Florida                                 65-0928369
 (State or other jurisdiction of formation)  (IRS Employer Identification No.)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

The Registrant's revenues for the fiscal year ended June 30, 2004 were $3,013,332.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, was $2,010,401 at September 29, 2004.

The number of shares of common stock $.0001 par value, of the Registrant issued and outstanding as of September 29, 2004 was 22,413,316.

None

                                TABLE OF CONTENTS


                                                                         Page
                                                                        Number


PART I                                                                     3

BUSINESS                                                                   6

PROPERTIES                                                                11

LEGAL PROCEEDINGS                                                         11

SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS                        12

PART II                                                                   12

MARKET FOR RESISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
   MATTERS                                                                12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
   RESULTS OF OPERATIONS                                                  15

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                               20

CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
   ACCOUNTING AND FINANCIAL DISCLOSURE                                    20

CONTROLS AND PRODEDURES                                                   20

OTHER INFORMATION                                                         20

PART III

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT OF THE REGRISTRANT 20

EXECUTIVE COMPENSATION                                                    23


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT            24

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                            26

Statements in this Form 10-KSB report may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this Form 10-KSB report, including the risks described under "Risk Factors" and Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors which affect the security industry, market and customer acceptance, competition, government regulations and requirements and pricing, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-KSB.

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

We design, assemble, market and sell security products. Our products and services are used throughout the world by military, law enforcement and security personnel in the public and private sectors. Our clients include governmental agencies, multinational corporations and non-governmental organizations. Our products include a broad range of professional, branded law enforcement and consumer equipment such as covert audio and video intercept, electronic countermeasures, video, photo, and optical systems, radio communication, explosive contraband detection, armored vehicles and clothing, nuclear, biological and chemical masks and protective clothing, voice stress analysis lie detection, and global positioning systems ("GPS"), used for tracking, locating and recovering vehicles and fleet management.

Our products are marketed under Security Intelligence Technologies, Inc. ("SIT"), Homeland Security Strategies, Inc. ("HSS"), CCS International, Ltd.
("CCS"), G-Com Technologies and The Counter Spy Shops of Mayfair, London(R)
brand names and are sold primarily through a worldwide network of sales agents, including four sales office in the United States, one sales office in Hong Kong and one retail store/service center in London.

Our trained, multilingual and experienced security personnel work closely with clients to create and implement solutions to complex security problems. These services include security planning, advice and management, security systems integration, intellectual property asset protection, due diligence investigations and training programs in counterintelligence, counter surveillance, and ballistics.

During fiscal 2004, we entered into an exclusive distribution agreement with a European company that develops manufacturers and markets products designed to monitor, intercept and jam radio frequency signals and other electronic devices. The agreement grants us the exclusive worldwide marketing rights to its products except in the country it is domiciled. As of June 30, 2004 we had taken orders for $555,000 of their products. We anticipate delivery of these orders during the fourth quarter of 2004.

We are a Florida corporation organized under the name Hipstyle.com, Inc. in June 1999. In April 2002, in a transaction characterized as a reverse merger, CCS International, Ltd. ("CCS") was acquired by us and our corporate name was changed to Security Intelligence Technologies, Inc. The transaction by which we acquired the stock of CCS is referred to in this Form 10-KSB as the "reverse merger". From and after April 17, 2002, our business was the business conducted by CCS prior to the reverse merger.

RISK FACTORS

We require significant working capital in order to fund our operations.
At June 30, 2004, we had cash of $172,621 and a working capital deficit in excess of $7.4 million and for the fiscal year ended June 30, 2004, our operations generated a negative cash flow of $855,000. In order to pay our current obligations and develop and market our products, we require significant additional working capital. We have incurred losses in the past, our losses are continuing and we continue to generate negative cash flow from operations. As a result, our working capital deficiency is increasing. In the event that we are unable to raise the necessary funding we may be unable to continue operations and it may be necessary to seek protection under the Bankruptcy Code.

Our increasing current liabilities reflect our inability to pay creditors
currently.

We have used our customer deposits to pay creditors and finance our operations. If our vendors do not extend us necessary credit we may not be able to fill current or new orders, which may affect the willingness of our clients to continue to place orders with us or to make advance payments to us. Our inability to obtain advance payments from customers will impair our ability to obtain components necessary to make products, which, in turn, may necessitate a cessation of business. Further, if one or more of our creditors or customers obtain significant judgments against us and seeks to enforce the judgments, our ability to continue in business would be impaired and it may be necessary for us to seek protection under the Bankruptcy Code.

We have no commercial credit availability.
Except for a $500,000 credit facility provided by a group of private investors, we do not have any credit facility. The loans under the credit facility, which are convertible into common stock, are due on June 30, 2005. Unless we can obtain either equity financing or a substitute lender prior to June 30, 2005, we do not believe that we will have the resources to pay the lenders. We do not presently have any agreements or understandings with respect to an equity financing or credit facility, and, in view of our substantial working capital deficit and continuing losses, we may be unable to raise equity or obtain a credit facility. If we are not able to pay the loans when they mature, and the lenders do not covert their loans or grant us an extension, it may be necessary for us to cease operations and seek protection under the Bankruptcy Code.

We have been operating at a loss, and our losses are continuing.
We sustained losses of $5.0 million, or $.25 per share (basic and diluted), for the fiscal year ended June 30, 2004, $3.8 million, or $.22 per share (basic and diluted), for the fiscal year ended June 30, 2003, and our losses are continuing. We cannot give any assurance that we can or will ever operate profitably. Our failure to operate profitably is affecting the willingness of customers to place orders with us and the willingness of our suppliers to provide us with necessary components.

Our independent auditors have included an explanatory paragraph in their
report as to our ability to continue as a going concern.
As a result of our continuing and significant losses and our working capital deficiency, our independent auditors have included in their report an explanatory paragraph as to our ability to continue as a going concern.

If we do not have access to the most current technology, we may not be able
to market our products and services.

The security industry is constantly changing to meet new requirements, which result from both new threats to government and industry, both from potential threats to persons and property to industrial and governmental espionage, as well as general concern about personal and family safety. In order to meet these needs we will both have to anticipate problems and develop methods or reducing the potential risk. We rely primarily on the performance and design characteristics of our products in marketing our products, which requires access to state-of-the art technology in order to be competitive. Our business could be adversely affected if we cannot obtain licenses for such updated technology or develop state-of-the-art technology ourselves. Because of our financial problems, we are not able to devote any significant effort to research and development, which could increase our difficulties in making sales of our products.

We are subject to government regulations, which if violated, could prohibit
us from conducting a significant portion of our export business and result in
criminal liability.

The United States and other governments have strict regulations concerning the exporting and importing of security devices, which may restrict sales of certain products to bona fide law enforcement agencies or may restrict the sale of certain products from the United States. If we violate any of these laws, we may be subject to civil or criminal prosecutions. If we are charged with any such violations, regardless of whether we are ultimately cleared, we may be unable to sell our products. During the fiscal year ended June 30, 2003 we incurred significant expense and our reputation was impaired as a result of criminal charges against our employees, including one of our officers, even though the charges were dismissed.

Because we are dependent on our management, the loss of key executive
officers could harm our business.

Our business is largely dependent upon our senior executive officers, Messrs. Ben Jamil, chief executive officer, Chris R. Decker, chief financial officer, and Menahem Cohen, vice president. Although we have an employment agreement with Mr. Jamil, the employment agreement does not guarantee that he will continue with us. Since we do not have an agreement with Messrs. Decker, and Cohen, both of these officers has the right to terminate his employment. Our business may be adversely affected if any of our key management personnel or other key employees left our employ.

Because we lack patent or copyright protection, we cannot assure you that
others will not be able to use our proprietary information in competition with
us.

Major corporations may be able to develop and fund marketing efforts that
could enable them to dominate the market.
Because there are a number of major companies that can both offer security products to governments and industry and fund a product development and marketing program, these companies have the financial ability to dominate the market, to effectively set a standard which may be incompatible with our technology and to use their financial resources and government and industry contacts to successfully compete against us in all major markets, regardless of whether their technology is superior or inferior to ours.

Our growth may be limited if we cannot make acquisitions. A part of our
growth strategy is to acquire other businesses that are related to our current
business.

