SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Issuer's telephone number: (604) 417-6172

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

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 Issuer 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 contained in this form, and no disclosure will be contained, to the best of Issuer'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 Issuer's loss for the fiscal year ended March 31, 2003 was $396,277.

As of July 30, 2003, the aggregate market value of the Common Stock of the Issuer, based upon the average bid and asked prices of such Common Stock, held by non-affiliates of the Issuer was approximately $564,543.

As of July 30, 2003, 94,722,903 shares of Common Stock of the Issuer were outstanding.

The Registrant incorporates by this reference the following:

* Agreement and Plan of Reorganization dated March 25, 2002, and financial statements, by reference from the Form 8-K/A, August 9, 2002

* Articles of Incorporation, iRV, Inc., by reference from the Form 8-K, February 2000.

* Bylaws, iRV, Inc., by reference from the Form 8-K, February 2000.

* Proxy statement pursuant to section 14(a) of the securities exchange act of 1934, by reference from Definitive Proxy Statement, September 5, 2002.

Certain statements made in this Annual Report are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements made in this Report are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the growth and expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements made in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements made in this Report, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

Scarab Systems, Inc. (OTC BB: IRVV) is a development stage company that was formed by the merger of Scarab Systems, Inc., a Nevada corporation into iRV, Inc., a Colorado corporation, that subsequently changed its name to Scarab Systems, Inc. We are in the business of providing services to the e-commerce sector in the form of marketing, e-commerce development and the sale and distribution of transaction processing and payment services, including rechargeable stored value payment and money transfer systems that can be used for both electronic commerce and point of sale purchases.

Scarab Systems, Inc. was a privately owned Nevada corporation that was formed in October 8, 2001. It was initially formed in order to provide services to the e-commerce industry, and in particular to provide marketing services, e-commerce development services and the sale and distribution of transaction processing and payment services, including rechargeable stored value payment and money transfer systems that can be used for both electronic commerce and point of sale purchases. Scarab Systems, Inc. completed a $243,000 private placement in fiscal year 2002.

The effective date of the merger transaction between Scarab Systems, Inc. (Nevada) and iRV, Inc. was July 17, 2002. On that date the shareholders of Scarab Systems, Inc. (Nevada) received ten shares of the common stock of iRV, Inc. for each share of Scarab Systems, Inc. (Nevada) common stock owned. The number of outstanding shares of iRV, Inc. increased from 14,462,903 to 97,062,903. The 82,600,000 shares of iRV, Inc.'s stock issued to the former shareholders of Scarab Systems, Inc. (Nevada) represented, immediately after their issuance, 85.851% of the total issued and outstanding shares of iRV, Inc.'s common stock following the merger. This reorganization was accounted for as though it were a re-capitalization of Scarab Systems, Inc. (Nevada) and a sale of shares by Scarab Systems, Inc. (Nevada) in exchange for the net assets of iRV, Inc. Subsequent to completion of the reorganization, Scarab Systems, Inc. (Nevada) transferred all its assets and liabilities to iRV, Inc. and ceased to exist. The directors and executive officers of iRV, Inc. were subsequently reconstituted and iRV, Inc. changed its name to Scarab Systems, Inc.

Our business is to provide services to the e-commerce industry. These services have been comprised of marketing, e-commerce development and the sale and distribution of transaction processing and payment services, including rechargeable stored value payment and money transfer systems that can be used for both electronic commerce and point of sale purchases. In fiscal year 2003 we ceased operations with respect to marketing and the sale and distribution of transaction processing and payment services. Our e-commerce operations presently earn nominal revenue.

We currently have no facilities and no employees. Our administrative affairs are conducted by our officers as independent contractors. Our address is 406-280 Nelson Street, Vancouver, British Columbia V6B 2E2. Our telephone number is (604)417-6172. Our officers collectively own 6,000,000 shares of our common stock.

Payment Processing

We obtained from Scarab Systems, Inc. (Nevada) a license to be the exclusive distributor in certain market sectors of the Smart-e-Card produced by Bentley-Tel USA Inc. The Smart-e-Card was a private label card-based payment system that included ISP services, unified messaging services, domestic and international banking and phonecard services, medical file storage and retrieval services, health insurance membership, and college fund services.

