thomas O' Flynn against the Company, Kenneth Fielding (the
  Company's President and Director), and Charles P. Nield (a former Director and
  Vice President of the Company). O' Flynn alleges that in April of 1996, he purchased
  shares of the Common Stock based on a representation that they would be free
  trading in 40 days of "the filing of a prospectus". He further alleges that
  in September of 1996 he purchased additional shares of Common Stock based on
  the representation that the shares would be free trading within 40 days of the
  Common Stock becoming free trading. O' Flynn alleges that the representation
  was a warranty and was incorrect. He further alleges that he suffered a loss
  because the share price decreased while he was holding the shares. He seeks
  damages for breach of warranty, negligence, misrepresentation and breach of
  fiduciary duty. The amount claimed is not specified. The Company filed an answer
  denying the claims and continues to actively defend the suit. Examination for
  discovery of Charles P. Nield was conducted in June 1999; since then there has
  been no further activity.

On April 25, 2003, Chelverton Fund Limited filed a suit in
  the Supreme Court of British Columbia against the Company for non-payment of
  debt in the amount of $155,000. The Company entered an appearance and filed
  a defense against this claim and attempted to negotiate a settlement. Chelverton
  filed additional information that supported their claim and the Company responded
  with a no defines position. Currently the Company continues to discuss
  an amicable method of repayment with Chelverton, and have provided a complete
  disclosure of the Companys current financial conditions so that Chelverton
  may fully understand the Companys inability to pay the debt at this time.

On June 6th, 2003 a group of shareholders (Shareholder
  Group) filed a consent resolution, which among other things elected a new slate
  of directors and revised the company by-laws. The Company refused to accept
  the consent resolution or by-laws as in the opinion of the Companys legal
  counsel, the consent resolutions were not in accordance with Nevada Statutes
  or the filing requirements of Security and Exchange Commission. At a directors
  meeting held June 9th, 2003, the Company elected two additional directors;
  Edward a White and Erin Strench to the Company board, bringing the total number
  of directors to five. On June 16, 2003the Shareholder Group filed for and obtained
  a temporary restraining order (TRO) against the Company and its five director
  prohibiting the Company from among other things, issuing stock, transferring
  assets, changing management and other actions that would affect the status
  quo of the Company. In addition two shareholders issued writs against various
  directors, alleging breach of fiduciary duty in respect of the issue of certain
  common shares each to John Gaetz, Ken Fielding and others. On June 24, 2003,
  in discussions between legal counsel for plaintiff, respondent and the hearing
  Judge; Judge Adams, the TRO was vacated and a date of July 2, 2003 was set for
  a new TRO hearing to be held in Reno, Nevada. At the July 2, 2003 TRO hearing
  Judge Adams did not grant a TRO and requested the plaintiff and respondent file
  a series of three briefs outlining their position. The first brief was filed
  on July 11, 2003 by our counsel. The plaintiff responded on July 18, 2003 and
  our counsel filed the final brief on July 25, 2003. At the time of filing this
  third quarter report, the Judge had not ruled on the TRO. The Companys
  counsel has responded to the various other suits filed against the Company and
  its directors. The Company had attempted during the second quarter to have these
  cases moved from Nevada State court to federal court and had not had a decision
  at time of filing the 10QSB for that quarter. During this third quarter the
  Company was advised that the cases will now be heard in federal court.

Item 2. CHANGES IN SECURITIES

During the quarter ended June 30, 2003 the Company issued
  the following shares for the listed consideration

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

|July 23/03 | 100,000   | CAN             | $7,000   | S-8* 
|---------- | --------- | --------------- | -------- | -----
|July 25/03 | 1,556,000 | CAN             | $130,711 | REG S
|Aug 13/03  | 70,000    | CAN             | $6,453   | S-8* 
|Sept 8/03  | 400,000   | Austria         | $40,000  | S-8* 
|Sept 8/03  | 600,000   | USA             | $60,000  | S-8* 
|Sept 29/03 | 30,000    | CAN             | $3,600   | S-8* 
|Sept 29/03 | 750,000   | Hong
      Kong | $75,000  | Reg S
|Sept 30/03 | 1,100,000 | Panama          | $110,000 | Reg S

22

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ITEM 3. Default upon Senior Securities

None

ITEM 4. Submissions of Matters to a vote of Security Holders

None

ITEM 5. Other Information

None

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

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

|Exhibit Number | Description                                                                                                                                 | Method of Filing
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ----------------
|               |                                                                                                                                             |                 
|(3)(i)         | Articles of Incorporation (1)                                                                                                               |                 
|               |                                                                                                                                             |                 
|(3)(ii)        | Bylaws, as amended (2)                                                                                                                      |                 
|               |                                                                                                                                             |                 
|(10)(iii)      | Agreement between Douglas Sommerville and Company
      dated 12/6/96 (3)                                                                   |                 
|               |                                                                                                                                             |                 
|(10)(iv)       | Agreement between John Gaetz and the Company
      dated 12/6/96 (3)                                                                        |                 
|               |                                                                                                                                             |                 
|(10)(v)        | Sample Agreement among minority Shareholders
      of UV Systems Technology, Inc. and the Company each dated 2/28/97 (3)                    |                 
|               |                                                                                                                                             |                 
|(10)(vi)       | Marketing Distribution Agreement Between UV Systems
      Technology, Inc. and the Company (2)                                              |                 
|               |                                                                                                                                             |                 
|(10)(vii)      | Sales Representation Agreement between UV Systems
      Technology, Inc. and "The Representative" (2)                                       |                 
|               |                                                                                                                                             |                 
|(10)(viii)     | Exclusive Distributorship Agreement Between UV
      Waterguard Systems, Inc. and Chiyoda Kohan Co., Ltd., and NIMAC Corporation.
      (2) |                 
|               |                                                                                                                                             |                 
|(10)(ix)       | 1997 Stock Option Plan (4)                                                                                                                  |                 
|               |                                                                                                                                             |                 
|(10)(x)        | Interim Funding Agreement between UVS, MDS and
      WOF (5)                                                                                |                 
|               |                                                                                                                                             |                 
|(10)(xi)       | Letter Agreement between the Company and Elco
      Bank and Trust Company Limited (6)                                                      |                 
|               |                                                                                                                                             |                 
|(10)(xii)      | Loan Agreement between the Company and TD Bank
      (6)                                                                                    |                 
|               |                                                                                                                                             |                 
|(10)(xiii)     | The Companys 1999 Long-Term Equity Incentive
      Plan (7)                                                                                |                 
|               |                                                                                                                                             |                 
|(10)(xiv)      | Letter Agreement between Service                                                                                                            |                 

