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

FORM 10-QSB

**x******  QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Quarterly report for the period ended **June 30,2004**

** ̈******TRANSITION
  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ____________________

Commission file number**000-21753**

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

|**NEVADA**                             | **88-0263701**           
|-------------------------------------- | -------------------------
|State of Incorporation                 | I.R.S. Employer          
|                                       | Identification No.       
|                                       |                          
|**918 SHERWOOD AVENUE**                |                          
|**COQUITLAM B.C. CANADA**              | **V3K 1A6**              
|Address of Principal Executive Offices | Zip code                 
|                                       |                          
|**604-540-8282**                       | **604-519-0802**         
|Issuer's Telephone Number              | Issuer's Facsimile Number

Securities registered under Section 12(b) of the Act:

NONE

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

COMMON STOCK, PAR VALUE $0.001 PER SHARE

Title of class APPLICABLE ONLY TO CORPORATE ISSURER

The number of shares outstanding of the issuer's only class
  of Common Stock $.001 
  par value was 25,528,565 on August 14,2004

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INDEX

|PART I     |                                                                                             | Financial Information                                                                                                                    |         
|---------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | --------
|           |                                                                                             |                                                                                                                                          |         
|Item 1.    | CONSOLIDATED FINANCIAL STATEMENTS                                                           |                                                                                                                                         
|           |                                                                                             |                                                                                                                                          |         
|           |                                                                                             | Consolidated Balance Sheets as of June 30,
      2004 (unaudited) and December 31, 2003 (audited)                                        | 3       
|           |                                                                                             |                                                                                                                                          |         
|           |                                                                                             | Consolidated Statements of Operations for
      the three and six month periods ended June 30, 2004, and June 30, 2003
      (unaudited) | 4       
|           |                                                                                             |                                                                                                                                          |         
|           |                                                                                             | Consolidated Statements of Cash Flows for
      the six months periods June ended 30, 2004 and June 30 31, 2003(unaudited)               | 5       
|           |                                                                                             |                                                                                                                                          |         
|           |                                                                                             | Notes to the Financial Statements                                                                                                        | 6 to 12 
|           |                                                                                             |                                                                                                                                          |         
|Item 2.    | MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF RESULTS OFOPERATIONS AND FINANCIAL CONDITIONS | 13 to 19                                                                                                                                
|           |                                                                                             |                                                                                                                                          |         
|Item 3.    | CONTROLS AND PROCEDURES                                                                     | 19                                                                                                                                      
|           |                                                                                             |                                                                                                                                          |         
|Part II    |                                                                                             | OTHER INFORMATION                                                                                                                        | 19      
|           |                                                                                             |                                                                                                                                          |         
|           | 1.                                                                                          | LEGAL PROCEEDINGS                                                                                                                        | 19 to 20
|           |                                                                                             |                                                                                                                                          |         
|           | 2.                                                                                          | CHANGES IN SECURITIES                                                                                                                    | 20      
|           |                                                                                             |                                                                                                                                          |         
|           | 3.                                                                                          | DEFAULT UPON SENIOR SECURITIES                                                                                                           | 20      
|           |                                                                                             |                                                                                                                                          |         
|           | 4.                                                                                          | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS                                                                                | 20      
|           |                                                                                             |                                                                                                                                          |         
|           | 5.                                                                                          | OTHER INFORMATION                                                                                                                        | 20      
|           |                                                                                             |                                                                                                                                          |         
|           | 6.                                                                                          | EXHIBITS AND REPORTS ON FORM 8K                                                                                                          | 21 to 22
|           |                                                                                             |                                                                                                                                         
|Signatures | 23                                                                                         

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

|                                                              | June 30,    |   | December 31, |  
|------------------------------------------------------------- | ----------- | - | ------------ | -
|                                                              | 2004        |   | 2003         |  
|                                                              | $           |   | $            |  
|                                                              | (unaudited) |   | (audited)    |  
|ASSETS                                                        |             |   |              |  
|                                                              |             |   |              |  
|Current Assets                                                |             |   |              |  
|                                                              |             |   |              |  
|Cash                                                          | 8,613       |   | 1,834        |  
|Accounts receivable                                           | 3,076       |   | 2,971        |  
|Prepaid
      expenses and deposits                           | 49,646      |   | 63,613       |  
|                                                              |             |   |              |  
|Total Current Assets                                          | 61,335      |   | 68,418       |  
|                                                              |             |   |              |  
|Property and Equipment (Note 4)                               | 177         |   | 204          |  
|                                                              |             |   |              |  
|Manufacturing Technology (Note 3)                             | 1,108,452   |   | 1,104,852    |  
|                                                              |             |   |              |  
|Total Assets                                                  | 1,169,964   |   | 1,173,474    |  
|                                                              |             |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                          |             |   |              |  
|                                                              |             |   |              |  
|Current Liabilities                                           |             |   |              |  
|                                                              |             |   |              |  
|Accounts payable                                              | 196,555     |   | 194,080      |  
|Accrued liabilities                                           | 55,748      |   | 55,747       |  
|Wages and vacation
      pay payable                          | -           |   | 3,004        |  
|Loans payable (Note
      5)                                  | 366,073     |   | 310,542      |  
|Amounts
      owing to related parties (Note 6)               | 252,007     |   | 202,223      |  
|                                                              |             |   |              |  
|Total Current Liabilities                                     | 870,383     |   | 765,596      |  
|                                                              |             |   |              |  
|Stockholders' Equity                                          |             |   |              |  
|                                                              |             |   |              |  
|Common Stock (Note 7)                                         |             |   |              |  
|                                                              |             |   |              |  
|100,000,000 shares authorized, with a par value of $0.001     |             |   |              |  
|                                                              |             |   |              |  
|25,528,565 and 22,453,565 issued and outstanding respectively | 25,529      |   | 22,454       |  
|                                                              |             |   |              |  
|Additional paid-in capital                                    | 11,364,663  |   | 11,212,638   |  
|                                                              |             |   |              |  
|Donated capital                                               | 31,928      |   | 31,928       |  
|                                                              |             |   |              |  
|Stock based compensation                                      | 556,004     |   | 499,269      |  
|                                                              |             |   |              |  
|Deferred compensation                                         | (180,833    | ) | (320,700     | )
|                                                              |             |   |              |  
|Deficit                                                       | (11,497,710 | ) | (11,037,711  | )
|                                                              |             |   |              |  
|Total Stockholders' Equity                                    | 299,581     |   | 407,878      |  
|                                                              |             |   |              |  
|Total Liabilities and Stockholders'
      Equity              | 1,169,964   |   | 1,173,474    |  
|                                                              |             |   |              |  
|Contingencies (Notes 1 and 9)                                 |             |   |              |  
|Subsequent Events (Note 10)                                   |             |   |              |  

