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     As filed with the Securities and Exchange Commission on March 30, 2001

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2000

                                       OR

[   ]               TRANSITION REPORT PURSUANT TO SECTION
               13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ..................to.........................

                     Commission File Number 0-19410

                            JAWZ Inc.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



Delaware                                                   98-0167013
------------------------------                             ------------------
State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization                              Identification No.)

                          12 Concorde Place, Suite 900
                            Toronto, Ontario, Canada
                                     M3C 3T1
                ------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


Registrant's telephone number, including area code          (403) 508-5055
                           --------------------------
Securities registered pursuant to Section 12(b) of the Act:


Title of each class                  Name of each exchange on which registered
        None                                             None
------------------------------       -----------------------------------------


          Securities registered pursuant to Section 12(g) of the Act:
                      Common Stock, par value $.001 per share
              ------------------------------------------------------
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
                                              --------       --------

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                                       2

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not 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-K or any amendment to this Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates of the
registrant was $10,486,941 on March 1, 2001.

Number of shares outstanding of the registrant's class of common stock as of
March 27th, 2001: 53,511,239.


                      DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for 2001 Annual Meeting of Stockholders - Part III

                                EXPLANATORY NOTE

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS PREDICTIONS, PROJECTIONS AND OTHER
STATEMENTS ABOUT THE FUTURE THAT ARE INTENDED TO BE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (COLLECTIVELY, "FORWARD-LOOKING STATEMENTS"). FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE THE INABILITY TO SUCCESSFULLY DEVELOP AND
COMMERCIALIZE PRODUCTS, THE COMPANY'S LIMITED OPERATING HISTORY AND CONTINUING
OPERATING LOSSES, RECENT AND POTENTIAL DEVELOPMENT STRATEGIC ALLIANCES, THE
OUTCOME OF PENDING LITIGATION, THE IMPACT OF ACQUISITIONS, ESTABLISHING AND
MAINTAINING EFFECTIVE DISTRIBUTION CHANNELS, IMPACT AND TIMING OF LARGE ORDERS,
PRICING PRESSURES IN THE MARKET, THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES,
SYSTEMS FAILURES, TECHNOLOGICAL CHANGES, VOLATILITY OF SECURITIES MARKETS,
GOVERNMENT REGULATIONS, AND ECONOMIC CONDITIONS AND COMPETITION IN THE
GEOGRAPHIC AND THE BUSINESS AREAS WHERE WE CONDUCT OUR OPERATIONS. IN ASSESSING
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, READERS
ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS -- INCLUDING THOSE
CONTAINED IN OTHER SECTIONS OF THIS ANNUAL REPORT ON FORM 10-K.

                                     PART I

ITEM 1. BUSINESS.

GENERAL

     JAWZ Inc. and its subsidiaries (collectively "JAWZ" or the "Company")
provide information security and secure e-business solutions (collectively
"e-security solutions"). The Company assists in removing the burden of
information risk management for its customers by providing products and services
that cover the entire e-security market (from assessment to implementation to
monitoring), via its three divisions: Security Products, Professional Security
Services and Managed Security Services. JAWZ develops, sells, installs and
supports its own and third party information security products. JAWZ products
are based on proprietary encryption technology.

INDUSTRY BACKGROUND

     E-security solutions historically have been deployed primarily to protect
corporate networks from erroneous and possibly malicious intrusion, and to
preserve the integrity of data as it passed over insecure networks. It was
typically the focus of businesses in security conscious or dependent industries
such as banking, telecommunications, aerospace and defense. However, today
e-security has become a fundamental requirement for conducting all forms of
business, including but not limited to commerce and communications conducted
through corporate intranets, extranets and other Internet based applications.
Many organizations, in a wide range of industries, are conducting e-business as
a means of reducing costs, competing more aggressively and more efficiently
meeting increased business demands for speed, accuracy and delivery of
information.