Such acquisitions may be made with cash or our securities or a combination of cash and securities. To the extent that we require cash, we may have to borrow the funds or issue equity. Our stock price and financial condition may adversely affect our ability to make acquisitions for equity or to raise funds for acquisitions through the issuance of equity securities. If we fail to make any acquisitions, our future growth may be limited. Furthermore, because of our stock price, the issuance of any stock or other equity securities in connection with any acquisition may result in significant dilution to our stockholders and may result in a change of control. As of the date of this report we do not have any agreement or understanding, either formal or informal, as to any acquisition.

If we make any acquisitions, they may disrupt or have a negative impact on
our business.

If we make acquisitions, we could have difficulty integrating the acquired companies' personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us, and our officers may exercise their rights to terminate their employment with us. We cannot predict the affect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses.

We do not anticipate paying dividends on our common stock.

The rights of the holders of common stock may be impaired by the potential
issuance of preferred stock.

Our certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock, we may issue such shares in the future.

Because we are subject to the "penny stock" rules, stockholders have
difficulty in selling our common stock.

Because our stock is traded on the OTC Bulletin Board and our stock price is very low, our stock is subject to the Securities and Exchange Commission's penny stock rules, which impose additional sales practice requirements on broker-dealers that sell our stock to persons other than established customers and institutional accredited investors. These rules may affect the ability of broker-dealers to sell our common stock and may affect the ability of our stockholders to sell any common stock they may own.

A third party may claim ownership of stock held by our chief executive
officer.

In connection with an agreement between Mr. Ben Jamil and two financial consultants entered into prior to the April 2002 reverse merger of CCS into us, the consultants or their designees were to purchase a 30% interest in five of our subsidiaries, and that 30% was to have been exchanged for 1,500,000 shares of series B preferred stock. Mr. Jamil has advised the consultants and their designees that, as a result of their failure to pay the consideration for the shares, the agreement is terminated and they have no interest in the series B preferred stock or the stock in the five subsidiaries. It is possible that the consultants or their designees may claim that they own the series B preferred stock or the stock in the five subsidiaries and we can give no assurance that their claim will not be upheld.

We may not be able to comply in a timely manner with recently enacted
corporate governance provisions.

Beginning with the enactment of the Sarbanes-Oxley Act of 2002 in July 2002, a significant number of new corporate governance requirements have been adopted or proposed. We believe that we currently comply with all of the requirements that have become effective thus far that relate to companies whose common stock is not listed in the Nasdaq Stock Market or a registered stock exchange. As a result of our financial condition and the price of our stock, we may be unable to attract independent directors or implement certain policies which are required but which are expensive to implement, including systems relating to accounting controls. Our failure to be in compliance with applicable securities laws and regulations could result in our inability to continue to be traded on the OTC Bulletin Board which in turn would result in increased difficulty for stockholders to sell their shares.

INDUSTRY OVERVIEW

Increasingly, governments, including the military, businesses and individuals have recognized the need for security products and services to protect them from the risks associated with terrorism, physical attacks, threats of violence, white-collar crime and fraud.

The United States has been the target of several deadly terrorist attacks directed towards its citizens and facilities around the world. As a result, institutions, including the United States Department of Defense and other government agencies and multinational corporations are redefining strategies to protect against and combat terrorism.

As a company in the security products industry, we market our products in two markets - the law enforcement security market and the specialized security services market.

Specialized Security Services Market. Corporations are increasingly contracting private companies to handle all or a portion of their security services. Industry studies reflect a growth rate in the market for worldwide security services market at 8.0% annually from 1999 to 2003, and we believe that the market is continuing to grow. We believe that demand by multinational corporations and governmental agencies for security services such as risk assessment, crisis management, guard force management, security force organization and executive protection is likely to increase as these entities continue to establish operations and manufacturing facilities in developed and developing countries. In addition, demand for corporate investigative services continues to grow as businesses react to the need to protect their assets against the growing threat of white collar crime including fraud, counterfeiting and piracy of intellectual property.

GROWTH STRATEGY

We believe that the following strengths are critical to our success as a provider of surveillance and security products, and security risk management services.

Broad Portfolio of Products and Services. We believe that a broad range of products, strong branding, and a distribution network is critical to our success as a provider of security products and services. We are able to offer a wide range of security consulting services, equipment, and systems that enable us to provide comprehensive solutions to our customers' security needs. Our goal is to strengthen our capabilities as a single source provider of global security systems and services. Our international infrastructure enables us to assist government buyers and multinational corporate clients who are responding to security concerns as they both expand their business into new countries and seek to provide greater security for their existing facilities and personnel.

Strong and Recognized Brands. We believe that our brand names are recognized in our markets and that our market recognition, combined with what we believe is a high level of performance has contributed to our developing market positions in a number of the product categories in which we compete.

We believe that the demand for both security and surveillance products and security risk management services will continue to grow. We will address this growth by offering a comprehensive array of premium security risk management products and services. By establishing a critical mass of products and services and a broad base of customers, we believe that we have developed the capacity to perform multiple aspects of our clients' threat analyses and security provisions on a comprehensive basis. We will continue to seek to implement this growth strategy primarily through internal expansion of our existing businesses and through strategic acquisitions of businesses offering complementary services, markets, and customer bases. However, because of our financial condition and the low price of our stock, we may not be able to acquire any businesses or implement our growth strategy.

Products and Services

We distribute a wide range of specialized products and systems covering security, privacy, home and personal protection, confidential business communications, lie detection, cellular phone privacy, drug and bomb contraband detection, miniaturized covert audio and video surveillance and protection, digital, the Internet, global systems for mobile communications ("GSM"), personal communication systems ("PCS"), time division mobile access ("TDMA") and code division multiple access ("CDMA") satellite technologies and wireless communications.

- Covert audio and video logging systems to monitor employees and household surveillance.
- Scramblers, data and fax transmission systems to protect and secure communications.
- Fax managers that log the activities of outgoing and incoming faxes.
- Armored and bulletproof clothing and automobiles.
- Counter-surveillance, wiretap detection and electronic counter-measures.
- Night vision, electro-optic devices and infrared scopes and cameras.
- Anti-hacking and secure remote computing to protect computer networks.
- Bomb and weapons and other contraband detection for airport security, business, and home.
- Personal Protection Products.
- Voice stress analyzers and lie detection to evaluate the honesty of employees or vendors
- Tracking and recovery and fleet management systems.
- Cellular telephone tracking systems for 911 emergency programs.
- Communication jamming systems.

We develop and market integrated systems for the surveillance of global system for mobile communications and other communications. With the recent developments in communication technologies, there are numerous fundamental systems underlying digital wireless communications throughout the world. Intelligence professionals require the ability to monitor, intercept and block various global systems for mobile communications, personal communication systems and other systems using a variety of communications access and monitoring systems. Our customers for our integrated systems for the surveillance of global systems for mobile communications usually request us to custom design a system to meet their communications surveillance requirements and are based on extensive engineering studies of the existing communications systems in each customer's country, along with an in-depth analysis of the various individual needs of the customer. Examples of our global systems for mobile communications intercept systems are the GSM 2060, a passive off-the-air intercept system which allows a user to target a specific cellular transmission and listen to both incoming and outgoing conversations and the GSM 4000, which was designed for an international west European security group and is a multi-channel monitoring system capable of intercepting various band transmissions simultaneously, while recording multiple conversations.

In addition to our integrated systems for the surveillance of global system for mobile communications, we have developed and we market cellular interception for operation on analog advanced mobile phone systems, digital advanced mobile phone system, and time division multiple access systems, as well as various other equipment for wireless and hard-wired communications surveillance for voice, fax and data.

We offer radio communication; monitoring and radio frequency jamming equipment designed to combat terrorist activation of bombs utilizing radio controlled incendiary devices ("RCIED's"). These products include a system built into a briefcase for VIP personal protection, and vehicle mounted systems for military use. These systems have multiple bands and operate by creating an intensive electromagnetic field that saturates the airwaves thereby disabling the operation of a RCIED.