(See Accompanying Notes to the Consolidated Financial Statements)

---

**UltraGuard Water Systems Corp.**
  Consolidated Statements of Operations and Deficit
  (Expressed in US dollars)
  (unaudited)

|                                                    | Three months |   | Three months |   | Six months |   | Six months |  
|--------------------------------------------------- | ------------ | - | ------------ | - | ---------- | - | ---------- | -
|                                                    | ended        |   | ended        |   | ended      |   | ended      |  
|                                                    | June 30,     |   | June 30,     |   | June 30,   |   | June 30,   |  
|                                                    | 2004         |   | 2003         |   | 2004       |   | 2003       |  
|                                                    | $            |   | $            |   | $          |   | $          |  
|                                                    |              |   |              |   |            |   |            |  
|Project Revenue                                     | 100          |   |              |   | 14,519     |   | 23,438     |  
|                                                    |              |   |              |   |            |   |            |  
|Project Costs                                       | -            |   | -            |   | 728        |   | 18,813     |  
|                                                    |              |   |              |   |            |   |            |  
|Total Gross Profit                                  | 100          |   | -            |   | 13,791     |   | 4,625      |  
|                                                    |              |   |              |   |            |   |            |  
|Expenses                                            |              |   |              |   |            |   |            |  
|General and administrative                          | 207,635      |   | 137,087      |   | 401,003    |   | 257,493    |  
|Interest                                            | 8,306        |   | 9,296        |   | 16,051     |   | 21,733     |  
|Stock
      based compensation expense              | 28,368       |   | 28,367       |   | 56,735     |   | 56,735     |  
|                                                    |              |   |              |   |            |   |            |  
|Total Expenses                                      | 244,309      |   | 174,750      |   | 473,789    |   | 335,961    |  
|                                                    |              |   |              |   |            |   |            |  
|Net Loss for the Period                             | 244,209      |   | 174,750      |   | 459,998    |   | 331,336    |  
|                                                    |              |   |              |   |            |   |            |  
|                                                    |              |   |              |   |            |   |            |  
|Basic and Diluted Net Loss Per Share                | (0.01        | ) | (0.01        | ) | (0.02      | ) | (0.03      | )
|                                                    |              |   |              |   |            |   |            |  
|Weighted Average Number of Shares
      Outstanding | 24,462,000   |   | 13,268,000   |   | 23,435,000 |   | 12,227,000 |  

(See Accompanying Notes to the Consolidated Financial Statements)

---

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

|                                                                             | Six Months |   | Six Months |  
|---------------------------------------------------------------------------- | ---------- | - | ---------- | -
|                                                                             | Ended      |   | Ended      |  
|                                                                             | June 30,   |   | June 30,   |  
|                                                                             | 2004       |   | 2003       |  
|                                                                             | $          |   | $          |  
|                                                                             |            |   |            |  
|Cash Flows From Operating Activities                                         |            |   |            |  
|                                                                             |            |   |            |  
|Net Loss for the Period                                                      | (459,998   | ) | (331,335   | )
|                                                                             |            |   |            |  
|Adjustments to reconcile
      net loss to cash                              |            |   |            |  
|                                                                             |            |   |            |  
|Depreciation                                                                 | 27         |   | 41         |  
|Common stock issued for expenses                                             | 277,367    |   | 94,657     |  
|Accrual of interest                                                          | 8,531      |   | 17,128     |  
|Stock based compensation                                                     | 56,735     |   | 56,735     |  
|Changes in operating
      assets and liabilities                            |            |   |            |  
|                                                                             |            |   |            |  
|(Increase) in accounts receivable                                            | (105       | ) | (5,781     | )
|Decrease in inventory and contract work in progress                          |           |   | 404        |  
|(Increase) decrease in prepaid expenses and deposits                         | 27,967     |   | (2,385     | )
|Increase (decrease) in accounts payable, accrued liabilities
      and wages |            |   |            |  
|and
      vacation pay payable                                               | (529       | ) | 24,530     |  
|                                                                             |            |   |            |  
|Net Cash Used in Operating Activities                                        | (90,005    | ) | (146,006   | )
|                                                                             |            |   |            |  
|Cash Flows From Investing Activities                                         |            |   |            |  
|                                                                             |            |   |            |  
|Manufacturing
      technology option payments                               |           |   | (6,776     | )
|                                                                             |            |   |            |  
|Net Cash Used in Investing Activities                                        |           |   | (6,776     | )
|                                                                             |            |   |            |  
|Cash Flows From Financing Activities                                         |            |   |            |  
|                                                                             |            |   |            |  
|Increase in loans
      payable                                              | 47,000     |   | 42,914     |  
|Increase
      in amounts owing to related parties                           | 49,784     |   | 78,656     |  
|                                                                             |            |   |            |  
|Net Cash Provided By Financing Activities                                    | 96,784     |   | 121,570    |  
|                                                                             |            |   |            |  
|Increase (Decrease) in Cash                                                  | 6,779      |   | (31,212    | )
|                                                                             |            |   |            |  
|Cash - Beginning of the Period                                               | 1,834      |   | 40,206     |  
|                                                                             |            |   |            |  
|Cash - End of the Period                                                     | 8,613      |   | 8,994      |  
|                                                                             |            |   |            |  
|Non-Cash Financing Activities:                                               |            |   |            |  
|                                                                             |            |   |            |  
|Shares issued for
      asset purchase                                       | 3,600      |   | 71,200     |  
|Shares
      issued for expenses                                             | 151,500    |   | 444,510    |  
|                                                                             |            |   |            |  
|Supplementary Information                                                    |            |   |            |  
|                                                                             |            |   |            |  
|Cash paid for interest                                                       |           |   | 4,592      |  
|Cash
      paid for income taxes                                             |           |   |           |  