23

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|            | Systems, UVS, MDS and WOF dated Feb 13, 2000
      (7)                                                                             |                              
|----------- | ---------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|            |                                                                                                                                    |                              
|(10)(xv)    | Lease dated October 2000 between Service Systems,
      UV Systems and Slough Estates Canada Limited (8)                           |                              
|            |                                                                                                                                    |                              
|(10)(xvi)   | Legal Services Plan between Rosenfeld, Goldman
      & Ware, Inc filed on November 19, 2001 (9)                                    |                              
|            |                                                                                                                                    |                              
|(10)(xvii)  | Stock Exchange Agreement with Innovative Fuel
      Cell Technologies, Inc date Jan 14, 2003 (10)                                  |                              
|            |                                                                                                                                    |                              
|(10)(xviii) | Sale of UV Systems Technology Inc to 65999 BC
      Ltd agreements dated Jan 15, 2003 (11)                                         |                              
|            |                                                                                                                                    |                              
|(10)(xx)    | Purchase of License Agreement between Innovative
      Fuel Cell Technologies, Inc and MagPower Systems Inc on March 14, 2003 (12) |                              
|            |                                                                                                                                    |                              
|(10)(xxi)   | 2003 Benefit Plan of UltraGuard Water Systems
      Corp (13)                                                                      |                              
|            |                                                                                                                                    |                              
|(10) (xxii) | Independent/Consultant Agreement                                                                                                   |                              
|            |                                                                                                                                    |                              
|(11)        | Statement Regarding Computation
      of Per Share Earnings                                                                        | Filed Herewith Electronically
|            |                                                                                                                                    |                              
|(21)        | Subsidiaries of the Corporation: UV Systems Technology,
      Inc., incorporated in B.C Canada                                     |                              
|            |                                                                                                                                    |                              
|(31.1)      | Certification
      of Chief Executive Officer Pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.                    | Filed Herewith Electronically
|           
|            |                                                                                                                                    |                              
|(31.2)      | Certification of Chief
      Financial Officer Pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.                    | Filed Herewith Electronically
|            |                                                                                                                                    |                              
|(32.1)      | Certification of Chief
      Executive Officer Pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.                    | Filed Herewith Electronically
|            |                                                                                                                                    |                              
|(32.2)      | Certification Chief
      Financial Officer Pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002                        | Filed Herewith Electronically

| | (1) | Incorporated by reference to the Corporation's Form 10SB effective on
      January 22, 1997               
| | --- | -----------------------------------------------------------------------------------------------------------
| | (2) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on October 6, 1997.
| | (3) | Incorporation by reference to the Corporation's Form 10Q for the fiscal
      Year ended February 28, 1997.
| | (4) | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1997.
| | (5) | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1998.
| | (6) | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1999.

24

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| | (7)  | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 2000.   
| | ---- | --------------------------------------------------------------------------------------------------------------
| | (8)  | Incorporation by reference to the Corporation's Form 10Q for the fiscal
      Quarter ended November 30, 2000.
| | (9)  | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on Nov 19, 2001.      
| | (10) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on Jan 14, 2003.      
| | (11) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on Jan 15, 2003.      
| | (12) | Incorporated by reference to the Corporation's Form S-8 filed on March
      24, 2003.                        
| | (13) | Incorporation by reference to the Corporation's Form 10QASB for the fiscal
      period ended March 31, 2003. 
| | (14) | Incorporated by reference to the Corporation's Form S-8 filed on June
      12, 2003.                         

| | (b) | Reports on Form 8-K.                                                                                                                                                          
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                               
| |     | The Company filed four reports on Form 8-K
      in 2003,                                                                                                                     
| |     | On January 14, 2003 reporting the acquisition
        by stock exchange agreement dated December 30, 2002 details of the purchase
        of Innovative Fuel Cell Technologies
| |     | On January 15, 2003 reporting the sale
        of UV Systems Technology Inc to 65999 BC Ltd on Dec 31, 2002.                                                                  
| |     | On March 24, 2003 reporting the filing
        of the 2003 Benefit Plan of UltraGuard Water Systems Corp.                                                                     
| |     | On June 12, 2003 reporting the filing
        of Independent/Consultant Agreement of UltraGuard Water Systems Corp.                                                           

25

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SIGNATURES

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

ULTRAGUARD WATER SYSTEMS CORP

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

|Date: November 12, 2003 | /s/ Ken Fielding      
|----------------------- | ----------------------
|                        | Ken Fielding, Director
|                        |                       
|                        |                       
|Date: November 12, 2003 | /s/ John R Gaetz      
|                        | John R Gaetz, Director

26

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