We offer a configurable emergency rescue, theft recovery, fleet management or freight management system. Our system uses the well-known global positioning system ("GPS") satellite tracking system which can combine with an optional sophisticated location prediction algorithm software package that takes over position reporting functions whenever the vehicle enters a dead satellite access zone. This unique and rugged system supplies real time position and status information from the customer's location to one of several possible call center configurations. The call center can track the location of a customer's vehicle and has features to report theft, breakdowns, and rescue requests. Optional configurations allow the end user to perform an analysis of driver's performance, manage public transportation line routes, perform automated fleet and freight management for commercial trucking, and dispatch police, ambulance, and taxicabs.

Services

We offer comprehensive security training programs in counterintelligence and counter-surveillance in Miami, New York, London and Hong Kong. This training, offered to United States government agencies, friendly nations, and clients in the private sector in the United States and in foreign countries, includes methods of recognizing, deterring, and minimizing security risks. We have conducted seminars for intelligence personnel, crime fighting associations and their associated membership societies, from CIA to FBI to United States Customs, United States Coast Guard, military branches, police departments from New York City's strategic command to police chiefs from innumerable cities and towns across the country.

Marketing and Distribution

We have a network of sales representatives and international distributors who sell and service our law enforcement equipment. Our distributors and we currently operate in a number of countries and serve a client base representing governmental and non-governmental agencies as well as multinational corporations worldwide. However, during the past year we have been in litigation with three of our distributors. See "Item 3. Legal Proceedings".

When first entering a foreign market, we seek to promote a comprehensive range of products and services by seeking qualified sales representatives with local ties and existing relationships within the country's business and governmental communities. We try to tailor our marketing strategy to each geographic area of the world, and further to tailor our product offering by country. There are opportunities for cross marketing of military and law enforcement products, which strengthen the image of each product group and further enhance our position as an integrated provider of a wide selection of such products and services.

We employ a variety of marketing programs in support of our reseller's channels to make our target markets aware of the value of our integrated systems and technology and to help create pre-sales demand for our resellers. These programs include trade shows, advertising campaigns, seminars, direct mailings, brochures and other promotional efforts designed to generate sales leads. Training programs are an integral part of our customer service. In addition to enhancing customer satisfaction, we believe that they also help breed customer loyalty and brand awareness, so that we may sell additional products to the same customer. We also use our website to generate brand awareness. However, because of our limited resources, we have reduced our advertising and promotional expense.

Joint Venture Agreements

We are a party to three joint venture agreements with technology companies. In connection with these agreements we and our joint venture partner formed new entities whose ownership and share of operating results are equally owned. The joint venture agreements grant the new entities exclusive marketing rights to the joint venture partner's products, except in the countries the joint venture partners are domiciled.

Product Design and Installation

Our engineering staff is involved in both developing new systems made possible by the advances in technology and continually improving the production process and reducing the cost of the products.

We generally provide installation services for the more sophisticated integrated systems for the surveillance of global systems for mobile communications systems. Installation phases may include site surveys, identification of central command site location, supervision of the installation of site interfaces, and training personnel to manage systems. We generally provide warranty maintenance and support services for the first three to twelve months following installation of a system, depending on the terms of each particular contract. Thereafter, long-term service is provided on a service-contract basis.

Competition

The security industry includes companies that offer a range of products and services, such as access control, personnel protection, surveillance, counter-surveillance, computer security, vehicular security, night vision, fiber optics and communications. In order to meet the needs of a prospective customer, we believe that it is necessary to offer integrated solutions across industry lines rather than to offer a range of devices. There are a large number of companies who offer products or services aimed at one or more segments of the security industry, and new technologies are being developed by both new companies and major companies. However, we believe that as the severity of the problem or potential problem increases governments and major corporations, including financial institutions, are less concerned with the price of the products than with such factors as:

- The perceived ability of the vendor to treat the identity of the client, the scope of the work and the solution in confidence.

- The ability of the vendor to offer an integrated approach that seeks to address the problem by offering a wide range of products and services rather than to offer solutions based on a small range of products and services.

- On the other hand, major clients are concerned about the financial condition of the vendor, and our financial condition, including our significant working capital deficiency and our history of losses, raise questions as to our ability to perform under the purchase order and to provide the necessary support following delivery. Competitors have used and may continue to use our financial condition and their stronger financial condition, resources and relationships in marketing their products and services regardless of whether their products and services are better than ours. As discussed below, many of our competitors are substantially stronger than we are financially and are very well known in the industry and have significant government and industry contacts and relationships.

The marketplace for manufacturers and vendors for security and surveillance products and systems is highly competitive and consists of numerous organizations ranging from internet-based mail-order firms to military armament manufacturers such as, Lockheed Martin, and Harris. Other aerospace manufacturers have rushed into the arena of bomb detection and other explosive ordinance disposal ("EOD") products. The security marketplace continues to favor the more established and reliable manufacturers such as Nice (Israel) and Thompson C.S.F. now a part of Thales Group (France) with proven technology. Siemens (Germany), and Rohde & Schwartz (Germany), are manufacturers of "simulated" base stations.

Currently there is growing competition in the cellular interception and monitoring systems market. Although many competitors have greater financial, technical and other resources, we believe that at present our technology gives us a competitive advantage, although because of our financial condition and continuing losses, we are having difficulty competing in this market. In all of these areas, the major corporations have the ability to develop competitive products and fund a marketing effort that enable them to compete successfully against us regardless of whether their products are superior.

Research and Development

Because of our financial condition our research and development effort has been limited to the development of certain new products and improvement of existing products. Because of our working capital limitations, we have not been able to expand our research and development effort. During the past two years we did not expend any significant amount on research and development activities.

We have no patents or copyrights on our products, and we rely on non-disclosure agreements with our employees. Since our business is dependent upon our proprietary products, the unauthorized use or disclosure of this information could harm our business. We currently own a number of United States trademark registrations.

Government Regulation

The United States and other governments have strict regulations concerning the exporting and importing of certain security devices that may restrict sales of certain products to bona fide law enforcement agencies or may restrict the sale of products in or from the United States. We are subject to federal licensing requirements with respect to the sale in foreign countries of certain of our products. In addition, we are subject to a variety of federal, state, local and foreign regulations that govern our operations and the workplace. We are also subject to certain regulations promulgated by, among others, the United States Departments of Commerce and State.

Employees

As of September 29, 2004, we had a total of approximately 30 employees, of whom 18 were employed at our main office and 12 were employed at our sales offices or service center. None of our employees are represented by unions or covered by any collective bargaining agreements. We have not experienced any work stoppages or employee related slowdowns and believe our relationship with our employees is good.

Item 2. PROPERTIES

We lease approximately 9,840 square feet of executive offices and warehouse space at 145 Hugeunot Street, New Rochelle, NY 10801 under a lease that expires on October 31, 2010. The annual rent is approximately $125,000, and is subject to annual increases. We also lease approximately 9,000 square feet for five of our sales offices and one retail/service center locations in Miami, Florida, New York City, Washington, DC Beverly Hills, CA, London, England, and Hong Kong under leases that expire from 2004 to 2010 at a current annual rent of $428,000 , subject to annual increases. We believe that our present facilities are adequate to meet our immediate requirements and that any additional space we may require will be available on reasonable terms.

Item 3. LEGAL PROCEEDINGS

Because of our financial position, actions have been commenced or threatened by creditors. Currently we are defending lawsuits for the collection of approximately $894,000 and have been unable to satisfy approximately $167,000 of judgments previously rendered in actions by creditors.

In June 1998, a photographer and model formerly retained by CCS filed suit in U. S. District Court for the Southern District of New York captioned Ross & Vassilkioti v. CCS International, Ltd. seeking damages for alleged copyright infringement and other claims. The judge in the case has granted the plaintiff partial summary judgment as to the copyright infringement. On June 18, 2003, a jury awarded the plaintiffs $350,000 on the copyright infringement portion of the case. Under federal judicial rules, the Company is unable to contest the granting of partial summary judgment until a final judgment has been rendered. The Company reached a settlement on May 7, 2004 with the plaintiffs for $600,000 payable with 550,459 shares of the Company's common stock. The agreement stipulates the shares will be valued at their average closing price for the 30 days beginning July 7, 2005 and ending August 5, 2005. CCS has guaranteed that the value of the shares will be at least $300,000 and is responsible for the amount that $300,000 exceeds the value of the shares. Ben Jamil, our chief executive officer and principal stockholder has guaranteed that the value of the shares will be at least $150,000.

