ITEM 1. DESCRIPTION OF BUSINESS
Our financial statements are presented in United States dollars, and dollar
figures stated in this annual report refer to United States dollars (except
where specified otherwise). As our head office is in Canada, many of our
transactions are completed in Canadian dollars ("C$"). For purposes of this
annual report, other than amounts extracted from our financial statements,
Canadian dollar amounts have been converted to United States dollars at an
exchange rate of Cdn$1.00 = US$0.7135 being the average exchange rate during the
year ended December 31, 2003.
Business Development
Vancouver-based UltraGuard Water System Corp (UltraGuard) or (Company),
(formerly Service Systems International, Ltd.), through its previously owned
subsidiary UV Systems Technology, Inc. ("UVS") are committed to a legacy of a
healthy planet for future generations through the development and
commercialization of superior, cost-effective, environmentally friendly,
ultraviolet-based water treatment products and systems.
For the period up to February 2002 we were the designer, manufacturer and
marketer of state of the art ultraviolet disinfection systems for wastewater
disinfection with additional application possibilities in potable water. During
fiscal 2002 the Companys business changed from a focus on wastewater
disinfection to the purification of potable water using ultraviolet and
filtration.
5
In fiscal 2002 our Company discontinued manufacturing of the wastewater products
and entered into various agreements to change it business focus. The wastewater
business was licensed to Clearwater Industries Ltd (See details in ITEM 6
MANAGEMENTS DISCUSSIONS). The emphasis of our business remained in ultraviolet
disinfection, however we now target drinking water with systems developed for
low-flow drinking water application. The products currently developed and under
development are used to disinfect and filter water. The systems identified are,
Point of Entry (POE) purification system, which is installed where the water
enters the home, and Point of Use (POU) purification system, which is located at
the faucet.
In December 2002 we entered an additional business segment; the manufacturing
and marketing of a primary, alternative and emergency power generating
Magnesium-Air power cell. Through a reverse acquisition concluded on December
31, 2002 UltraGuard Water Systems Corp. (UltraGuard) acquired all of the
outstanding stock of Innovative Fuels Cell Technologies Inc (IFCT). UltraGuard
issued 6,000,000 common shares to the shareholders of IFCT to acquire IFCT and
its wholly owned Austrian incorporated subsidiary UltraGuard Water Systems GmbH
(UG GmbH). For accounting purposes the acquisition was treated as the
acquisition of UltraGuard by IFCT with IFCT as the accounting acquirer (reverse
acquisition). As a result, the historical financial statements prior to the
acquisition date are those of IFCT from September 30, 2002 (date of inception of
IFCT). UltraGuard and IFCT, as at December 31, 2002, reverted to being a
development stage Company.
IFCT is a Nevada corporation incorporated on September 30, 2002. IFCT is the
holder of an option (the Option Agreement) 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 UltraGuards Point of Use
Ultraviolet Water Purification System and for ancillary uses such as lighting,
radio and other low energy electrical needs.
As a condition of the Option Agreement, IFCT is required to sell a minimum
quantity of 2000 Fuel Cell units in fiscal 2003. The drawings and technical
information due from MagPower is still incomplete, therefore marketing efforts
have not focus on product sale. Using the services of strategically located
consultants within developing countries have we have concentrated on product
awareness.
COMPANYS BACKGROUND
The Company was incorporated in Nevada in August 1990 under the name Service
Systems International Ltd and was inactive until eight Canadian and European
individuals acquired it in July 1995. The investors 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. The 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. On October 15,2002 the Company
changed its name to UltraGuard Water Systems Corp.
Or offices are located at 914 Sherwood Avenue, Coquitlam British Columbia,
Canada, V3K 1A6, our telephone number is (604) 540-8282 and our Internet website
address is www.ultraguard.com. References in this document to we, us, our, and
the company include Innovative Fuel Cell Technologies Inc and UltraGuard Water
Systems GmbH, unless the context otherwise requires. ULTRA GUARDR and "WAVY
LINES & DESIGNS" logo are our registered trademarks. Any other trademarks or
trade names referred to in this document are the property of their respective
owners. All monetary figures in the document are in United States dollars except
Canadian dollars which are indicated as "C$.