On August 7, 2002, we were granted a license by Merchant Wired Global to be the sole independent distributor of products and services relating to electronic payment processing for Internet merchants and financial institutions.

On November 18, 2002, 2002, we were granted a license in partnership with Prima Benefits Corporation of Fort Lauderdale, Florida, to sell a card-based payment system that is viable under existing regulatory conditions, with exclusive rights in the certain market sectors. During the Period, we did not earn any revenue from payment processing.

We have been unable to retain sales staff sufficient to sell our financial transaction processing services or payment systems. Furthermore, the events of September 11, 2001, and subsequent regulatory changes, have had a substantial impact on the processing of financial transactions and electronic payment systems.

Our payment processing business has been unsuccessful and has failed to yield any revenue. Effective July 15, 2003, we ceased operations in respect of payment and transaction processing.

Marketing

We were given an option in fiscal year 2002 to acquire all the issued and outstanding shares of 485017 B.C. Ltd., a British Columbia company doing business at MarketEdge Direct ("MED"), as security against a subscription receivable of $337,500 for 6,750,000 shares from the shareholders of MED. MED was in the business of providing a wide range of marketing products and services. Effective August 7, 2002, we exercised the option and acquired all the issued and outstanding shares of MED. MED had realized a net operating profit of $40,586.71, on gross sales $1,104,648.08 for its fiscal year ended November 30, 2001. While MED had realized a pre-tax net loss of $14,376 on gross sales of $1,104,648 for its fiscal year ended November 30, 2001, it had become a strong brand in the marketing sector, with loyal clients and consistent revenue from sales. We believed that, with attention to business fundamentals, MED would gain control of its losses in fiscal year 2002, and would realize a profit in fiscal year 2003. Our acquisition of MED was treated as a non-material business combination.

On March 28, 2003, we entered into an agreement with the former shareholders of MED to sell MED back to them. We agreed with the former shareholders of MED that our acquisition of MED was not having satisfactory results for either party and that it was to the mutual benefit of all concerned that all the issued and outstanding shares of MED we acquired be sold back to them for 5,400,000 of our common shares.

As a result of the sale of MED back to its former shareholders, we do not have any marketing operations. We do not plan to pursue marketing operations in the foreseeable future.

E-Commerce

On March 28, 2003, we acquired all the issued and outstanding shares of Catalyst Technologies, Inc., a British Columbia corporation ("Catalyst"). Catalyst is a Vancouver based, web design and Internet application developer. It specializes in the development of web-sites and Internet software design, primarily for the Health and Nutraceutical industry. It has developed web-sites for leading companies in the industry and is presently negotiating significant expansion of their portfolio. Our acquisition of Catalyst was treated as a non-material business combination.

Revenue generated by Catalyst has been nominal to date. While we are making efforts to develop Catalyst's e-commerce business, we have extremely limited resources with which to engage in marketing or promotion of its services. Without additional capital, we believe that the revenue earned by Catalyst will not be significant for the foreseeable future.

Notwithstanding our acquisition of Catalyst Technologies, Inc., we believe that it is in the best interests of the Company and its shareholders that we actively seek acquisition candidates. We believe the Company can offer owners of potential merger or acquisition candidates the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering. The target company will, however, incur significant post-merger or acquisition registration costs in the event target company shareholders wish to offer a portion of their shares for subsequent sale. Further, while target company shareholders will receive "restricted securities" in any merger or acquisition transaction, those restricted securities will represent, if a trading market develops for our common stock, ownership in a "publicly-traded" as opposed to a "privately-held" company. We also believe target company shareholders may benefit in obtaining a greater ownership percentage in the Company remaining after a merger or acquisition than may be the case in the event a target company offered its shares directly for sale to the public. Nevertheless, our officers and directors have not conducted market research and are not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for target company shareholders.

We expect to concentrate primarily on the identification and evaluation of prospective merger or acquisition "target" entities including private companies, partnerships or sole proprietorships. We do not intend to act as a general or limited partner in connection with partnerships we may merge with or acquire. We have not identified any particular area of interest within which it will concentrate its efforts.