On November 1, 2002, a former Company supplier filed suit in the United States District Court for the District of Maryland, captioned Micronel Safety, Inc. v. CCS International Ltd. seeking damages of $242,400 for breach of contract to purchase certain products. CCS has denied the material allegations of the plaintiff's claim and has raised affirmative defenses thereto. In August 2004, Micronel Safety, Inc. found another buyer for the products and on August 16, 2004 the case was dismissed.

The Company is also the defendant in three actions arising out of distributor agreements. On or about May 11, 2000 an action was commenced against CCS in the Supreme Court, New York County, captioned Ergonomic Systems Philippines Inc. v. CCS International Ltd. The plaintiff seeks to recover $81,000, which was paid to CCS in connection with a distributorship agreement between the parties, plus costs and interest. CCS has denied the material allegations of the claim and has raised affirmative defenses thereto. On August 3, 2004, the Court granted the plaintiff's claim which, together with accrued interest, totaled $120,223. The Company believes that it has a valid basis for appeal of the court's verdict, but it can give no assurance the court verdict will not be upheld.

On or about October 12, 2001, an action was commenced against CCS in the United States District Court for the Southern District of New York, captioned China Bohai Group Co., Ltd. and USA International Business Connections Corp. v. CCS International, Ltd. The plaintiff seeks to recover $250,000 paid to CCS in connection with a distributorship agreement between the parties, plus $5,000,000 of punitive damages and costs and interest. CCS has denied the material allegations of the plaintiff's claim and has raised affirmative defenses thereto. CCS has asserted a counterclaim seeking damages in the approximate amount of $1,150,000 based upon the plaintiff's alleged breach of the parties' distributorship agreement. The Company believes that it has valid defenses to the claim.

On December 3, 2002 EHS Elektronik Sistemleri submitted a demand for arbitration to the American Arbitration Association in New York City claiming CCS breached a joint venture agreement it had entered into with CCS in 1994 and seeking a refund of the $200,000 it had paid to CCS. On March 4, 2004 the arbitrator awarded the plaintiff's claim which, together with accrued interest, totaled $223,620. The Company believes that it has a valid basis for appeal of the arbitrator's award but it can give no assurance the American Arbitration Association will not uphold the award.

On July 1, 2002, the Company's London subsidiary, Homeland Security Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair Limited) ("HSS of UK"), entered into an agreement to assume the business operations of another United Kingdom corporation ("Predecessor") for nominal consideration. The Predecessor is a defendant in ongoing litigation brought by a former customer, who has sued for breach of a contract executed in 1998 and is seeking a refund of approximately $293,000 in products and services purchased from the Predecessor. Due to the business transfer, there is a possibility that the plaintiff could name HSS of UK as a defendant in the case. The Company, in consultation with counsel, believes that the Predecessor has valid defenses to the claim, and that HSS of UK has valid defenses against any action that may be brought against it.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

Not applicable.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is traded on the OTC Bulletin Board under the symbol SITG. The following table sets forth the range of high and low bid quotations for our common stock from July 1, 2002 until June 30, 2004, as reported by the OTC Bulletin Board.

                                                     COMMON STOCK

                           High          Low                             High         Low
                       ------------- -------------                    ----------  ----------
      Fiscal 2004                                      Fiscal 2003
---------------------                             -------------------
Quarter ended                                     Quarter ended
September 30, 2003         $ 0.70        $ 0.70   September 30, 2002     $ 0.17      $ 0.15

Quarter ended                                     Quarter ended
December 31, 2003          $ 0.40        $ 0.35   December 31, 2002      $ 0.18      $ 0.16

Quarter ended                                     Quarter ended
March 31, 2004             $ 0.80        $ 0.65   March 31, 2003         $ 0.07      $ 0.04

Quarter ended                                     Quarter ended
June 30, 2004              $ 0.80        $ 0.66   June 30, 2003          $ 0.12      $ 0.10

On September 29, 2004, the last quoted price by the OTC Bulletin Board was $.30 per share of common stock.

As of September 29, 2004 there were 22,413,316 shares of Common Stock outstanding, held of record by approximately 584 record holders and beneficial owners.

The following table sets forth information as to equity compensation plans pursuant to which we may issue our equity securities.

                                                                                                Number of securities
                                                                                                remaining available for
                                                                         Weighted average       future issuance under
                                            Number of securities to be   exercise price of      equity compensation plans
                                            issued upon exercise of      outstanding options,   (excluding securities
                                            outstanding options,         warrants and rights    reflects in columns (a))
                                            warrants and rights          (b)                    (c)
                                            (a)
------------------------------------------- ---------------------------- ---------------------- -------------------------
Equity compensation plans approved by
security holders                                             -0-                    N.A.                      -0-
------------------------------------------- ---------------------------- ---------------------- -------------------------
Equity compensation plans not approved by
security holders                                      3,970,000                    $.84                     89,500
------------------------------------------- ---------------------------- ---------------------- -------------------------
         Total                                        3,970,000                    $.84                     89,500
------------------------------------------- ---------------------------- ---------------------- -------------------------

As of January 21, 2002, our board of directors adopted the 2002 Stock Plan, which provided for the grant of non-qualified stock options to purchase a maximum of 2,000,000 shares of common stock to directors, employees, officers, agents, consultants and independent contractors who perform services for the Company. As of June 30, 2004, 1,959,500 options to purchase shares of common stock have been issued and are outstanding under this plan.

As of July 3, 2003 our board of directors adopted the 2003 Stock Incentive Plan (the "2003 Plan") which provided for the grant of non-qualified stock options to purchase a maximum of 320,000 shares of common stock or the grant of shares to directors, employees, officers, agents, consultants and independent contractors who perform services for the Company. As of June 30, 2004, 236,000 shares have been issued to consultants and 35,000 shares have been issued to an officer for services rendered.

As of January 23, 2004 our board of directors adopted the 2004 Stock Incentive Plan (the "2004 Plan") which provided for the grant of non-qualified stock options to purchase a maximum of 650,000 shares of common stock or the grant of shares to directors, employees, officers, agents, consultants and independent contractors who perform services for the Company. As of June 30, 2004, 650,000 options to purchase shares of common stock have been issued and are outstanding under this plan.

During the fiscal year ended June 30, 2004, we issued the following securities exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act. No underwriting or other compensation was paid in connection with these transactions:

We issued 16,468 shares of common stock to an officer and an employee in payment of accrued compensation totaling $7,000.

We issued 167,500 shares of common stock to consultants in payment of consulting fees of $99,625.

On May 7, 2004, we issued 550,459 shares of common stock to Frank Ross and Juliett Vassilkioti, pursuant to a settlement agreement. See "Item 3. Legal Proceedings." The settlement agreement provides that the shares will be valued at their average closing price for the 30 days beginning July 7, 2005 and ending August 5, 2005. CCS has guaranteed that the value of the shares at that time will be at least $300,000 and is responsible for the amount that $300,000 exceeds that value. Ben Jamil, our chief executive officer and principal stockholder has guaranteed that the shares will have a value of at least $150,000. At September 29, 2004 the value of the shares based upon the closing price of our common stock was $165,138.

We issued 100,000 shares of common stock to creditors in full settlement, subject to certain terms, of $37,000 of accounts payable. If the proceeds from the sale of the common stock when the creditors sell the shares is less than $37,000, we are to pay the creditors the difference between $37,000 and the proceeds received from the sale of the shares. At September 29, 2004 the value of the shares based upon the closing price of our common stock was $30,000.

We sold 1,190,000 shares of common stock and issued warrants to purchase 500,000 shares of common stock for $154,000, including 1,000,000 shares of common stock and warrants to purchase 500,000 shares of common stock at an exercise price of $.15 per share sold to Jason S. Lyons for $135,000 and 180,000 shares of common stock sold to GSM Communications, Inc. for $18,000. The warrants vest immediately, have cashless exercise rights and a life of three years. These options and warrants were valued at $268,624 using the Black-Scholes option-pricing model and were expensed during the year ended June 30, 2004. In addition we have expensed $611,500 representing the difference between the market value and the actual price paid for the 1,190,000 shares of common stock.