6
To advance our marketing objectives in wastewater disinfection using
ultraviolet, in September 1995 we entered into a marketing distribution
agreement (embodying an earlier oral agreement) with UV Systems Technology Inc
(UVS), for marketing rights for the UltraGuardR system in eight US 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 with the two principal shareholders Working Opportunity
Fund and MDS Ventures Pacific, Inc, (49.39%), dated February 14, 2000 we
acquired the remaining 49.31% of common stock and all outstanding preferred
stock of UVS.
During 2002, the Company was unable 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 for the disposition of UVS and the removal of the UVS debt and
receivable carried on the Companys financial statements. Manufacturing and
marketing of the UVS technology had been discontinued by the Company and was
licensed to Clearwater Industries in February 2002. The purchaser of UVS was
659999 BC Ltd, a corporation controlled by two officers and directors of the
Company. Terms of the sale included the transfer by UVS to the Company of all
current and future revenue that may accrue as a result of the UVS technology,
which was all revenue the Company could have accrued had it not sold UVS. The
intent of 659999 BC Ltd is to keep UVS inactive. Full details of these
agreements are available on Form 8K filed with the SEC on January 15, 2003.
On December 31, 2002 the Company acquired through a reverse acquisition, 100 %
of Innovative Fuel Cell Technologies Inc (IFCT), 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 for use with the
Companys point of use ultraviolet disinfection equipment. The purchase price in
the option agreement was C$100,000 and 400,000 shares of the Companys common
stock. Once the option is exercised, MagPower is to provide the Company with the
technical information necessary for the manufacture and sale of the air fuel
cell battery (Fuel Cell). The Fuel Cell will provide the necessary power to
operate ultraviolet disinfection systems, lighting and ancillary equipment in
areas of the world where no other forms of electrical power is available. 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. The
Company issued six million shares of its common stock to the shareholders of
IFCT for 100% of IFCT. Included in the IFCT assets was the Austrian Company,
UltraGuard Water Systems GmbH (GmbH). The incorporation of GmbH was made by IFCT
in contemplation of its sale of IFCT to the Company. GmbH was set up to
manufacture and market Point of Use UV produces in Germany and the European
Union Countries (EU) to exploit the EU and other European markets potential. The
market potential was increased when the European Commission recently brought in
strict guidelines (EU Water Framework Directive). Effective January 2004 member
states must ensure that drinking water meets stringent guidelines to protect the
quality of the water (both hot and cold) that consumers receive from their taps;
the Point of Use. In addition GmbH will manufacture the Fuel Cell products for
the various world markets.
On March 14, 2003 the Company exercised the license for the Fuel Cell. The
license agreement was signed between MagPower and the Companys wholly owned
subsidiary, IFCT. The Company will pay C$102,500, and issue five hundred shares
of the Companys common stock. Payments terms were modified to reflect the
delivery of technical information necessary to enable the Company to manufacture
the Fuel Cell and additional rights of use. The terms of the signed license
agreement included additional rights of use of the fuel cell for ancillary
services to power items such as lighting and other ancillary uses
7
for which IFCT increased the cash payable by C$2,500 to a total amount of
Cnd$102,500 and increased the number of Company shares that would be paid by
100,000 to a total of 500,000. On signing, the Company paid C$5,000 and
delivered 200,000 common shares of UltraGuard. The balance of the license fee
was to be paid, C$5,000 on April 1, 2003; this payment was made on March 21,
2003 and 100,000 common shares of the Company due on May 1, 2003 were delivered.
Payments due in the amount of C$7,500 on the first of each month thereafter
until MagPower delivers the technical drawings and information for
manufacturing, were not paid, leaving a balance of C$88,800 unpaid. Subsequent
to December 31, 2003 the Company and MagPower executed an amendment to the
license agreement providing for the forgiveness of the outstanding balance owed
to MagPower amounting to C$88,800 and delivery to MagPower of the remaining
200,000 shares of the Companys stock in exchange for the granting of a
sublicense to MagPower to purchase and sell the Companys ultraviolet water
purification systems in combination with the Fuel Cell. The territory covered by
this amendment includes Africa, India, China, Afghanistan, Kazakhstan,
Bangladesh, Pakistan, Malaya, Singapore, South Korea and Japan. The amendment
includes the right for the Company to enter into any of these countries and
appoint sub-licensee if MagPower has not previously appointed sub-licensees.