(See Accompanying Notes to the Consolidated Financial Statements)

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

|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 Guard Ò ultra violet
        based patented water treatment system through its wholly-owned Canadian
        subsidiary, UV Systems Technology Inc. ("UVS"). These products and systems
        were sold primarily for municipal waste disinfection treatment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | During the period from acquiring UVS in August 1996
        to February 2002, operating activities had not generated profitability.
        In January 2001, the Company ceased manufacturing operations, reduced
        level of staff in production, engineering and support and moved its offices
        to Langley. On February 5, 2002, the Company reached an agreement with
        the Clearwater Group ("Clearwater") to assume the UVS manufacturing responsibilities
        of any new Ultra Guard Ò water treatment systems to be supplied
        to UVS's strategic alliance partner, US Filter. Clearwater would also
        provide warranty services on any previously sold UltraGuard Ò water
        treatment systems.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | At a special meeting held on November 15, 2002 the
        Company performed a reorganization whereby the issued shares were consolidated
        on a 1:50 basis, the authorized capital was increased to 100,000,000 shares
        and the name of the Company was changed to UltraGuard Water Systems Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | 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 and Point of Entry units are installed at the water supply entry
        into the building. These UV products may include dual filtration cartridges
        in advance of the UV system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   | In December 2002, the Company divested itself of
        the UVS operations while retaining any royalty or other revenues that
        may be received from the sale or use of the UVS patented Ultra GuardÒ
        technology. Also in December 2002, the Company purchased Innovative Fuel
        Cell Technologies Inc. ("IFCT") (see Note 3), 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 fiscal
        2003, 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.
|  
|   | 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, 2004, the Company has not recognized
        significant revenue, has a working capital deficit of $809,048, and has
        accumulated operating losses of $11,497,710 since its inception. The continuation
        of the Company is dependent upon the continuing financial support of creditors,
        obtaining additional short-term and long-term equity or debt 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.                                                                                                         
|  
|2. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | Consolidated financial statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | These financial statements include the accounts
        of the Company; its wholly-owned Nevada subsidiary Innovative Fuel Cell
        Technologies Inc. The Company's Austrian subsidiary's operations were
        discontinued during fiscal 2003. All significant intercompany transactions
        and balances have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | Cash and cash equivalents include cash on hand,
        in banks and all highly liquid investments with maturity of three months
        or less when purchased.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | Property and equipment is recorded at cost. Depreciation
        is computed on a straight-line method using an estimated useful life of
        five years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | The Company will recognize revenue in accordance
        with Securities and Exchange Commission Staff Accounting Bulletin No.
        104 ("SAB 104"), "Revenue Recognition in Financial Statements." Revenue
        will be recognized only when the price is fixed or determinable, persuasive
        evidence of an arrangement exists, the service is performed, and collectibility
        is reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | Product sales are recognized at the time goods are
        shipped. System and project revenue is 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

6

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**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

|2. | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | Revenue, expenses and non-monetary balance sheet
        items in foreign currencies are translated into US dollars at the rate
        of exchange prevailing on the transaction dates. Monetary balance sheet
        items are translated at the rate prevailing at the balance sheet date.
        The resulting exchange gain or loss is included in general and administration
        expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | Basic and Diluted Per Share Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | 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.                                                                                                                                                      
|  
|   | 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 fair value at
        the date of grant. Alternatively, a company may account for granted stock
        awards to employees under Accounting Principles Board Opinion (APB) No.
        25, "Accounting for Stock Issued to Employees," and disclose pro forma
        income amounts which would have resulted from recognizing such awards
        at their fair value. The Company has elected to account for stock-based
        compensation for employees under APB No. 25 and make the required pro
        forma disclosures for compensation expense in accordance with SFAS No.
        123. The Company accounts for stock issued for services to non-employees
        in accordance with SFAS No. 123. Compensation expense is based on the
        fair market value of the stock award or fair market value of the goods
        and services received whichever is more reliably measurable.
|  
|   | Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | SFAS No. 130, "Reporting Comprehensive Income,"
        establishes standards for the reporting and display of comprehensive loss
        and its components in the financial statements. As at June 30, 2004 and
        2003, the Company has no items that represent comprehensive loss and,
        therefore, has not included a schedule of comprehensive loss in the financial
        statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | SFAS No. 144, "Accounting for the Impairment or
        Disposal of Long-Lived Assets" establishes a single accounting model for
        long-lived assets to be disposed of by sale including discontinued operations.
        SFAS 144 requires that these long-lived assets be measured at the lower
        of the carrying amount or fair value less cost to sell, whether reported
        in continuing operations or discontinued operations. An impairment loss
        is recognized when the carrying amount is not fully recoverable and exceeds
        fair market value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | The Company's financial instruments consist of cash,
        prepaid expenses, accounts payable, accrued liabilities, advances from
        related and non-related parties. Unless otherwise noted, it is management's
        opinion that the Company is not exposed to significant interest, currency
        or credit risks arising from these financial instruments. The fair value
        of cash, accounts payable and accrued liabilities, advances from related
        parties and other advances approximates their carrying value due to the
        immediate or short-term maturity of these financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | Concentration of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | Financial instruments that potentially subject the
        Company to credit risk consist principally of cash. Cash was deposited
        with a quality credit institution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | In December 2003, the United States Securities and
        Exchange Commission issued Staff Accounting Bulletin No. 104, "Revenue
        Recognition" (SAB 104), which supersedes SAB 101, "Revenue Recognition
        in Financial Statements." The primary purpose of SAB 104 is to rescind
        accounting guidance contained in SAB 101 related to multiple element revenue
        arrangements, which was superseded as a result of the issuance of EITF
        00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
        While the wording of SAB 104 has changed to reflect the issuance of EITF
        00-21, the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