We plan to seek to merge with or acquire a target company with either assets or earnings, or both, and that preliminary evaluations undertaken by us will assist in identifying possible target companies. We have not established a specific level of earnings or assets below which it would not consider a merger or acquisition with a target company. Moreover, we may identify a target company, which is generating losses, which it will seek to acquire or merge with it. The merger with or acquisition of a target company which is generating losses or which has negative shareholders' equity may have a material adverse affect on the price of our common stock.

It should be noted, however, that our independent accountants audit report for the fiscal year ended March 31, 2003 contains a qualification and explanatory language that due to our recurring losses from operations and net capital deficiency, substantial doubts exist about our ability to continue as a going concern.

We plan to follow a systematic approach to identify our most suitable acquisition candidates. In the past, our officers and directors have not used consultants in an effort to identify potential target companies, although it is possible that such consultants may be used in the future. To date, there have been no discussions with and there exists no agreements or understandings with any particular consultant to provide such services for us. If a finder or consultant is engaged, of which there can be no assurance, we will make an effort to limit the scope and duration of the services to be performed by such consultant so as to minimize any costs associated with such services

As a reporting Company under Section 13 of the Exchange Act, we will be required to prepare and file an annual report on Form 10-KSB containing audited financial statements certified by an independent public accountant. In addition, we will be required to file Quarterly Reports on 10-QSB for the first, second and third interim periods which include unaudited financial statements for the quarter and year to date. In addition to the Quarterly and Annual Reports, extraordinary events outside of the ordinary course of business must be reported on Form 8-K, such as a change of control, a material acquisition or disposition of assets, changes in accountants and the like. Under certain circumstances, an acquisition of significant assets or a significant subsidiary will require the preparation of additional audited financial statements for the acquired business as well as pro forma financial information. Our officers, directors and ten-percent shareholders will also be subject to the beneficial ownership reporting requirements and short swing trading restrictions contained in Section 16 of the Exchange Act. All of the foregoing reporting requirements, and the associated costs of complying with such requirements, could limit the pool of potential acquisition or merger candidates.

While we will make every effort to fully comply with its reporting obligations under the Exchange Act, should such obligations be suspended for any reason in the future, we intend to continue to voluntarily file periodic reports.

First, we intend to concentrate on identifying any number of preliminary prospects which may be brought to the attention of management through present associations, personal contacts of our affiliates, or by virtue of very limited advertising campaigns we may conduct. As is customary in the industry, we may pay a fee to a non-affiliate for locating a merger or acquisition candidate. If any such fee is paid, it will be approved by our Board of Directors and will be in accordance with industry standards. After preliminary candidates are identified, We will then apply certain of its broad criteria to the prospects. Essentially, this will entail a determination by us as to whether or not the prospects are in an industry which appears promising and whether or not the prospects themselves have potential within their own industries. During this initial screening process, we will ask and receive answers to questions framed to provide appropriate threshold information, depending upon the nature of the prospects' businesses. Such evaluation is not expected to be an in^-depth analysis of the target company's operations although it will encompass a look at most, if not all, of the same areas to be examined once one or more target companies are selected for an in^-depth review. For example, at this stage, we may look at a prospect's unaudited balance sheet. Once a prospect is selected for an in^-depth review, we will review the prospect's audited financial statements. Nevertheless, this evaluation is anticipated to provide a broad overview of the business of the target company and should allow a large percentage of preliminary prospects to be eliminated from further consideration.

Assuming we are able to complete the preliminary evaluation process and select a limited number of companies for further study, of which there can be no assurance, it may enter into preliminary negotiations with target company management in order to obtain detailed financial and operational information. Following our receipt of such information, we will conduct an in^-depth analysis of five major areas of concern with respect to the target company as follows:

1. Managerial and Financial Stability. We will review audited financial statements of the target company, to the extent available, and will also research the background of each director and member of management of the target company in order to discern whether the stability of the company is such that further negotiations are warranted.

2. Industry Status. We will research the potential of the target company's industry. The concern here is whether the industry is in a growth, stagnant or declining stage.

3. Production of Product. If the target company is a manufacturer, we will review whether it has the necessary resources or access to the necessary resources and supplies to produce a quality product in a timely manner.