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                                       3

     With the rise in computer connectivity and the push to electronic commerce,
organizations are becoming increasingly more exposed to the outside world via
electronic means. Often these organizations lack the skills and time
requirements needed to protect and secure their information assets. Periodicals
and reference material such as Maximum Security, 2nd ed., have indicated that
servers are often set up by non-technical individuals who inadvertently create
numerous viable targets for hackers. As the number of servers supporting
websites increases on a daily basis the security risks increase as well.

     E-business requires e-security to create and ensure the same trust
relationships that currently exist on paper in the brick-and-mortar world, so
organizations can conduct e-business with the same confidence with which they
currently conduct traditional commerce. There are several essential requirements
for e-security: (a) user identification and authentication; (b) access control
and privilege management; (c) data privacy, integrity and authentication; and
(d) security administration and audit. JAWZ delivers products and services that
fulfill these essential requirements.

COMPANY HISTORY

     JAWZ was incorporated on January 27, 1997 under the laws of the State of
Nevada as "E-Biz" Solutions, Inc. On March 27, 1998, "E-Biz" Solutions, Inc.
changed its name to JAWS Technologies, Inc. and on September 29, 2000 JAWS
Technologies, Inc. changed its name to JAWZ Inc. Effective July 7, 2000, JAWZ
Inc. migrated its incorporation to the State of Delaware. As at September 30,
2000, the Company's international headquarters are located in Toronto, Ontario,
Canada. The Company also has offices in Calgary, Alberta and Ottawa, Ontario in
Canada. In the United States the Company has offices in Fairfield, New Jersey,
Chicago, Illinois. Until February 2001 JAWZ had additional North American
offices in Pasadena, California, Edmonton, Alberta and Vancouver, British
Columbia.

     The Company's first proprietary technology, known as L5, was developed and
refined over approximately 15 years by its inventor Mr. Jim L. A. Morrison,
formerly the Chief Programmer at JAWZ from March 1, 1998 to April 20, 1999. On
October 20, 1997, JAWS Software Ltd. (a company controlled by Mr. Morrison)
assigned all of its right, title and interest in L5, and other miscellaneous
intellectual property to JAWZ. In October 1998, during JAWZ patent application
process, there was a further assignment of L5, and other miscellaneous
intellectual property to JAWZ by Mr. Morrison in order to fulfill the
requirements of the patent application process. L5 itself is not the software
produced and marketed by JAWZ but the mathematical process outlining the
detailed steps required to encrypt and decrypt data. L5 can be incorporated into
a variety of software programs requiring encryption of data. L5's 4096 key bit
length gave JAWZ a competitive advantage over competitors in the encryption
market. The ability to make quick changes in L5 programming, in addition to the
strength provided by the 4096 bit key length, allowed JAWZ to be responsive to
clients' demands for products that require both customization and strength.

     The 4,096 bit key length has to the Company's knowledge, to date, been
unbroken. In August 1999, RSA Security Inc. ("RSA Security") reported that a 512
bit security code was broken and recommended at least 768 bit keys as the
minimum for achieving reliable security. Each bit of key length is significant
in that every time a bit gets added to a key length, the expected number of
guesses someone would have to make to decrypt an encrypted message doubles. For
someone to decrypt JAWZ 4096 bit key length, it would require a number of
guesses equal to a number 1,233 digits long.

     The Company's wholly owned subsidiaries are:

          o    JAWZ Canada Inc., formerly JAWS Technologies, Inc., an Alberta
               corporation ("JAWZ Canada"). Effective July 1, 2000, JAWS
               Technologies (Ontario) Inc., Pace Systems Group Inc. ("Pace") and
               Offsite Data Services Ltd. ("Offsite") were amalgamated with JAWZ
               Canada. JAWZ Canada provides high-end information security,
               providing consulting services and software solutions to minimize
               the threats to clients' information and communications. At its
               offices in Calgary, Alberta, JAWZ developed proprietary
               encryption software using the L5 encryption algorithm to secure
               binary data in various forms, including streamlining or blocking
               data.