7

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

|2. | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | revenue recognition principles of SAB 101 remain
        largely unchanged by the issuance of SAB 104. The adoption of SAB 104
        did not have a material impact on the Company's financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | Interim Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | These interim unaudited consolidated financial statements
        have been prepared on the same basis as the annual consolidated 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|3. | Manufacturing 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 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, the remaining balance of Cnd$87,500 was payable; 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). These
        payments were not made; however, the Company delivered 10,000 shares to
        MagPower on May 1, 2003.
|  
|   | On February 2, 2004, the Company and MagPower amended
        the License Agreement. MagPower now has sublicense rights in certain countries
        to the Company's ultraviolet products for sale and use by MagPower (or
        its sublicenses) with MagPower's magnesium fuel cell. In addition, the
        amended License Agreement provided for issuance and delivery of the remaining
        200,000 common shares (100,000 common shares from trust and 100,000 common
        shares from treasury), and cancellation by MagPower any remaining amount
        owing by the Company as a condition of the original License Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | As a condition of IFCT's Option Agreement, the Company
        was required to sell a minimum quantity of 2000 Fuel Cell units in fiscal
        2003; however, MagPower has not provided the technology necessary to proceed
        with manufacturing. Once manufacturing commences the capitalized costs
        will be amortized to operations over its estimated useful life, which
        will be determined at that time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | The total consideration paid for the License Agreement
        as at June 30, 2004 was $1,108,352 which includes, the issuance of 5,000,000
        common shares of the Company valued at $1,007,000, the issuance of 500,000
        common shares valued at $74,700 cash payments of Cnd$12,500 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|4. | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                      |       |  |              |  | June 30,    |  | December 31,
| | ------------------------------------ | ----- |  | ------------ |  | ----------- |  | ------------
| |                                      |       |  |              |  | 2004        |  | 2003        
| |                                      |       |  | Accumulated  |  | Net Book    |  | Net Book    
| |                                      | Cost  |  | Depreciation |  | Value       |  | Value       
| |                                      | $     |  | $            |  | $           |  | $           
| |                                      |       |  |              |  | (unaudited) |  | (audited)   
| |                                      |       |  |              |  |             |  |             
| | Office furniture
      and equipment | 5,533 |  | 5,356        |  | 177         |  | 204         

8

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

|5. | Loans Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|6. | Amounts Owing to Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | Loans payable, including interest, in
        the original amount of $261,423 were partially repaid during the year
        ended December 31, 2003. The security pledged, 50% by West Peak Ventures
        of Canada Ltd (West Peak) and 50% by the Company's President to secure
        the loans 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 its loss amounting to $130,711. The Company agreed
        with the President of the Company to set an unsecured loan payable in
        the amount of $130,712 plus accrued interest of $7,348 with interest at
        6% per annum as compensation for his losses.
|  
|   | In addition to the above, the amounts
        owing to the President of the Company and the Chief Financial Officer
        ("CFO representing unpaid wages, expenses and consulting in the amount
        of $113,947 are also due on demand, unsecured and non-interest bearing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | As partial repayment of wages, in fiscal
        2003, the President and the CFO were issued 2,400,000 shares of common
        restricted Rule 144 shares of the Company valued at $81,120.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|7. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                                              | Issued     |  | Common |  | Additional      |  
| | ------------------------------------------------------------ | ---------- |  | ------ |  | --------------- | -
| |                                                              | Shares     |  | Stock  |  | Paid-in Capital |  
| |                                                              | #          |  | $      |  | $               |  
| |                                                              |            |  |        |  |                 |  
| | Balance, December 31, 2002                                   | 10,852,565 |  | 10,853 |  | 10,221,893      |  
| | Issuance of shares for Manufacturing Technology              | 400,000    |  | 400    |  | 70,800          |  
| | Issuance of shares for consulting, wages and directors' fees | 5,475,000  |  | 5,475  |  | 629,387         |  
| | Issuance of shares for legal expenses                        | 600,000    |  | 600    |  | 67,400          |  
| | Issuance of shares for related party compensation accruals   | 2,400,000  |  | 2,400  |  | 78,720          |  
| | Issuance of shares to settle debt                            | 70,000     |  | 70     |  | 6,383           |  
| | Issuance of shares for West Peak Security Loss               | 1,556,000  |  | 1,556  |  | 129,155         |  
| | Issuance of shares for a note receivable                     | 1,100,000  |  | 1,100  |  | 108,900         |  
| | Less: funds not yet received                                 |           |  |       |  | (100,000        | )
| |                                                              |            |  |        |  |                 |  
| | Balance, December 31, 2003 (audited)                         | 22,453,565 |  | 22,454 |  | 11,212,638      |  
| | Issuance of shares for Manufacturing Technology              | 100,000    |  | 100    |  | 3,500           |  
| | Issuance of shares for consulting fees                       | 2,775,000  |  | 2,775  |  | 134,725         |  
| | Issuance of shares for legal expenses                        | 200,000    |  | 200    |  | 13,800          |  
| |                                                              |            |  |        |  |                 |  
| | Balance, March 31, 2004 (unaudited)                          | 25,528,565 |  | 25,529 |  | 11,364,663      |  

| | (a) | Private Placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | On September 25, 2003, pursuant to a private placement,
        the Company issued 1,100,000 common restricted Rule 144 shares at $.09091
        per share for a $100,000 promissory note and interest. The note is non-interest
        bearing and due on December 29, 2003. If the note is not paid then the
        shares will be cancelled and returned to Treasury. Subsequent to December
        31, 2003, the Company agreed to extend the note until September 29, 2004.