4. Acceptance and Potential of Product. We will review the acceptance of the target company's product in the market place and assess the competition. We will also review whether or not the product is realistic: is there potential for the product to be workable and to fulfill its intended purpose.

5. Development of Target Company. We will review the target company's stage of development (examples: start^-up stage, established company, etc.).

The foregoing is an outline of the areas of concern which most often arise and merit careful scrutiny by management. Because of the possible varieties of target companies, which may come to our attention, additional factors will most likely be considered in any given analysis. Also, the procedures used in such a review are expected to vary depending upon the target company being analyzed. We may select a target company for further negotiations even though the target may not receive a favorable evaluation as to some of the five areas of concern.

We expect to enter into further negotiations with target company management following successful conclusion of financial and evaluation studies. Negotiations with target company management will be expected to focus on the percentage of the Company that Target Company shareholders would acquire in exchange for their shares in the target company. Depending upon, among other things, the target company's assets and liabilities, our shareholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. Assets of a merger or acquisition candidate would be valued at historical cost for transactional purposes. The percentage ownership may be subject to significant reduction in the event we acquire a target company with substantial assets. Any merger or acquisition we effect can be expected to have a significant dilutive effect on the percentage of shares held by our then shareholders.

The final stage of any merger or acquisition to be effected by us will require us to retain the services of our counsel and a qualified accounting firm in order to properly effect the merger or acquisition. We may be expected to incur significant legal fees and accounting costs during the final stages of a merger or acquisition. Also, if the merger or acquisition is successfully completed, we anticipate that certain costs will be incurred for public relations, such as the dissemination of information to the public, to the shareholders and to the financial community. If we are unable to complete the merger or acquisition for any reason, our capital may be substantially depleted if legal fees and accounting costs have been incurred. We intend to retain legal and accounting services only on an as^-needed basis in the latter stages of a proposed merger or acquisition.

We anticipate that it may be necessary to raise additional funds within the next 12 months to meet expenditures required for operations. There are no current plans or commitments in this regard, and there can be no assurance that we will be able to raise the funds necessary to continue its limited operations.

It is possible that acquisition targets are seeking a business combination with us as part of their efforts to raise additional capital. We do not intend to raise capital, either through the public or private sale of equity or debt securities to enable us to provide bridge capital to any potential acquisition candidate. Nor do we intend to borrow any funds or use any proceeds of any equity or debt offering to make payments to any of our management, promoters, or their respective affiliates or associates.

The consummation of any acquisition will likely result in a change in control of the Company, pursuant to which the officers, directors and principal shareholders of the acquired company will be issued sufficient numbers of shares of our common stock to exercise voting control immediately following the acquisition. In addition, the transaction may involve the sale by our current principal shareholders of all or a portion of their beneficial ownership of our common stock to the control persons of the acquired company. Such sale would be upon terms privately negotiated between the principals of the acquired company and our principal shareholders. Our shareholders will, in all likelihood, not be provided with information, including financial statements, of a business to be acquired or be afforded an opportunity to approve or consent to any stock buy^-out transaction involving our principal shareholders. Moreover, our other shareholders will in all likelihood not be offered an opportunity to sell their shares of our common stock on the same or similar terms and conditions. We have not adopted and do not plan to adopt in the future any policy that would restrict, limit or prohibit management or our principal shareholders from negotiating a buy^-out of their stock in connection with an acquisition transaction.

We will remain an insignificant participant among the firms, which engage in mergers with and acquisitions of privately financed entities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we do. In view of our combined limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors. Also, we will be competing with numerous other small, blank check, public companies.

We could be subject to regulation under the Investment Company Act of 1940 in the event we obtain and continue to hold a minority interest in a number of entities. Our plan of operation is based upon the us obtaining a controlling interest in any merger or acquisition target company and, accordingly, we may be required to discontinue any prospective merger or acquisition of any company in which a controlling interest will not be obtained.

We could also be required to register under the Investment Company Act of 1940 in the event it comes within the definition of an Investment Company contained in that Act due to its assets consisting principally of shares held in a number of other companies. We intend to seek at most one or two mergers or acquisitions, which transactions we believe will not result in the Company being deemed an "investment company" since its interests will be in majority or wholly owned subsidiaries which themselves will not be investment companies.