Under the original license, minimum annual quantities of 2000 Fuel Cell units
must be sold and a royalties of C$25.00 per Fuel Cell will be paid to MagPower
based on number of units sold. Additional details of these acquisition
transactions were filed with the SEC on Form 8-K on January 14, 2003.
OUR PRODUCTS
POINT OF USE AND POINT OF ENTRY
Our Point of Use (POU) and Point of Entry (POE) ultraviolet purification systems
with or without filtration are used for the drinking water and water for human
contact. The POE is attached to the water supply line at its entry point into a
building; the POU is attached under a sink directly in advance of the faucet.
These products will meet the needs and requirements of the population of the
North American marketplace. In Europe our Austrian company UltraGuard Water
Systems GmbH is developing a POU product for the specific and demanding
requirements of the European market.
MAGNESIUM-AIR FUEL CELLS
In December 2002 we acquired the rights to a magnesium-air fuel cell system
developed by MagPower Systems Inc. The magnesium air fuel cells will be
manufactured to the specifications and technical data to be furnished by the
developer MagPower Systems Inc. The magnesium air fuel cells provide greater
safety and cost savings over the better-known hydrogen fuel cells. Both cell
produce electricity through an electrochemical reaction but magnesium-based fuel
cells are more environmentally friendly, easier to recycle, more versatile and
more efficient because they are simpler and safer.
Magnesium-Air Fuel Cells are cleaner; they support the global push for a
sustainable environment. They are easily recycled, clean and consume no fossil
fuels, produce no toxic emissions, thus reducing harmful greenhouse effects. To
recharge the cell, you basically remove the spent magnesium core, replace it
with a new core and add salt or seawater electrolyte.
Magnesium-Air Fuel Cells are safer; the simple magnesium anode and natural
electrolyte make this cell less combustible than a hydrogen fuel cell. Unlike
hydrogen fuel cells, which use pure hydrogen, with magnesium-based fuel cells,
no safety sealed fuel storage is required, its fuel can be magnesium or
magnesium-alloy. No special safety permits are required for transportation by
plane. The magnesium-based fuel cell has an indefinite shelf life because the
electrolyte can be removed before storing the cell.
8
When power is needed, the electrolyte is poured back into the cell. Electrolyte
in a non-magnesium fuel cell, power generator or battery cannot be removed,
stored and reused by the consumer. This sustainability provides a reliable
source of power for emergency situations.
The magnesium air fuel cell will be packaged with the UV POU and POE
purification systems to provide a permanent or portable purification system for
either temporary service application, emergency stand-by or for remote dwellings
or villages where electrical power is unavailable.
WASTERWATER SYSTEMS
The UV disinfection system is sold under its registered trademark, UltraGuard
SLR System. The UltraGuard system incorporates: 1) low-pressure, high intensity,
high efficiency UV lamps, 2) infinitely variable ultraviolet lamp controllers,
3) a patented high-performance reactor module, 4) patented flow-balanced weirs,
and 5) an automatic quartz sheath cleaning system. Currently this product is
primarily sold for municipal wastewater disinfection. However, our UV technology
can be applied to many treatment needs. These include industrial process water
disinfection, potable water disinfection, and other fluid and air disinfection.
UV disinfection systems have none of the safety issues with which chlorination
systems must deal. UV has the advantage of being relatively simple to operate
and maintain. UV disinfection is a physical, rather than chemical process, using
UV radiation to permeate bacterial and viral cell walls and prevent the cells
from replicating.
On January 26, 2001, we entered into a Strategic Alliance Agreement (and
associated agreements) with US Filters Wallace and Tiernan Products group
(USFilter) to market our Ultra Guard wastewater UV System in North, South and
Central America and the Caribbean, filed with the SEC on Form 8-K on February
27, 2001.
On February 5, 2002 we signed an agreement with Clearwater Technologies Inc
wherein Clearwater agreed to assume the manufacturing for new UV projects. This
agreement included Clearwaters requirements to supply these products to our
Strategic Alliance partner, USFilter and to adhere to the terms and conditions
contained within the USFilter Strategic Alliance Agreement. AS well, Clearwater
was required to provide warranty services on previously delivered UV products.
The Company was to be paid a royalty on sales, the percentage scaled upward as
the total sale volume increases. Clearwater failed to live up to its commitment,
failed to pay the Company funds owed and generally failed to perform its
commitments under the USFilter Strategic Alliance Agreement. In August 2003
USFilter terminated the Alliance Agreement (and associated agreements).