9

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

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

| |  |                             | Shares       |  |                  |  | Weighted Average 
| |  | --------------------------- | ------------ |  | ---------------- |  | -----------------
| |  |                             | Under Option |  | Weighted Average |  | Remaining Life of
| |  |                             | #            |  | Option Price $   |  | Options (Months) 
| |  |                             |              |  |                  |  |                  
| |  | December 31, 2003 (audited) | 125,000      |  | .13              |  | 32               
| |  | Granted                     |             |  |                 |  |                 
| |  | Expired                     |             |  |                 |  |                 
| |  | Cancelled                   |             |  |                 |  |                 
| |  |                             |              |  |                  |  |                  
| |  | June 30, 2004 (unaudited)   | 125,000      |  | .13              |  | 26               

| |  | 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.
      The fair value of the employee's purchase rights 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.
      During the year, 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

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

| |  |                                                                     | Six months  |   | Six months  |  
| |  | ------------------------------------------------------------------- | ----------- | - | ----------- | -
| |  |                                                                     | ended       |   | ended       |  
| |  |                                                                     | June 30,    |   | June 30,    |  
| |  |                                                                     | 2004        |   | 2003        |  
| |  |                                                                     | $           |   | $           |  
| |  |                                                                     | (unaudited) |   | (unaudited) |  
| |  |                                                                     |             |   |             |  
| |  | Net loss                                                            |             |   |             |  
| |  | As reported                                                         | (459,998    | ) | (331,336    | )
| |  | Stock Based Compensation
       as reported                        | 56,735      |   | 56,735      |  
| |  | Stock
      Based compensation  determined under fair market value | (58,475     | ) | (57,025     | )
| |  |                                                                     |             |   |             |  
| |  | Pro forma                                                           | (461,738    | ) | (331,626    | )
| |  |                                                                     |             |   |             |  
| |  | Basic net loss per share                                            |             |   |             |  
| |  | As reported                                                         | (.02        | ) | (.03        | )
| |  | Pro forma                                                           | (.02        | ) | (.03        | )

|8. | 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 1) the Company now operates in one
        business segment and one geographical area
|  

| |         | Six month ended |  | Six months ended |  
| | ------- | --------------- |  | ---------------- | -
| |         | June 30, 2004   |  | June 30, 2003    |  
| |         | (unaudited)     |  | (unaudited)      |  
| |         |                 |  | United           |  
| |         | Canada          |  | States           |  
| |         | $               |  | $                |  
| |         |                 |  |                  |  
| | Revenue |                |  | 14,519           |  
| | Expense |                |  | 474,507          |  
| |         |                 |  |                  |  
| | Loss    |                |  | (459,998         | )

| |                              | As of         |  | As of         | 
| | ---------------------------- | ------------- |  | ------------- | 
| |                              | June 30, 2004 |  | June 30, 2003 | 
| |                              | (unaudited)   |  | (unaudited)   | 
| |                              |               |  | United        | 
| |                              | Canada        |  | States        | 
| |                              | $             |  | $             | 
| |                              |               |  |               | 
| | Identifiable Tangible Assets |              |  | 61,512        | 
| | Manufacturing Technology     |              |  | 1,108,352     | 
| |                              |               |  |               | 
| | Total Assets                 |              |  | 1,169,964     | 

|9. | Legal Proceedings
|-- | -----------------
|  
|   | i.               
|  
|   | ii.              

11

---

**UltraGuard Water Systems Corp.**
  Notes to the Consolidated Financial Statements 
  (Expressed in US dollars) 
  (unaudited)

|    | iii.                                                                                                                                                                                                                                                                                                                                                                                                      | On June 6, 2003 a group of shareholders (Shareholder
        Group) filed a consent resolution, which among other things elected a
        new board 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's Board, bringing
        the total number of directors to five. On June 16, 2003 the Shareholder
        Group filed for and obtained a temporary restraining order (TRO) against
        the Company and its five directors prohibiting the Company from among
        other things, issuing stock, transferring assets, changing management
        and other actions that would affect the status 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 July 2, 2003 was the
        date 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 the Company's
        counsel. The plaintiff responded on July 18, 2003 and our counsel filed
        the final brief on July 25, 2003. The Judge has not made a ruling on the
        TRO. The Company's counsel has responded to the various other suits filed
        against the Company and its directors. Counsel for the Company was successful
        in moving these actions from Nevada State jurisdiction to federal jurisdiction.
        In March 2004 the Company's legal counsel filed to withdraw from the action
        as a result of non-payment of legal fees. The court approved the withdrawal
        on two of the four cases. By April 29, 2004, the Plaintiff and the Defendant
        must file a proposed pre-trial order with the Federal Court, which upon
        approval, the Court will set down for trial. On April 28, 2004 the Company
        applied for and received a 45-day extension to file with the Federal Court
        the proposed pre-trial order. Additional extensions have been granted
        as the parties to this dispute attempt to reach a settlement on all matters.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | iv.                                                                                                                                                                                                                                                                                                                                                                                                       | The Company has made a provision for a loss of $27,000
        in a lawsuit made by a former employee for wrongful dismissal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|10. | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | On June 2004 the Company entered into
        the business of Vending bottled water using dispensing equipment to be
        installed at gas bars, convenience stores, car washes, etc. The first
        installation was completed on August 12, 2004. In late June the Company
        commenced marketing of its filtration and water treatment products using
        the facilities of eBay Canada
|   
|    | See Notes 5(a) and 9(c) for ongoing
        legal proceedings.                                                                                                                                                                                                                                                                                                                                           

12

---

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.

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 subsidiary, Innovative Fuel Cell Technologies Inc.

MANAGEMENT'S 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 further advance our marketing objective, in September 1995, we entered into a marketing distribution agreement (embodying an earlier oral agreement) with UV Systems Technology Inc., for marketing rights for the UltraGuardR
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, will incorporate 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.

On January 26, 2001 the Company entered into a Strategic Alliance Agreement, and related agreement with US Filter's Wallace Tiernan Products Group, under which US Filter has the exclusive right to market the Company's Ultra Guard®UV
system in North, South and Central America, and the Caribbean. See "Our Products: Customers"

13

---

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 has increased as a result of legislation that requires all municipal and
Industrial wastewater to be disinfected.

Royalty revenues are payable by Vitzrosys from the sale of any UV system sold. During the first quarter of 2004 royalties in the amount of $12,500 were received as payment for 25 UV systems manufactured and delivered in Korea during 2003. Additional
sales have occurred and marketing of the UV technology is ongoing. These activities provide an expectation that additional royalty revenue will be received in the future.

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. The client requested an undertaking by Clearwater Industries to provide
  assurance of long-term support services. Clearwater was not prepared to provide
  those assurances although this was a requirement of the Joint Venture Agreements
  signed by the Company and Clearwater. As a result of that failure, the Client
  had the UV systems removed from the site.