Any securities that we acquire in exchange for our common stock will be "restricted securities" within the meaning of the Securities Act of 1933 (the "1933 Act"). If we elected to resell such securities, such sale could not proceed unless a registration statement had been declared effective by the Securities and Exchange Commission or an exemption from registration was available. Section 4(1) of the 1933 Act, which exempts sales of securities not involving a distribution, would in all likelihood be available to permit a private sale if various restrictions pertaining to such a sale are complied with. Although our plan of operation does not contemplate resale of securities acquired, in the event such a sale were necessary, we would be required to comply with the provisions of the 1933 Act.

As a condition to any merger or acquisition, it is possible that the target company management may request registration of our common stock to be received by target company shareholders. In such event, we could incur registration costs, and we intend to require the target company to bear most, if not all, of the cost of any such registration. If we do contribute toward the cost of such registration, our maximum contribution will be limited to the extent that we have assets available for such contribution. Alternatively, we may issue "restricted securities" to any prospective target company, which securities may be subsequently registered for sale or sold in accordance with Rule 144 of the Securities Act of 1933.

We intend to structure a merger or acquisition in such a manner as to minimize federal and state tax consequences to the Company and any target company.

The Company's President and Chief Executive Officer is Thomas E. Mills.

The Company's interim Chief Financial Officer is John S. Allen.

The Company's Chief Operations Officer is Lou Hilford.

The Company has no employees. Management services are provided to the Company by Thomas E. Mills, Lou Hilford, and John S. Allen, respectively, as independent contractors and under independent service agreements.

We own the registered domain names www.scarabsys.com, and www.gncbooks.com. We do not claim any other intellectual property protection to any of our assets and do not believe that our intellectual property is material to our operations.

ITEM 2. DESCRIPTION OF PROPERTY

The Company does not own any real property either for its own use or for investment purposes. Office space for our corporate offices is provided at no charge by our President, Thomas E. Mills.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently a party to any legal proceedings. However, the Company is in default under several agreements and is generally unable to make payment to its creditors. Some creditors have commenced collection proceedings that may evolve into legal proceedings.

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

The Company did not submit any matters to a vote of its securities holders during the fourth quarter ended March 31, 2003.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The outstanding shares of the Company's common stock are traded over-the-counter on an electronic bulletin board under the symbol "IRVV". The Company's transfer agent is Computershare Investor Services, located at 350 Indiana Street, Suite 800, Golden, Colorado, 80401.

The following table summarizes the reported high and low bid and ask prices for the Company's Common Stock for the period April 1, 2000 through March 31, 2003. Since the quotations do not include commissions or the amounts that a dealer may mark-up or markdown the stock in a particular transaction, quotations may not accurately reflect the actual transactions that were completed during the fiscal period.

As of March 31, 2003, there were 202 record owners of the Company's common stock. Approximately 18 were held in the name of Cede & Co., an institution that holds stock for a large number of beneficial owners. We estimate the number of beneficial owners to exceed 200 stockholders.

The Company's Board of Directors may declare and pay dividends on outstanding shares of common stock out of funds legally available therefor in its sole discretion; however, to date no dividends have been paid on common stock and we do not anticipate the payment of dividends in the foreseeable future.

The Company declared a dividend of all of its shares of RAM to be distributed to its shareholders of record as of June 25, 2002. Payment of the dividend is subject to a registration statement being declared effective by the SEC.

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

Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts are forward-looking statements such as statements relating to future operating results, existing and expected competition, financing and refinancing sources and availability and plans for future development or expansion activities and capital expenditures. Such forward-looking statements involve a number of risks and uncertainties that may significantly affect the Company's liquidity and results in the future and, accordingly, actual results may differ materially from those expressed in any forward-looking statements. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

Scarab Systems, Inc. (OTC BB: IRVV) is a development stage company that was formed by the merger of Scarab Systems, Inc., a Nevada corporation into iRV, Inc., a Colorado corporation, that subsequently changed its name to Scarab Systems, Inc. We are in the business of providing services to the e-commerce sector in the form of marketing, e-commerce development and the sale and distribution of transaction processing and payment services, including rechargeable stored value payment and money transfer systems that can be used for both electronic commerce and point of sale purchases.