During the year ended June 30, 2004 we registered 2,920,000 shares of common stock and issued the following shares:

In July 2003, we formalized consulting contracts with Michael D. Farkas, Jason S. Lyons and an additional financial consultant relating to acquisition services, financial public relations and operational performance services. In connection therewith we granted immediately exercisable options to purchase a total of 2,600,000 shares of common stock of which 1,700,000 options were granted to Michael Farkas, and options to purchase 400,000 shares were granted to Jason S. Lyon. The exercise price ranged from $.10 per share to $.50 per share. As of June 30, 2004 the consultants had exercised options to purchase 2,600,000 shares of common stock, for a total of $659,000. Of these options, options to purchase 1,700,000 shares were exercised by Michael D. Farkas for $400,000, and options to purchase 400,000 shares were exercised by Jason S. Lyons for $140,000. These options were valued at $405,727 using the Black-Scholes option-pricing model and were expensed during the year ended June 30, 2004.

We issued 35,000 shares of common stock to an officer in payment of accrued compensation totaling $7,000.

We issued 100,000 shares of common stock to consultants in payment of consulting fees of $39,456.

No underwriting or other compensation was paid in connection with these transactions.

On June 10, 2004 we entered into a convertible credit agreement with private investors, including Michael D. Farkas, Ostonian Securities Limited, Kesef Equity Group, Inc., and GSM Communications, Inc. that provides for the Company to borrow up to $500,000 upon the attainment of certain performance criteria prior to September 15, 2004. At June 30, 2004 the Company had borrowed $200,000 under this agreement and borrowed an additional $300,000 during the first quarter of fiscal 2005. The notes are convertible, at the note holder's option, into the Company's common stock, at $.10 per share.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL OVERVIEW.

The following discussion should be read in conjunction with the financial statements and notes thereto of the Company. Such financial statements and information have been prepared to reflect the Company's financial position as of June 30, 2004. Historical results and trends should not be taken as indicative of future operations. Management's statements contained in this report that are not historical facts but are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

We are operating under a heavy financial burden as reflected in our substantial working capital deficiency and our continuing losses and negative cash flow from operations. We have sought to address these problems during fiscal 2004 by closing three of our retail operations and converting two of them to sales offices with lower operating costs, and entering into a credit agreement with an investor group pursuant to which we had borrowed $200,000 at June 30, 2004. We borrowed the remaining $300,000 during the first quarter of fiscal 2005. The $500,000 is due in June 2005, and we may not have the funds to repay the loans at that time.

Our working capital deficiency has made it difficult for us to attract new business and maintain relations with our customers and suppliers. Other than our credit agreement and loans from our chief executive officer, our main source of funds has been our customer deposits which we use for our operations.

Critical accounting policies

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some of the significant accounting policies and methods applied to the preparation of the Company's consolidated financial statements. See Note 1 of Notes to Consolidated Financial Statements for further discussion of significant accounting policies.

Use of estimates

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

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market.

Revenue recognition

The Company recognizes revenue from sales upon the delivery of merchandise to a customer. Non-refundable advance payments received under marketing and distribution arrangements are deferred and either applied as payments towards customer purchases made pursuant to the terms of the respective agreements, or recognized as income at the termination of the agreement if specified purchase quotas have not been met by the customer. Customer deposits are initially recorded as liabilities and recognized as revenue when the related goods are shipped.

Stock-based Compensation

The Company periodically grants stock options to employees in accordance with the provisions of its stock option plans, with the exercise price of the stock options being set at the closing market price of the common stock on the date of grant. The Company accounts for stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly accounts for employee stock-based compensation utilizing the intrinsic value method. FAS No. 123, "Accounting for Stock-Based Compensation", establishes a fair value based method of accounting for stock-based compensation plans. The Company has adopted the disclosure only alternative under FAS No. 123, which requires disclosure of the proforma effects on earnings and earnings per share as if FAS No. 123 had been adopted as well as certain other information. Stock options granted to non-employees are recorded at their fair value, as determined in accordance with SFAS No. 123 and Emerging Issues Task Force Consensus No. 96-18, and recognized over the related service period. Deferred charges for options granted to non-employees are periodically re-measured until the options vest.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation. Although it does not require use of the fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of SFAS No.123 and APB No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of APB No. 28 is effective for interim periods beginning after December 15, 2002. We adopted SFAS No. 148 and APB No.28 on January 1, 2003.

The Company uses the liability method to determine its income tax expense. Under this method, deferred tax assets and liabilities are computed based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax asset depends on the Company's ability to generate sufficient taxable income in the future. Because of our losses we did not incur any income tax expense during fiscal 2004 or 2003. Financial guarantees

Certain shares issued by the Company to settle debt obligations contain a price guarantee that requires the Company to settle in cash any difference between the original face amount of the debt and proceeds from the creditor's subsequent sale of the shares. The Company accounts for these transactions by recording the debt at fair value with periodic mark-to-market adjustments until the guarantee is settled. Unrealized gains or losses resulting from changes in fair value are included in earnings and accrued expenses.

Fair Value of Financial Instruments

The fair values of financial instruments recorded on the balance sheet are not significantly different from their carrying amounts due to the short-term nature of those instruments, or because they are accounted for at fair value.

New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The adoption of this Interpretation did not have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which requires mandatory redeemable financial instruments to be classified as liabilities, the result of which requires related expense to be classified as interest expense rather than minority interest on a prospective basis. SFAS No. 150 is effective in the three months ended June 30, 2003 for financial instruments entered into or modified after May 31, 2003, and is otherwise effective July 1, 2003 for previously issued instruments. SFAS No. 150 is not expected to have a material impact on our financial position or results of operations.

Joint Venture Agreements

We are party to three joint venture agreements with technology companies. In connection with these agreements we and our joint venture partner formed new entities whose ownership and share of operating results are equally owned. The joint venture agreements grant the new entities exclusive marketing rights to the joint venture partner's products, except in the countries in which the joint venture partners are domiciled. We account for investments in the joint ventures using the equity method because our ownership is greater than 20% and we have the ability to exercise significant influence over the operating, investing and financing decisions of the joint venture entities. Under the equity method, we will record our share of joint venture income or losses and adjust the basis of its investment accordingly. As of June 30, 2004, the joint ventures have not generated any revenues or other significant business activity.

The functional currency of our United Kingdom subsidiary is the local currency. Accordingly, we translate all assets and liabilities into U.S. dollars at current rates. Revenues, costs, and expenses are translated at average rates during each reporting period. Gains and losses resulting from the translation of the consolidated financial statements are excluded from results of operations and are reflected as a translation adjustment and a separate component of stockholders' deficit. Translation adjustments were $17,595 as of June 30, 2004 and were immaterial as of June 30, 2003. Gains and losses resulting from foreign currency transactions are recognized in the consolidated statement of operations in the period they occur.

RESULTS OF OPERATIONS - Year Ended June 30, 2004 and Year ended June 30, 2003.

Revenues. Revenues for the year ended June 30, 2004 ("fiscal 2004") were $3,013,332 a decrease of $715,833 or 19.2%, from revenues of $3,729,165 for the year ended June 30, 2003 ("fiscal 2003"). During fiscal 2004, we closed our retail stores in New York, Beverly Hills and Washington, DC and converted our operations in Beverly Hills and Washington, DC from retail stores to sales offices. These closures resulted in a decrease of approximately $1.4 million from these three locations, representing a 60.7% decline is sales from approximately $2.3 million in fiscal 2003 to approximately $900,000 in fiscal 2004. These decreases were offset by increased sales from our operations in New Rochelle, New York and London.

Cost of Sales. Cost of sales decreased by $424,065 or 23.2%, to $1,402,980 in fiscal 2004 from 1,827,045 in fiscal 2003. Cost of sales as a percentage of product sales decreased to 46.6% in fiscal 2004 from 49.0% in fiscal 2003 reflecting an improvement in product mix.

Compensation and benefits. Compensation and benefits decreased by $314,778, or 12.4% to $2,227,767 in fiscal 2004 from $2,542,545 in fiscal 2003 primarily due to (i) a reduction in expense in our New York retail store that we closed on January 31, 2004 of $125,186, and (ii) decreases in our Beverly Hills and Washington DC operations where we converted from retail stores to sales offices and reduced these expenses by $179,962.