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                                       4

          o    JAWZ USA Inc. ("JAWZ USA"), formerly JAWS Technologies
               (Delaware), Inc., provides the same products and services as JAWZ
               Canada.

          o    JAWZ Illinois Inc., formerly Nucleus Consulting, Inc.
               ("Nucleus"). The Company intends to amalgamate JAWZ USA Inc. and
               JAWZ Illinois Inc.

          o    JAWZ Acquisition Corp. ("JAC") was established primarily for tax
               purposes and has been used solely for the acquisition of Offsite;
               and

          o    JAWZ Acquisition Canada Corp. ("JACC") was established for the
               purpose of completing certain acquisitions and tax purposes. JACC
               has four wholly owned subsidiaries, General Network Services
               (GNS) Inc. ("GNS"), Betach Advanced Solutions Inc., Betach
               Systems, Inc. (collectively the "Betach companies") and 4COMM.com
               Inc. ("4COMM"). The Company intends to dissolve the Betach
               companies and 4COMM as the assets and operations of these
               companies have been incorporated into JAWZ Canada.

ACQUISITIONS AND INVESTMENT HISTORY

     In November 1999, JAWZ acquired all of the issued and outstanding shares of
common stock of Pace. Pace was a private company incorporated in 1986 with a
history of providing financial information technology security solutions to
retailers and large financial organizations in North America. More specifically,
Pace offered services in the area of payment systems, including point of
sale/automated business machines, electronic funds transfer, switch
implementation, point of sale application and device integration, network
architecture and design, system integration and project management. With the
acquisition of Pace, JAWZ retained several highly qualified financial
information and technology specialists who have long established relationships
with clients. These services have been incorporated into and are now provided by
JAWZ through its Professional Security Services group. In July 2000, Pace was
amalgamated in JAWZ Canada.

     In December 1999, JAWZ, through JAWS USA, purchased substantially all of
the assets of Secure Data Technologies Corporation ("Secure Data"), a New Jersey
corporation, which provided numerous information security services, including
consulting, policy development, risk assessment, penetration testing, firewall
management, certificate authority services, incident response, high-tech crime
investigations, computer forensics and training. These services have been
incorporated into and are now provided by JAWZ through its Professional Security
Services group.

     In January 2000, JAWZ, through JAC, acquired all of the outstanding shares
of Offsite. Offsite was a Calgary based company incorporated in 1995, providing
automated Internet based back up, storage and recovery of computer data. Using
Offsite's software, a customer's selected computer files are scanned for changed
data. The client data is then compressed and transmitted to a mainframe data
center in Calgary. Client data is transmitted to the data center over a variety
of networks depending on the client's needs including the public switched
telephone network, the Internet, cable services and fibre optic networks.
Managed data center facility services are provided by Electronic Data Systems
Corporation of Ottawa, Ontario. The services provided by Offsite have been
incorporated into and are provided by JAWZ through its Managed Services group.
Offsite was amalgamated into JAWZ Canada in July 2000.

     In January 2000, the Company exercised its option to purchase two million
common shares, representing 25% of the outstanding shares, of Cobratech for
$20,000 and granted Cobratech the exclusive right to market and sell the
Company's products and service offerings in Asia for four years commencing
October 1999. The Company will receive a 25% royalty on all products sold by
Cobratech. No royalties have been received to date. In January 2001, CTI
Diversified Holdings Inc. announced their intention to acquire 100% of the
common shares of Cobratech. In February 2001, the Company received 1,051,368
common shares of CTI for its shares in Cobratech. All of JAWZ divisions work
with CTI to assist in the delivery of security products and services in Asia.
JAWZ owns less than 20% of CTI.

     In April 2000, JAWZ acquired all of the outstanding shares of Nucleus.
Nucleus provided consulting services related to data networking, telephony and
mobile communications. These services have been incorporated into and are now
provided by JAWZ through its Professional Security Services group.



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     In May 2000, the Company purchased the intellectual property assets and
operations of Doctorvillage.com Inc. ("Doctorvillage"). Doctorvillage was
developing a website for medical professionals. The services/products provided
by Doctorvillage have been incorporated into and are provided by the
Professional Security Services group and forms the core of the Company's Health
Insurance Portability and Accountability Act ("HIPAA") project.