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 we received notification that the City of Peterborough was cancelling our UV system contract. We have 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 to reflect this cancellation.

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. The system in Ontario was removed from the site as a result
  of the failure of Clearwater to provide the required support and warranty services.
  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
  as part of the USFilter Strategic Alliance. Maintenance and warranty was the
  responsibility of USFilter and was performed by USFilter. These two systems
  were tested, accepted and remain in place and in full operation. During the
  first quarter of 2002 the Company took actions to reduce its overheads. Having
  completed the

14

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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. The Company identified Clearwater Technologies Inc., based in Langley, B.C.
Canada ("Clearwater") to perform these and other activities. 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 was also required to provide warranty services on the previously delivered UV products discussed in the preceding. The Company was to 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 and USFilter on project completion activities.

The Strategic Alliance Agreement with USFilter referred to above, and various other agreements were entered into on January 25, 2001 with US Filter/Wallace & Tiernan, Inc ("USFilter "). In general, the Strategic Alliance Agreement provides that
U.S. Filter will market, offer and sell the Company's UltraGuard® ultraviolet disinfection systems (the "Systems"), including aftermarket components and spare parts, on an exclusive basis for ten years throughout a territory
consisting of North America, Central America (including the Caribbean Zone) and South America (the "Territory"). To insure adequate understanding of this Alliance, reference should be made to the various agreements filed on Form 8-K, February 27,
2001, which provide full details of these agreements.

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 a new product focus (see Our Products). 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. 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 UltraGuard. Terms of the sale included the transfer by UVS to the Company of all current and future revenue that may accrue as a result of the UVS technology, which was all revenue the Company could have accrued had it not sold UVS. The
intent of 659999 BC Ltd is to keep UVS inactive. Full details of these agreements are available on Form 8K filed with the SEC on January 15, 2003.

On December 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 common shares.

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 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 has had verbal communication on the
matter with USFilter principals. 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

Future revenue was expected from the wastewater technology through royalties expected from Clearwater, as a result of sales made to USFilter. As a result of the failure of Clearwater to perform in accordance with its contractual requirements, which
resulted in USFilter cancelling our Strategic Alliance, royalties will not be received through this venue.

15

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The Company has initiated a law suit amounting to about C$ 675,000 ($514,700) in specified damages against Clearwater, plus unspecified losses to recover monies owed under the Licence Agreement, and the Joint Venture, and as a result of Clearwater's
failure to comply and Clearwater's breach of the various agreements.

As a result of USFilter's termination of the Agreement, the Company will explore the possibility of sale of licenses of the Single Lamp Reactor UV wastewater system to others within the terminated territory, which included North America, Central
America (including the Caribbean Zone) and South America.

Recent US and world events as well as the increasing worldwide requirement for higher quality water for industry, health and human consumption, is accelerating the use of ultraviolet and other water purifications products. To capitalize on this
market opportunity, our Company changed its market focus, moving away from manufacturing of our wastewater products, which we will continue to have marketed by others; to drinking water UV products and purification systems.

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 point of entry (POE) and point of use (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. Test tests are to be conducted subject to availability of adequate resources.

On December 30, 2002. the Company issued six million shares of its common stock to the shareholders of Innovative Fuel Cell Technologies Inc ("Innovative") for 100% of Innovative, 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 (Fuel Cell). 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 at which time a worldwide License Agreement was signed for the manufacture and sale of the Fuel Cell . 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. As a requirement of the License Agreement, MagPower was to provide the
manufacturing technology for then Fuel Cell. Due to delays in MagPower's development program, this information was incomplete, which curtailed any opportunity the Company may have had to market the products. By the end of 2003 the company had paid a
portion of the License fee, leaving C$88,800 remaining unpaid and 200,000 common share not delivered.

On February 2, 2004, the Company and MagPower entered into a amendment to the License Agreement. Under the amendment the Company agreed to sublicense the Company's ultraviolet products to MagPower for Africa and the countries of Asia including;
India, China, Afghanistan, Kazakhstan, Bangladesh, Indonesia, Malaysia, Singapore, South Korea and Japan ("Territory"), for sale and use by MagPower (or its sublicenses) with MagPower's magnesium fuel cell. The amendment provided the Company the
right to enter into sublicensing agreements in any country within the Territory if MagPower had not previously signed an agreement in that country. As well, the February 2nd, 2004 amendment provided for issuance and delivery of the
remaining 200,000 common shares (100,000 common shares from trust and 100,000 common shares from treasury), and cancellation by MagPower of the remaining C$88,800 owing by the Company to MagPower.

During 2004, MagPower has signed licensing rights in Australia and China for the Fuel Cell, has completed its prototype development and has leased manufacturing facilities in British Columbia, Canada for the manufacturing of the Fuel Cell.
Production units are scheduled to be available in forth quarter of 2004. MagPower's progress will be closely monitored. As soon as product is availability the Company can seriously market its point of use UV system with the Fuel cell.

16

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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. In the third quarter of 2003 the Company closed its GmbH operation and wrote off its investment due to the inability
to raise sufficient capital to continue funding the GmbH operations.

During the quarter ended June 30, 2004, the Company commenced business in the bottled water industry sector. Working with The Water Clinic, a 20 year old company located in Winnipeg, Manitoba, Canada, the Company has purchased and installed its
first bottled water-dispensing unit, the AquaPure system. The AquaPure system dispenses pure and safe drinking water, treated by reverse osmosis and disinfected by ultraviolet. The unit is coin operated and configured to refill 4.9 -gallon water
bottles. The AquaPure system will be leased to and placed in convenience stores, gas bars, car washes, and other location, which offer ready access for the public. Revenues from the sales are split between the Company and the Leasor; 70% for the
Company, 30% to the Leasor. After a test-marketing period, and assuming the program generates reasonable revenue, the Company will sign up other locations that have approached the Company for AquaPure system leases.