Professional fees and legal matters. Professional fees and legal matters decreased by $3,045, or .3% to $933,576 in fiscal 2004 from $936,621 in fiscal 2003. Based on a review of outstanding legal matters and unpaid settlements, we have established, in consultation with outside counsel, reserves for litigation costs that are probable and can be reasonable estimated. We can provide no assurance, however, that such reserves will be sufficient to absorb actual losses that may result from unfavorable outcomes. Moreover, it is possible that the resolution of litigation contingencies will have a material adverse impact on our consolidated financial condition, results of operations, and cash flows. Because of our financial position, we are subject to claims, which may result in litigation from our creditors. As a result we expect that we will continue to incur attorney's fees and the use of management resources to defend these claims and litigation.

Stock based compensation. Stock based compensation is attributable to the grant of options and warrants to consultants and common stock which we sold to consultants at a discount from the market price. Options and warrants granted to consultants were valued at $990,358 using the Black-Scholes option-pricing model and were expensed during fiscal 2004. Comparable expense in fiscal 2003 was $5,301. Expense related to sales of common stock to consultants at discounts from market was $618,500 in fiscal 2004. There were no similar transactions in fiscal 2003.

Selling, general and administrative expenses. Selling, general and administrative decreased by $154,803, or 8.1% to $1,743,625 in fiscal 2004 from $1,910,546 in fiscal 2003. The decrease was primarily due to (i) a decrease in rent expense of $187,488, or 29.8% to $441,288 in fiscal 2004 from $628,776 in fiscal 2003 due to lower rents in relocated sales offices and (ii) a decease in advertising expense of $123,626, or 54.5% to $103,068 in fiscal 2004 from 226,694 in fiscal 2003 all partially offset by (iii) and increase in travel and attendance at trade shows of $112,741, or 59.6% to $301,781 in fiscal 2004 from $189,040 in fiscal 2003.

Unrealized (gain) loss on financial guarantees. Unrealized (gain) loss on financial guarantees is attributable to the increase or decrease in market value relating to our price guarantees on common stock which we have issued in payment of trade payables. Unrealized (gain) loss on financial guarantees changed $282,030 or 192.6%, to a gain of $135,590 in fiscal 2004 from a loss of $146,440 in fiscal 2003.

Interest expense. Interest expense increased by $26,665 or 25.6% to $131,046 in fiscal 2004 from $104,381 in fiscal 2003 as a result of a continued increase in the Company's interest bearing outstanding debt obligations.

As a result of the factors described above, our net loss increased by $1,109,423, or 28.8% to $4,999,072, $.25 per share, in fiscal 2004 from $3,848,437, $.22 per share, in fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

We require significant working capital to fund our future operations. At June 30, 2004 we had cash of $172,621 and a working capital deficit of $7,400,771. During fiscal 2004, we had a negative cash flow from operations of $855,000. Our accounts payable and accrued expenses at June 30, 2004 were $3,722,228. As a result of our continuing losses, our working capital deficiency has increased. We funded our losses through the issuance of our common stock. We also utilized vendor credit and customer deposits. Because we have not been able to pay our trade creditors in a timely manner, we have been subject to litigation and threats of litigation from our trade creditors and we have used common stock to satisfy our obligations to trade creditors. In many instances when we issue common stock, we have provided that if the stock does not reach a specified price level one year from issuance, we will pay the difference between that price level and the actual price. As a result, we have contingent obligations to our some of these creditors. With respect to 1,263,459 shares of common stock issued during the fiscal 2004, 2003 and 2002, the market value of the common stock on June 30, 2004 was approximately $161,811 less than the guaranteed price.

Our accounts payable and accrued expenses increased from $3,563,776 at June 30, 2003 to $3,722,228 at June 30, 2004 an increase of $158,452. After an increase in the market value of our common stock held by trade creditors of $135,590 our other accounts payable and accrued expenses increased by $294,042 reflecting our inability to pay creditors currently. We also had customer deposits and deferred revenue of $3,325,710 which relate to payments on orders which had not been filled at that date. We have used our advance payments to fund our operations. If our vendors do not extend us necessary credit we may not be able to fill current or new orders, which may affect the willingness of our clients to continue to place orders with us.

During the past three years we have sought, and been unsuccessful, in our efforts to obtain adequate funding for our business. Because of our losses, we are not able to increase our borrowing. Our bank facility terminated on November 1, 2002 and to date, we do not have any agreements with any replacement bank. In 2004 we entered into a convertible credit agreement with private investors that permits us to borrow up to $500,000 upon the attainment of certain performance criteria. At June 30, 2004 we had borrowed $200,000 under this credit facility and borrowed an additional $300,000 in August and September 2004. Our obligations to these lenders become due in June 2005. We do not presently have the resources to pay the lenders. Unless we are either able to raise equity or debt capital, which is unlikely based on our financial condition and history of losses which are continuing, or the lenders extend the maturity date or convert their debt into equity, we are unlikely to be able to pay the notes. If the lenders seek to enforce their notes, it may be necessary for us to seek protection under the Bankruptcy Code. Our failure to obtain similar financing from this or another lender could materially impair our ability to continue in operation, and we cannot assure you that we will be able to obtain the necessary financing. Our main source of funds other than the private investors has been from loans from our chief executive officer, customer deposits and vendor credit. During fiscal 2004 we raised $813,000 resulting from the exercise of options to buy our common stock and the sale of our common stock. Management cannot provide any assurance that we will be able to raise any more money through the sale of our equity securities. We may not be able to obtain any additional funding, and, if we are not able to raise funding, we may be unable to continue in business. Furthermore, if we are able to raise funding in the equity markets, our stockholders might suffer significant dilution and the issuance of securities may result in a change of control. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of these uncertainties.

       Name                  Age      Position
------------------          ----      --------
Ben Jamil                    71       Chairman of the board, chief
                                      executive officer
                                      and director
Chris R. Decker              57       Chief financial officer and director
Tom Felice                   42       Director
Menahem Cohen                51       Vice president and director
Sylvain Naar                 62       Director

                                                                         Long-Term
                                                                         Compensation (Adwards)
                                    Fiscal                               Options, SARs
Name and Principal Position          Year        Salary         Bonus         (Number)
--------------------------------  ------------ ------------  -------------------------------
Ben Jamil, chief executive               2004    $ 250,000           $ -            200,000
officer                                  2003      250,000             -                  -
                                         2002      172,799             -          1,000,000

                          Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value

                                                                                  Number of
                                                                                  Securities           Value of
                                                                                  Underlying           Unexercised
                                                                                  Unexercised          In-the-Money
                                                                                  Options at Fiscal    Options at Fiscal
                                                                                  Year End             Year End
                                                                                  -----------------    -------------------

                                       Shares Acquired Upon    Value              Exercisable/         Exercisable/
       Name                            Exercise                Realized           Unexercisable        Unexercisable
--------------------                   ---------------------   --------------     -----------------    -------------------
Ben Jamil                                  --                       --              1,200,000                 --/--

                                            Option Grants in Fiscal Year Ended June 30, 2004

                                              Percent of                                    Potential Realizable Value an
                                              Total Options                                 Annual Rates of Stock Price
                           Number of Shares   Granted to        Exercise                    Appreciation for Option Term
                           Underlying         Employees in      Price Per    Expiration    -------------------------------
       Name                Options Granted    Fiscal Year       Share        Date             5%               10%
-----------------------    -----------------  ---------------   ---------    -----------    -------       ----------
Ben Jamil                   200,000             100.0%          $  .25       Jan 2014       $31,445          $79,687

                                                 Shares of Common        Percentage of
                                                Stock Benefically        Outstanding
                   Name                               Owned              Common Stock
--------------------------------------------  -----------------------    ------------------
Ben Jamil                                                 11,338,000                 50.1%
145 Huguenot Street
New Rochelle, NY 10801
Michael D. Farkas                                          2,150,100                  9.4%
1691 Michigan Avenue, Suite 425
Miami, FL 33139
Ostonian Securities Limited                                2,203,496                  9.3%
60 St. James Street
London, England SW1 ALE
Jason S. Lyons                                             1,915,000                  8.4%
7239 San Salvador Dr
Boca Raton, FL 33433
Kesef Equity Group, Inc.                                   1,750,000                  7.2%
14 Lyle Farm Lane
Englishtown, NJ 07726
GSM Communications, Inc.                                   1,289,500                  5.6%
1221 Brickell Avenue, Suite 900
Miami, FL 33131
Chris R. Decker                                              785,000                  3.4%
Menahem Cohen                                                450,000                  2.0%
Tom Felice                                                   253,000                  1.1%
Sylvain Naar                                                       -                     -
All directors and officers as a                           12,826,000                 54.4%
group (6 individuals)