Scarab Systems, Inc. was a privately owned Nevada corporation that was formed in October 8, 2001. It was initially formed in order to provide services to the e-commerce industry, and in particular to provide marketing services, e-commerce development services and the sale and distribution of transaction processing and payment services, including rechargeable stored value payment and money transfer systems that can be used for both electronic commerce and point of sale purchases. Scarab Systems, Inc. completed a $243,000 private placement in fiscal year 2002.

The effective date of the merger transaction between Scarab Systems, Inc. (Nevada) and iRV, Inc. was July 17, 2002. On that date the shareholders of Scarab Systems, Inc. (Nevada) received ten shares of the common stock of iRV, Inc. for each share of Scarab Systems, Inc. (Nevada) common stock owned. The number of outstanding shares of iRV, Inc. increased from 14,462,903 to 97,062,903. The 82,600,000 shares of iRV, Inc.'s stock issued to the former shareholders of Scarab Systems, Inc. (Nevada) represented, immediately after their issuance, 85.851% of the total issued and outstanding shares of iRV, Inc.'s common stock following the merger. This reorganization was accounted for as though it were a re-capitalization of Scarab Systems, Inc. (Nevada) and a sale of shares by Scarab Systems, Inc. (Nevada) in exchange for the net assets of iRV, Inc. Subsequent to completion of the reorganization, Scarab Systems, Inc. (Nevada) transferred all its assets and liabilities to iRV, Inc. and ceased to exist. The directors and executive officers of iRV, Inc. were subsequently reconstituted and iRV, Inc. changed its name to Scarab Systems, Inc. Accordingly, management's discussion and analysis of the Company's financial condition and results of operations is with regard to the continuation of Scarab Systems, Inc. (Nevada).

The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto of the Company included elsewhere herein.

The Company's auditors have indicated, in their report dated July 19,2003, that there is substantial doubt regarding our ability to continue as a going concern as a result of a cumulative net loss since inception of $508,711 and a working capital deficiency of $213,922 as at March 31, 2003. We have not generated any income since our inception and our operations are nominal.

We have incurred losses since commencing operations on October 8, 2001, and as of March 31, 2003, had an cumulative net loss of $508,711. On March 28, 2003, we terminated our acquisition of MED and as a result ceased our marketing operations. On July 15, 2003, we ceased operations with respect to payment and transaction processing. We currently generate nominal revenue through our wholly owned subsidiary, Catalyst Technologies, Inc. We continue to incur expenses, most of which relate to reporting obligations to shareholders and regulatory agencies. We also incur expenses in relation to acquisition activities. These expenses have been funded by our shareholders and officers, who, are under no obligation to continue such funding. Because of this uncertainty, our independent auditors qualified their report with regard to a substantial uncertainty about our ability to continue as a going concern.

In fiscal year 2002, we loaned the sum of $62,684 (CAD$100,000) to Healthnet International, Inc. ("Healthnet") with a view to entering into a business combination in fiscal year 2003. The loan bore interest at 15% per annum and was convertible at our option into shares of Healthnet at $0.50 (CAD$0.80) per share (125,000 shares). It was subsequently determined by management that a business combination with Healthnet was not feasible and demanded repayment of the loan. Healthnet was unable to pay the loan. Healthnet and the Company subsequently agreed that Healthnet would assign its holdings of all the issued and outstanding shares of Catalyst Technologies, Inc., a British Columbia company ("Catalyst"), to the Company in full and final satisfaction of the debt owing by Healthnet to us. Catalyst is a web design and Internet application developer specializing in the development of web-sites and Internet software design, primarily for the Health and Nutraceutical industry. The acquisition of Catalyst was a non-material business combination, and was accounted for using the purchase method of accounting. The purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date. The purchase price was allocated entirely to goodwill and was then written down to nil in accordance with SFAS No. 142 and 144, being the estimated fair value of the goodwill at year-end.