Commencing in June 2004, the Company instituted a marketing program for its filtration products including point of use reverse osmosis units and various other water treatment systems and components. Using eBay Canada (eBay) as the marketing venue,
sales have occurred and are slowly increasing. eBay was chosen as the marketing means to provide wide exposure of the Company's products for the general consumer and to provide an opportunity to the Company's shareholder base, to have direct access
to these products.

During 2004, the Company is focusing its efforts on the following markets and products.

- The licensing of the UltraGuard Single Lamp Reactor wastewater UV system
- The Magnesium Air Fuel Cell with UV for remote application
- The Point of Entry and Point of Use UV/Filtration system
- Other water disinfection, cleaning and related business opportunities

RESULTS OF OPERATIONS FOR THE SIX ONTHS ENDED JUNE 30, 2004

Six months ended June 30, 2004 compared to the six months ended June 30, 2003

Revenues. During six months ended June 30, 2004, we reported revenues of $14,519 compared to revenue of $23,438 being reported in the six months of fiscal 2003, a decrease of 38%. The decrease is as a result of very low UV system components sales
offset by royalty revenue.

Direct Project Costs. Project costs recorded during the six months of fiscal 2004 amounted to $728 compared to $18,813 recorded during the six months of fiscal 2003. The decrease in cost was due to the low direct costs associated with royalty
sales.

Gross Profit. Gross profit increased by $9,166 from $13,791during the six months of fiscal 2004, compared to $4,625 recorded during the comparable period of fiscal 2003 or 198%. The increase was mainly as a result of with the low direct costs
associated with royalty sales.

General and Administrative Expense. For the six months ended June 30, 2004, we reported general and administrative expense of $401,003, an increase of $143,509 or 56% from $257,493 reported in the comparable period of the prior year. This increase
resulted primarily from the increased consulting fees paid for product marketing.

Interest. For the six months ended June 30, 2004, we reported interest of $16,051, a decrease of $5,682 or 26%, from $21,733 reported in the comparable prior fiscal period. The decrease was as a result of a reduction in the rate of interest on loans
outstanding in the six months of 2004 compared to the six month of 2003.

17

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Stock Based Compensation Expense. For the six months ended June 30, 2004, we reported stock compensation expense of $56,735, the same amount as reported in the comparable six months of 2003. Stock based compensation is as a result of the Strategic
Alliance signed with USFilter/WT.

Net Loss for the Period. For the six months ended June 30, 2004, we reported a net loss for the period of $459,998, an increase of $128,661, or 39% over $331,336 in the comparable period of fiscal 2003. The increase in net loss was primarily due to
the increase cost of consulting fees included in general and administrative expense.

Net Loss per Share. For the six months ended June 30, 2004, we reported a net loss per share for the period of $0.02 compared to $0.03 reported during the comparable period of the prior year. The decrease in loss per shares is primarily as a result
of the greater number of shares outstanding at June 30, 2004

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004

Three months ended June 30, 2004 compared to the three months ended June 30, 2003

Revenues. During three months ended June 30, 2004, we reported revenues of $ 100 compared to revenue of $ nil being reported in the three months ended June 30,2003.

Direct Project Costs. Project costs recorded during the three months ended June 30, 2004 amounted to $nil compared to $nil recorded during the comparable three months of fiscal 2003.

Gross Profit. Gross profit increased by $100 for the three months ended June 30, 2004 from $nil during the comparable three months of fiscal 2003.

General and Administrative. For the three months ended June 30, 2004, we reported general and administrative expense of $207,635, an increase of $70,548 or 51% from $137,087 reported in the comparable period of the prior year. This increase resulted
primarily from the increased consulting fees paid for product marketing.

Interest. For the three months ended June 30, 2004, we reported interest of $8,306, a decrease of $990 or 11%, from $9,296 reported in the comparable prior fiscal period. The decrease was as a result of a reduction in the rate of interest on loans
outstanding in the three months of 2004 compared to the three month of 2003.

Stock Based Compensation Expense. For the three months ended June 30, 2004, we reported stock compensation expense of $56,735, the same amount as reported in the comparable three months of 2003. Stock based compensation is as a result of the
Strategic Alliance signed with USFilter/WT.

Net Loss for the Period. For the three months ended June 30, 2004, we reported a net loss for the period of $244,309, an increase of $ 69,557, or 40 % over $174,750 in the comparable period of fiscal 2003. The increase in net loss was primarily due
to the increase cost of included in general and administrative expense.

Net Loss per Share. For the three months ended June 30, 2004, we reported a net loss per share for the period of $0.01 compared to $0.01 reported during the comparable period of the prior year. Although the net loss for the period had increased, no
change in net loss per share was recorded due to the greater number of shares outstanding as at June 30, 2004

LIQUIDITY

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

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

18

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During the period ended June 30, 2004 we financed our operations in part from short-term loans and loans from related parties and minority shareholders of UVS. To fund operations of $90,000 during the period, we received $47,000 in demand loans and
$50,000 from related parties. This resulted in an increase in cash of $6799 from $1874 at the beginning of the quarter to $8,613 at the end of the quarter.

We expect that, during fiscal 2004, 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.

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. Judgment was issued in the amount of $183,944 (C$234,642) including interest and legal
costs. . Additional interest accruing during this quarter has increased the amount to $185,929. On April 5, 2004 the Company appeared in Supreme Court to provide to Chelverton and the court, specific information pertaining to the Company's assets
and its ability to pay the judgment including interest. At the April 5, 2004 the Court requested additional financial information, which the Company has now provided. No additional contact, information requests or activity has occurred in the second
quarter o 2004.

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

19

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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 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. The Judge has not made a ruling on the TRO. The Company's counsel has responded to the various other suits filed against the Company and its directors. Counsel for the Company was successful in moving these actions from
Nevada State jurisdiction to federal jurisdiction. In March 2004 the Company's legal counsel filed to withdraw from the action as a result of non-payment of legal fees. The court approved the withdrawal on two of the four cases. By April 29, 2004,
the Plaintiff and the Defendant must file a proposed pre-trial order with the Federal Court, which upon approval, the Court will set down for trial. In the interim the parties to this dispute are attempting to reach a settlement on all matters. On
April 28, 2004 the Company applied for and received a 45-day extension to file with the Federal Court the proposed pre-trial order. Additional extensions have been granted by the acting Judge as the parties to this dispute attempt to reach a
settlement on all matters.