Exhibit
  No.     Description

2.1       Agreement and Plan of Merger dated as of February 28, 2002 among the
          Registrant, CCS International, Ltd., and CCS Merger Corp.(1)

3.1       Articles of incorporation (2)

3.1       Articles of Amendment to Articles of Incorporation (4)

3.2       By-laws (2)

10.1      Employment Agreement, dated as of April 17, 2002, by and between the
          Registrant and Ben Jamil. (3)

10.2      Form of pledge Agreement, dated as of April 17, 2002, by and between
          the Registrant and Atlas Equity (3)

10.3      Agreement dated as of December 16, 2002, by and between the Registrant
          and ATLAS EQUITY and successor owners of Atlas Equity's pledged
          shares. (5)

10.3      2002 Stock Plan. (4)

10.4      2003 Stock Incentive Plan (5)

10.5      Consulting Agreement, dated as of July 2, 2003, by and between the
          Registrant and Michael D. Farkas. (6)

10.6      Consulting Agreement, dated as of July 2, 2003, by and between the
          Registrant and Shimon Fishman. (6)

10.7      Consulting Agreement, dated as of July 18, 2004, by and between the
          Registrant and Jason S. Lyons (7)

10.8      2004 Stock Plan.

10.9      Revolving Convertible Credit Agreement, dated June 10, 2004, by and
          between the Registrant and private investors, including Michael D.
          Farkas

14.1      Code of Ethics.

21.1      List of Subsidiaries.

23.1      Consent of Independent Auditors.

31.1      Certification of chief executive officer.

31.2      Certification of chief financial officer.

32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
          of 2002

(1)       Filed as an exhibit to the Registrant's Form 8-K with a report date of
          February 28, 2002 and which was filed with the Commission on March 5,
          2002, and incorporated herein by reference.

(2)       Filed as an exhibit to the Registrant's Form 10SB12G which was filed
          with the Commission on October 17, 2000, and incorporated herein by
          reference.

(3)       Filed as an exhibit to the Registrant's Form 8-K with a report date of
          April 17, 2002 and which was filed with the Commission on April 25,
          2002, and incorporated herein by reference.

(4)       Filed as an exhibit to the Registrant's Form 10-KSB filed with the
          commission on November 6, 2002, and incorporated herein by reference.

(5)       Filed as an exhibit to the Registrant's Form 10-KSB filed with the
          commission on October 14, 2003, and incorporated herein by reference.

(6)       Filed as an exhibit to the Registrant's Form S-8 filed with the
          commission on July 22, 2004, and incorporated herein by reference.

(7)       Filed as an exhibit to the Registrant's Form S-8 filed with the
          commission on September 29, 2003, and incorporated herein by
          reference.

Report of Independent Registered Public Accounting Firm                   F - 1

Independent Auditors' Report                                              F - 2

Consolidated Balance Sheet June 30, 2004                                  F - 3

Consolidated Statements of Operations for the years
   ended June 30, 2004 and June 30, 2003                                  F - 4

Consolidated Statement of Changes in Stockholders' Deficit
   for the years ended June 30, 2004 and June 30, 2003                    F - 5

Consolidated Statements of Cash Flows for the years
   ended June 30, 2004 and June 30, 2003                                  F - 6

Notes to Consolidated Financial Statements                        F - 7 - F -22

ASSETS
Current Assets:
      Cash                                                                              $    172,621
     Inventory                                                                               959,825
     Other current assets                                                                    223,872
                                                                                        ------------
        Total current assets                                                               1,356,318

Property and Equipment, at cost less accumulated depreciation
   and amortization of $170,969                                                               22,248

Other assets                                                                                  35,071
                                                                                        ------------
 Total assets                                                                           $  1,413,637
                                                                                        ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable and accrued expenses                                              $  3,722,228
     Note payable - CEO/stockholder                                                        1,509,151
     Convertible notes payable                                                               200,000
     Customer deposits                                                                     1,917,031
     Deferred revenue                                                                      1,408,679
                                                                                        ------------
         Total current liabilities                                                         8,757,089
                                                                                        ------------
Commitments and contingencies - See Notes

Stockholders' deficit:
     Preferred stock, $.0001 par value, 10,000,000 shares authorized:
         Series A Convertible-$1.00 per share liquidation preference, 3,500,000 shares
            authorized, issued and outstanding                                                   350
         Series B Convertible-$1.00 per share liquidation preference, 1,500,000 shares
            authorized, issued and outstanding                                                   150
     Common stock, $.0001 par value, 100,000,000 shares authorized,
         22,306,816 shares issued and outstanding                                              2,231
     Additional paid in capital                                                            3,808,283
     Accumulated deficit                                                                 (11,136,871)
     Accumulated other comprehensive loss                                                    (17,595)
                                                                                        ------------
       Total stockholders' deficit                                                        (7,343,452)
                                                                                        ------------
Total liabilities and stockholders' deficit                                             $  1,413,637
                                                                                        ============

                                                            Years Ended
                                                     ---------------------------
                                                                June 30,
                                                     ---------------------------
                                                         2004           2003
                                                     ------------   ------------
Sales                                                $  3,013,332   $  3,729,165
                                                     ------------   ------------
Costs and expenses:
     Cost of sales                                      1,402,980      1,827,045
     Compensation and benefits                          2,227,767      2,542,545
     Professional fees and legal matters                  933,576        936,621
     Stock based compensation                           1,608,858          5,301
     Selling, general and administrative expenses       1,743,625      1,910,546
     Unrealized (gain) loss on financial guarantees      (135,590)       146,440
     Depreciation and amortization                        100,142        104,723
                                                     ------------   ------------
                                                        7,881,358      7,473,221
                                                     ------------   ------------
Operating loss                                         (4,868,026)    (3,744,056)

Interest expense                                          131,046        104,381
                                                     ------------   ------------
Net loss                                             $ (4,999,072)  $ (3,848,437)
                                                     ============   ============
Net loss per above                                   $ (4,999,072)  $ (3,848,437)
Other comprehensive loss - translation adjustment         (17,595)          --
                                                     ------------   ------------
Total comprehensive loss                             $ (5,016,667)  $ (3,848,437)
                                                     ============   ============
Loss per share, basic and diluted                    $      (0.25)  $      (0.22)
                                                     ============   ============
Weighted average number of shares                      20,036,902     17,278,269
                                                     ============   ============

                          Convertible Preferred                                      Retained    Accumulated
                --------------------------------------                   Additional   Earnings     Other          Total
                    Series A             Series B       Common Stock      Paid-in   (Accumulated Comprehensive  Stockholders'
                    Shares    Amount   Shares    Amount  Shares   Amount  Capital     Deficit)       Loss        Deficit
                -------------------------------------------------------------------------------------------------------------
Balances, July
 1, 2002            3,500,000  $350    1,500,000  $150 16,992,346 $1,699   $418,417  $(2,289,362)          $-  $(1,868,746)

Issuance of
 common stock
   to settle
    debt                    -     -            -     -    419,043     42     83,405            -            -       83,447
Amortization of
 deferred
   compensation             -     -            -     -          -      -      5,301            -            -        5,301
Net loss                    -     -            -     -          -      -          -   (3,848,437)           -   (3,848,437)
                -----------------------------------------------------------------------------------------------------------
Balances,
 June 30, 2003      3,500,000   350    1,500,000   150 17,411,389  1,741    507,123   (6,137,799)           -   (5,628,435)
Sale of common
 stock                      -     -            -     -  1,190,000    119    168,881            -            -      169,000

Adjustment to
 record
 discount
   given on
    stock sales             -     -            -     -          -      -    596,500            -            -      596,500

Issuance of
 common stock
   to settle
    debt                    -     -            -     -    836,459     84    756,083                         -      756,167

Stock issued to
 consultants                -     -            -     -  2,868,968    287    789,338                         -      789,625

Amortization of
 deferred
   compensation             -     -            -     -          -      -    990,358                         -      990,358