On July 23, 2003 UVS issued writ against Clearwater for recovery of amounts
owing.
MARKETING.
The Companys UV POU and POE purification systems will be marketed under the
brand name UltraFlo and the fuel cell system will be brand named UltraCell. Our
UltraFlo products will be sold through distributor companies and directly
through our website. An E-commerce marketing section to be setup within our
website will permit retail users to purchase products and components directly.
In addition, UltraCell products will be marketed through MagPower, under a
recently amended license agreement (on February 4, 2004), and by the Company
through distributors to be setup in the various countries. Setting up the
representative and distributor network for the UltraFlo and UltraCell products
will be an ongoing process. Until MagPowers development program on the fuel cell
is complete, the signing up of distributors has been delayed. Until the fuel
cell product becomes market ready in mid to late 2004 the Companys focus will be
on identifying future distributors and promoting awareness of the UltraCell
9
product through consultants in strategic market locations. Strategic partners
will be identified with whom we will form alliances. As well, home name brand
distributors, large plumbing contractors, building developers, etc will be
approached to market the UltraFlo products.
In Korea, our wastewater product Licensee Vitzrosys manufactures exclusively for
the Korean and non-exclusively for the Asian Market.
CUSTOMERS
The POE and POU UltraFlo UV purification system will be sold world wide, to a
population, which has become very concerned about the safety of the water they
consume.
Water quality is generally deteriorating worldwide. The UNESCO World Water
Development Report states disinfection at the point of use is consistently the
most cost-effective intervention. With outbreaks of e-coli and other bacteria
occurring in the municipal water supply (Walkerton, Ontario), surface water and
the aquifer, the population is becoming increasingly concerned that water needs
special handling to make it safe. The occurrence of contaminates in the water
supply (Giardia, and Cryptosporidium cysts), which cannot be deactivated by
chlorine give people cause for concern. Ultraviolet and filtration can
deactivate or remove these cysts as well as bacteria and virus from drinking
water, making it safe for consumption. Concerns about the drinking water supply
even in areas with municipal water treatments facilities, has driven consumers
to bottled water, delivery water and home filtration. We believe these consumers
are potential clients for the POE and POU UltraFlo UV purification systems.
UltraGuard Water Systems GmbH (now discontinued operations) was set up to
manufacture the POU UltraFlo UV produces in Germany and market it the European
Union Countries (EU) to exploit the EU and other European markets potential. The
market potential was increased when the European Commission recently brought in
strict guidelines (EU Water Framework Directive). Effective January 2004 member
states must ensure that drinking water meets stringent guidelines to protect the
quality of both hot and cold water that consumers receive from their taps; the
Point of Use.
In areas where electrical power is unavailable, the Magnesium-Air Power Cell
(UltraCell) will provide a source of power to the population of the worlds most
remote areas. On the African continent, in countries such as South Africa the
UltraFlo POU purification systems in combination with the UltraCell we can
provide safe, clean drinking water. In addition, the UltraCell will supply power
to those remote areas for lighting and basic services such as radio, television
and even computers. Any area in the countries of the world where a reliably,
full time electrical supply is unavailable or where natural or human caused
disasters may interrupt the electrical power supply, can use the UltraCell as a
full time or emergency stand-by power source.
COMPETITION
The Company competes with many other producers of UV equipment and other water
treatment technologies, many of which are more established and have
significantly greater resources. We compete with technologies currently in use,
including chlorination, ozonation, reverse osmosis and micro filtration.
Competitive factors include system effectiveness, safety regulation costs,
operational cost and practicality of application and potential adverse health
effects. We are not unaware of any competing technologies using fuel cells in
conjunction with UV; nor are we aware of any magnesium air fuel cells in use to
power ultraviolet systems, lighting and related services.
10
REGULATORY MATTERS
Our business is conducted from British Columbia, Canada. We are not subject to
any special regulatory requirements above those that are applicable to
businesses in general in Canada and the United States.
We are not aware of any regulations that would adversely affect our ability to
market our products
EMPLOYEES
As of December 31, 2003, the Company had three (3) full time employees. Two (2)
of the full-time employees are engaged in management activities, and one (1) is
engaged in office services.
|