In fiscal year 2002, we were given an option to acquire all the issued and outstanding shares of 485017 B.C. Ltd., a British Columbia company doing business at MarketEdge Direct ("MED"), as security against a subscription receivable of $337,500 for 6,750,000 shares from the shareholders of MED. MED provided a wide range of marketing products and services. Effective August 7, 2002, we exercised the option and acquired all the issued and outstanding shares of MED. On March 28, 2003, we entered into an agreement with the former shareholders of MED to sell MED back to them for proceeds of the return of 5,400,000 shares of the Company that were valued at $358,582 (the original investment of $337,500 plus net income of MED totaling $21,082 from the period of August 7, 2002 to March 28, 2003).

We were initially founded to provide services to the e-commerce sector in the form of electronic payment and transaction processing, marketing and web-site development services. Our business has not been successful.

We have not generated any revenue and have historically relied upon outside sources of debt and equity financing to fund operations. There can be no assurance that additional financing will be available on terms favorable to us, or at all.

The comparison of operations between fiscal years 2003 and 2002 is affected by the fact that the Company was incorporated on October 8, 2001. Fiscal year 2003 included operations for a full year while Fiscal Year 2002 included operations for only six months.

Revenues. We earned no revenue in either fiscal years 2003 or 2002.

Operating Expenses. Our total operating expenses increased $234,611 from $112,434 in fiscal year 2002 to $347,045 in fiscal year 2003. Most of this difference was due to the increase in the number of operating months, from 6 months to 12 months, and an increase in general and administrative expenses associated with the reorganization that took place in July of 2003, increased operations and regulatory filing requirements. The following general and administrative expenses were increased:

Impairment of intangibles. In fiscal year 2002, we loaned the sum of $62,684 (CAD$100,000) to Healthnet International, Inc. ("Healthnet") with a view to entering into a business combination in fiscal year 2003. The loan bore interest at 15% per annum and was convertible at our option into shares of Healthnet at $0.50 (CAD$0.80) per share (125,000 shares). It was subsequently determined by management that a business combination with Healthnet was not feasible and demanded repayment of the loan. Healthnet was unable to pay the loan. We subsequently agreed with Healthnet that Healthnet would assign its holdings of all the issued and outstanding shares of Catalyst Technologies, Inc., a British Columbia company ("Catalyst"), to us in full and final satisfaction of the debt owing by Healthnet to us. Catalyst is a web design and Internet application developer specializing in the development of web-sites and Internet software design, primarily for the Health and Nutraceutical industry. The acquisition of Catalyst was a non-material business combination, and was accounted for using the purchase method of accounting. The purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date. The purchase price was allocated entirely to goodwill and was then written down to nil in accordance with SFAS No. 142 and 144, being the estimated fair value of the goodwill at year-end.

Net Loss. The Company's net loss increased from $112,434 ($0.00 per share) in fiscal year 2002 to $396,277 ($0.01 per share) in fiscal year 2003. This increase is generally attributable to the fact that fiscal year 2003 was the Company's first full year of operations, increased general and administrative expenses, and the write-off of goodwill associated with the acquisition of Catalyst Technologies.

As at March 31, 2003, the Company has estimated tax losses carryforward for tax purposes of $520,000. This amount may be applied against future federal taxable income. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management's judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

The tax effects of temporary differences that give rise to the Company's deferred tax asset (liability) are as follows:

There is no transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have:

(1) Promissory note in the amount of $40,000 issued March 15, 2003 to the Company's President, Thomas E. Mills (see "TRANSACTIONS WITH RELATED PARTIES AND CERTAIN OTHER PARTIES")

(2) Unsecured promissory notes issued to unrelated arm's length investors in respect of various debt financings. The notes are convertible at various rates of between $0.05 and $0.075 per share.

(3) Unsecured promissory notes issued to unrelated arm's length investors in respect of various debt financings. The notes bear various interest rates ranging between nil percent and 20 percent.

On March 15, 2003, the Company issued to our President, Thomas E. Mills, an unsecured promissory note in the amount of $40,000 bearing interest at the rate of eight percent per year, that is due and payable on March 15, 2004. If the note is not paid by the due date, then interest will accumulate on the unpaid interest and principal at the rate of 20 percent per year. The note was issued in respect $40,000 advanced on behalf of the Company by Mr. Mills. The Board of Directors convened to evaluate the fairness of the promissory note without the benefit of advice from any third party or reference materials. It was resolved by the Board of Directors (Mr. Mills abstaining) that the promissory note was fair and further that the Company should issue the promissory note to Mr. Mills.