Net loss                    -     -            -     -          -      -          -   (4,999,072)           -   (4,999,072)
Other
 comphrehensive
 loss                       -     -            -     -          -      -          -            -      (17,595)     (17,595)
                -----------------------------------------------------------------------------------------------------------

Balances,
 June 30, 2004      3,500,000  $350    1,500,000  $150 22,306,816 $2,231 $3,808,283 $(11,136,871)    $(17,595) $(7,343,452)
                ===========================================================================================================

                                                                                          Years Ended
                                                                                  --------------------------
                                                                                          June 30,
                                                                                  --------------------------
                                                                                       2003         2003
                                                                                  ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                     $(4,999,072)  $(3,848,437)
    Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                  100,142       104,723
      Unrealized (gain) loss on financial guarantees                                (135,590)      146,440
      Stock issued to consultants and officers for services                          123,625          --
      Amortization of deferred compensation                                          990,358         5,301
      Discount on common stock sold and issued for services                          618,500          --
      Other comprehensive loss                                                       (17,595)         --
      Noncash compensation - CEO/stockholder                                          28,872       139,976
      Noncash interest expense - CEO/stockholder                                      55,887        47,649
      CHANGES IN OPERATING ASSETS AND LIABILITIES:
        Decrease in inventory                                                        488,489       741,873
        (Increase) decrease in other current assets                                 (171,430)      133,073
        Increase in accounts payable and accrued expenses                          1,050,209     1,421,662
        Increase in customer deposits                                                639,336       227,923
         Increase in deferred revenue                                                373,605       688,883
                                                                                 -----------   -----------
Net cash used in operating activities                                               (854,664)     (190,934)
                                                                                 -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Decrease (Increase) in other assets                                               19,875        (7,213)
                                                                                 -----------   -----------
Net cash used in investing activities                                                 19,875        (7,213)
                                                                                 -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                                           813,000          --
    Repayments of note payable - bank                                                   --        (200,000)
    Borrowings under note payable - CEO/stockholder                                     --         387,441
    Repayments of note payable - CEO/stockholder                                     (27,228)         --
    Borrowings under convertible credit facility                                     200,000          --
                                                                                 -----------   -----------
Net cash provided by financing activities                                            985,772       187,441
                                                                                 -----------   -----------
Net increase (decrease) in cash                                                      150,983       (10,706)

Cash, beginning of year                                                               21,638        32,344
                                                                                 -----------   -----------
Cash, end of year                                                                $   172,621   $    21,638
                                                                                 ===========   ===========

                                                                               Year Ended June 30,
                                                                       --------------------------------------
                                                                             2004                 2003
                                                                       ----------------    ------------------
Net loss:
     As reported                                                           $ (4,999,072)        $ (3,848,437)
     Deduct: Total stock based employee compensation expense
        determined under the fair value based method for all awards            (249,859)            (310,041)
                                                                       -----------------    -----------------
                                                                           $ (5,248,931)        $ (4,158,478)
                                                                       =================    =================

Loss per share:
     As reported                                                                $ (0.25)             $ (0.22)
     Proforma                                                                   $ (0.26)             $ (0.24)

Loss Per Share - Continued
--------------------------
                                                    Year Ended June 30,
                                               ---------------------------
                                                   2004            2003
                                               ----------        ---------
Series A Convertible Preferred Stock            3,500,000        3,500,000
Series B Convertible Preferred Stock            1,500,000        1,500,000
Stock options                                   2,609,500        1,959,500
Warrants                                          900,000          400,000

Small components and supplies                                       $ 214,565
Finished goods                                                        745,260
                                                               ---------------
                                                                    $ 959,825
                                                               ===============

3.  PROPERTY AND EQUIPMENT

Office furniture and equipment                               $ 188,567
Leasehold improvements                                           4,650
                                                        ---------------
                                                               193,217
Accumulated depreciation and amortization                     (170,969)
                                                        ---------------
                                                              $ 22,248
                                                        ===============

Accounts payable - trade                            $1,941,295
Professional fees and legal matters                  1,181,864
Potential liability for guarantees of common stock
   issued in settlement of claims                      161,803
Payroll liabilities                                    389,988
Deferred rent payable                                   47,278
                                                    ----------
                                                    $3,722,228
                                                    ==========

                              Number of    Weighted Average
                                Shares      Exercise Price
                              ----------  ------------------

Outstanding at June 30, 2002   1,783,000    $     0.61
      Granted                    300,000          0.08
      Cancelled                  (90,500)         1.34
      Exercised                     --              --
                              ----------    ----------
Outstanding at June 30, 2003   1,992,500          0.50

      Granted                    650,000          0.25
      Cancelled                  (33,000)         1.34
      Exercised                     --              --
                              ----------    ----------
Outstanding at June 30, 2004   2,609,500    $     0.42
                              ==========    ==========

                                 Weighted
                                  Average
                                  Number     Remaining Number
 Exercise     Outstanding       Contractual    Exercisable
  Price        6/30/2004       Life (Months)    6/30/2004
-----------   -----------   --------------     ------------
  $ 0.08          300,000               98         300,000
  $ 0.25          650,000              115         650,000
  $ 0.50        1,605,500               91       1,593,500
  $ 1.00           49,000               91          49,000
  $ 1.90            5,000               93           5,000
              -----------   --------------     -----------
                2,609,500               98       2,597,500
             ============   ==============     ===========

                                                              June 30,
                                                  ----------------------------------
                                                       2004              2003
                                                  ---------------   ----------------
Federal tax at statutory rate                       $ (1,700,000)      $ (1,355,000)
State and local taxes, net of federal effect            (297,000)          (159,000)
Nondeductible items                                      237,000             93,000
Change in valuation allowance                          1,760,000          1,421,000
                                                  ---------------   ----------------
Income taxes (tax benefit)                          $          -       $          -
                                                  ===============   ================
Components of deferred taxes are as follows:

                                                              June 30,
                                                  --------------------------------
Deferred tax assets:                                   2004             2003
                                                  ---------------  ---------------
   Net operating losses                              $ 2,912,000      $ 1,798,000
   Deferred rent payable                                  18,000           22,000
   Reserves and allowances                               762,000          480,000
   Stock based compensation                              413,000           16,000
   Deferred revenue                                      563,000          413,000
                                                  ---------------  ---------------
                                                       4,668,000        2,729,000
Deferred tax liability:
   Property and equipment                                 (6,000)           6,000
                                                  ---------------  ---------------
                                                       4,662,000        2,723,000
Less valuation allowance                              (4,662,000)      (2,723,000)
                                                  ---------------  ---------------
 Net deferred taxes                                  $          -     $          -
                                                  ===============  ===============

                                                                        Year Ended
                                                               -----------------------------
                                                                          June 30,
                                                               -----------------------------
                                                                    2004            2003
                                                               --------------  -------------
Cash paid during the period for:
     Interest                                                       $ 74,063       $ 56,732
                                                               ==============  =============
     Income taxes (refunded - net)                                   $ 2,929     $ (153,707)
                                                               ==============  =============

Non-cash financing and investing activities:
     Common stock issued to settle accounts payable                $ 756,166       $ 83,447
                                                               ==============  =============
     Accrued interest and deferred salary credited
        to loan payable - CEO/stockholder                           $ 84,759      $ 187,625
                                                               ==============  =============

  Year ending
    June 30,                 Amount
-----------------        ---------------

      2005                    $ 514,894
      2006                      300,999
      2007                      266,697
      2008                      242,100
      2009                      162,954
Thereafter                      250,697
                         ---------------
                            $ 1,738,341
                         ===============

/s/ Ben Jamil
-------------------------------------
Ben Jamil
Chairman of the Board of Directors,
President and Chief Executive Officer
Dated: October 12, 2004

/s/ Ben Jamil                             /s/ Chris R. Decker
--------------------------------------    ------------------------------------
Ben Jamil                                 Chief Financial Officer and Director
Chairman of the Board of Directors,       Dated:  October 12, 2004
President and Chief Executive Officer
Dated:  October 12, 2004


/s/ Menachem Cohen                        /s/ Sylvain Naar
-------------------------------------    -------------------------------------
Menachem Cohen                            Sylvain Naar
Vice President and Director               Director
Dated: October 12, 2004                   Dated: October 12, 2004


/s/ Tom Felice
-------------------------------------
Tom Felice
Director
Dated: October 12, 2004