The Company has made a provision for a loss of $27,000 in a lawsuit made by a former employee for wrongful dismissal.

Item 2. CHANGES IN SECURITIES

During the six months ended June 30, 2004 the Company issued the following shares for the listed consideration

|Date      |  | Shares  |  | Residency/         |  | Consideration |  | Exemption
|--------- |  | ------- |  | ------------------ |  | ------------- |  | ---------
|          |  |         |  | Citizenship        |  | Valued at     |  |          
|          |  |         |  |                    |  |               |  |          
|Apr 26/04 |  | 200,000 |  | CAN                |  | $14,000       |  | S-8      
|June 7/04 |  | 525,000 |  | China              |  | $15,750       |  | S-8      
|June 7/04 |  | 525,000 |  | Costa Rica         |  | $15,750       |  | S-8      
|June 7/04 |  | 950,000 |  | Republic of Panama |  | $28,500       |  | S-8      

*Registered on S-8 on Dec 2, 2003

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)             

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|(3)(ii)    | Bylaws, as amended                                                                                                                | (2)      
|---------- | --------------------------------------------------------------------------------------------------------------------------------- | ---------
|           |                                                                                                                                   |          
|(10)(iii)  | Agreement between Douglas Sommerville and Company dated 12/6/96                                                                   | (3)      
|           |                                                                                                                                   |          
|(10)(iv)   | Agreement between John Gaetz and the Company dated 12/6/96                                                                        | (4)      
|           |                                                                                                                                   |          
|(10)(v)    | Sample Agreement among minority Shareholders of UV Systems
      Technology, Inc. and the Company each dated 2/28/97              | (5)      
|           |                                                                                                                                   |          
|(10)(vi)   | Marketing Distribution Agreement Between UV Systems Technology,
      Inc. and the Company                                        | (2)      
|           |                                                                                                                                   |          
|(10)(vii)  | Sales Representation Agreement between UV Systems Technology,
      Inc. and "The Representative"                                 | (2)      
|           |                                                                                                                                   |          
|(10)(viii) | Exclusive Distributorship Agreement Between UV Waterguard
      Systems, Inc. and Chiyoda Kohan Co., Ltd., and NIMAC Corporation. | (2)      
|           |                                                                                                                                   |          
|(10)(ix)   | 1997 Stock Option Plan                                                                                                            | (4)      
|           |                                                                                                                                   |          
|(10)(x)    | Interim Funding Agreement between UVS, MDS and WOF                                                                                | (5)      
|           |                                                                                                                                   |          
|(10)(xi)   | Letter Agreement between the Company and Elco Bank and Trust
      Company Limited                                                | (5)      
|           |                                                                                                                                   |          
|(10)(xii)  | Loan Agreement between the Company and TD Bank                                                                                    | (6)      
|           |                                                                                                                                   |          
|(10)(xiii) | The Company's 1999 Long-Term Equity Incentive Plan                                                                                | (7)      
|           |                                                                                                                                   |          
|(10)(xiv)  | Letter Agreement between Service Systems, UVS, MDS and WOF
      dated Feb 13, 2000                                               | (7)      
|           |                                                                                                                                   |          
|(10)(xv)   | Lease dated October 2000 between Service Systems, UV Systems
      and Slough Estates Canada Limited                              | (8)      
|           |                                                                                                                                   |          
|(10)(xvi)  | Legal Services Plan between Rosenfeld, Goldman
      & Ware, Inc                                                                  | (9)      
|          
|           |                                                                                                                                   |          
|(10)(xvii) | Post Effective Amendment to Legal Services Plan filed November
      19, 2001                                                     | (10) (10)
|           |                                                                                                                                   |          
|(10xviii)  | 2003 Benefit Plan S-8 March 24, 2004                                                                                              | (11)     
|           |                                                                                                                                   |          
|(10xix)    | Independent Contractor/Consulting Agreement                                                                                       | (12)     
|           |                                                                                                                                   |          
|(10xx)     | The Incentive Plan of UltraGuard                                                                                                  | (13)     

21

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|(31.1) | Certification pursuant to Rule 13A-14
      or 15D-14 of the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002 | Filed Herewith Electronically
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------
|       |                                                                                                                                                                          |                              
|(31.2) | Certification pursuant to Rule 13A-14
      or 15D-14 of the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002 | Filed Herewith Electronically
|       |                                                                                                                                                                          |                              
|(32.1) | Certifications pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002                                      | Filed Herewith Electronically
|       |                                                                                                                                                                          |                              
|(32.2) | Certifications pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002                                      | Filed Herewith Electronically

Incorporated by reference to the Corporation's Form 10SB effective on January 22, 1997

| | (2)  | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on October 6, 1997.   
| | ---- | --------------------------------------------------------------------------------------------------------------
| | (3)  | Incorporation by reference to the Corporation's Form 10Q for the fiscal
      Year ended February 28, 1997.   
| | (4)  | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1997.   
| | (5)  | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1998.   
| | (6)  | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 1999.   
| | (7)  | Incorporation by reference to the Corporation's Form 10KSB for the fiscal
      Year ended August 31, 2000.   
| | (8)  | Incorporation by reference to the Corporation's Form 10Q for the fiscal
      Quarter ended November 30, 2000.
| | (9)  | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on November 19, 2003. 
| | (10) | Incorporated by reference to the Corporation's S-8 POS filed with the
      Commission on March 23, 2003.     
| | (11) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on March 28, 2003.    
| | (12) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on June 11, 2003.     
| | (13) | Incorporated by reference to the Corporation's Form S-8 filed with the
      Commission on December 2, 2003.  
|

|(b) | Reports on Form 8-K during this quarter
      None
|--- | --------------------------------------------------

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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: Aug 14, 2004  | */s/ Ken Fielding*     | 
|------------------- | ---------------------- | 
|                    | Ken Fielding, Director | 
|                    |                        | 
|                    |                        | 
|                    |                        | 
|Date: Aug 14,, 2004 | */s/ John R Gaetz*     | 
|                    | John R Gaetz, Director | 

23

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