(a) Principles of Consolidation

(b) Cash and Cash Equivalents

(c) Accounting Estimates

(d) Advertising Expenses

(e) Fixed Assets

(f) Loss Per Share

(g) Concentration of Credit Risk

(h) Foreign Currency Transactions

(i) Fair Value of Financial Instruments

(j) Income Taxes

(k) Comprehensive Income

(l) Stock-based Compensation

(m) Goodwill and Intangible Assets

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issued No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS No. 146 generally requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred. The pronouncement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No.146 will not have an impact on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of indebtedness of Others: An Interpretation of FASB Statements of No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. This interpretation clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee. FIN 45 is effective for guarantees entered into or modified after December 31, 2002. The adoption of FIN 45 will not have impact on the Company's financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation : Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods for voluntary transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also requires disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 will not have an impact on the Company's financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities : An Interpretation of Accounting Research Bulletin (ARB) No. 51. This interpretation clarifies how to identify variable interest entities and how the Company should assess its interests in a variable interest entity to decide whether to consolidate the entity. FIN 46 applies to variable interest entities created after January 31, 2003, in which the Company obtains an interest after that date. Also, FIN 46 applies in the first fiscal quarter or interim period beginning after June 15, 2003, to variable interest entities in which the Company holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 will not have an impact on the Company's financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 will not have an impact on the Company's financial statements.

In addition to historical information, this Annual Report on Form 10-KSB includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements reflect our current views with respect to future events and financial performance. The words "believe," "project," "anticipates," "estimates," "expects," "most likely," "intends" and similar expressions identify forward looking statements.

Any forward-looking statements made by or on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors include, but are not limited to, competitive pressures, changing economic conditions, fluctuation in interest rates, the success of the Company's efforts in identifying and completing a merger, and other items that we discusses in this document. Though we have attempted to list the factors we believe to be important to our business, other factors may prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward looking statements.

Investors are further cautioned not to place undue reliance on any forward looking statements, as they speak only of our view as of the date the statement was made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Investors should refer to and carefully review the information in future documents the Company files with the Securities and Exchange Commission.

If we choose to finance future acquisitions in whole or in part through the issuance of common stock or debt instruments convertible into our common stock, our existing shareholders could experience dilution and our earnings per share could also be impacted by the issuance of additional shares of capital stock in connection with those acquisitions. If we choose to enter into a business combination, the transaction may result in a substantial issuance of shares of common stock and a change in control of the Company.

The price of our common stock may be highly volatile for several reasons. First, the public owns a limited number of shares of our stock. This may affect trading patterns, which generally occur when a greater number of shares are traded. Second, the quarterly variations in our operating results, as discussed above, may result in the increase or decrease of our stock price. Third, independent parties may release information regarding pending legislation, analysts' estimates or general economic or market conditions that affect the price of our stock. Also, the demand and the market performance of small capitalization stocks may affect our stock price. Any of these situations may have a significant effect on the price of our common stock or our ability to raise additional equity.

ITEM 7. FINANCIAL STATEMENTS

CHARTERED ACCOUNTANTS

1650 West 1st Avenue

Vancouver, BC Canada V6J 1G1

Telephone: (604) 734-1112 Facsimile: (604) 714-5916

Website: www.ellisfoster.com

(A development stage enterprise)

We have audited the consolidated balance sheets of Scarab Systems, Inc. ("the Company") (a development stage enterprise) as at March 31, 2003 and 2002, the related consolidated statements of stockholders' equity from October 8, 2001 (inception) to March 31, 2003 and the consolidated statements of operations and cash flows for the period ended March 31, 2003 and from October 8, 2001 (inception) to March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at March 31, 2003 and 2002 and the results of its operations and cash flows for the period ended March 31, 2003 and from October 8, 2001 (inception) to March 31, 2002 in conformity with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not generated any revenue from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."

July 19, 2003 Chartered Accountants