     In August 2000, the Company acquired all of the outstanding shares of 4COMM
through JACC. 4COMM was an information systems security products provider and
consultant offering software, hardware and support solutions and services. These
solutions and services have been incorporated into and are now provided by JAWZ
through its Security Products group.

     In August 2000, JAWZ acquired through JACC all of the outstanding shares of
GNS. GNS, an Ontario corporation, was a computer and electronic commerce network
security consultant specializing in Public Key Infrastructure ("PKI")
technologies for national and international organizations offering software,
hardware and support solutions and services. These solutions and services have
been incorporated into and are now provided by JAWZ through its Professional
Security Services and Managed Security Services groups.

     In August 2000, JAWZ acquired through JACC all of the outstanding shares in
each of the "Betach companies. The Betach companies, incorporated in Alberta,
provided full service e-business solutions with expertise in security and
networking, e-commerce solutions and knowledge management solutions. These
services have been incorporated into and are now provided by JAWZ through its
Professional Security Services and Security Products groups.

     In October 2000, the Company acquired an option to acquire 51% of the
outstanding shares of CU Connection Ltd. ("Cu Connect") pursuant to the terms of
a convertible debenture issued by Cu Connect. Cu Connect provides on-line access
to shared cash networks for credit unions and the access to Automated Teller
Machines (ATMs) and Point-of-Sale (POS) networks.

     On December 12, 2000, the Company received 2,384,880 common shares of
eFinancial Depot.com, Inc. ("eFinancial") in settlement of a $2,112,946
receivable for work performed by the Company. This ownership represents less
than 20% of eFinancial. eFinancial is a publicly traded company on the OTC
Bulletin Board. eFinancial provides online financial services. This transaction
is an investment and does not form part of the operations of the Company. An
officer and director of the company is also on the advisory board of eFinancial.

     In December 2000, the Company acquired 130,672 common shares (approximately
20%) of Iconix Canada Inc. ("Iconix") together with an option to purchase an
additional 51,000 common shares. Iconix provides network management tools to the
education market. Iconix and the Company share in common a director and major
shareholder. This transaction is an investment and does not form part of the
operations of the Company.



BUSINESS STRATEGY

     JAWZ' objective is to continue to be a leading provider of e-security
solutions with a focus on the financial services, health care,
telecommunications and government sectors. JAWZ has sought to achieve this
objective by consolidating the highly fragmented information security industry
and by achieving increasing economies of scale through the acquisition of
growing organizations and through the integration of such operating entities
through centralized administration and planning.

     The Company completed seven material acquisitions since November 1999. The
integration of these acquired businesses into the Company's information security
business has expanded the products and services that the Company offers to its
customers. Pace has been amalgamated into JAWZ Canada and forms part of the
Professional Security Services group. Secure Data has been incorporated into the
Professional Security Services group. Offsite has been amalgamated into JAWZ
Canada and forms part of the Managed Services group. Nucleus has been
amalgamated into JAWZ USA. Doctorvillage forms part of the Professional Security
Services group, in particular the HIPAA project. 4COMM has been integrated as
part of the Security Products group. GNS


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forms part of the Professional Security Services and Managed Security Services
groups. Betach forms part of the Professional Security Services and Security
Products groups. Through industry and management expertise, JAWZ attempts to
ensure that acquired companies' receive the capital and corporate planning
necessary to successfully compete in their respective markets.

     There was significant growth in 2000 in the financial services sector.
There were successes with Cu Connect and several of the major banks in Canada by
delivering security assessments and reviews to system development and product
sales. The Cu Connect project is progressing on plan and system tests are soon
to be completed.

     Telecommunications includes key telecommunication company partners Verizon
Communications Inc. ("Verizon"), also a partner in financial services and health
care, Intermedia Communications Inc. ("Intermedia"), Telus Corporation ("Telus")
and GT Group Telecom Inc. ("Group Telecom"). The Company continues to win
business with its telecommunication partners from e-security to e-business
engagements.

     In health care, JAWZ has developed a comprehensive Health Insurance
Portability and Accountability Act ("HIPAA") compliance program and website.
HIPAA legislation requires health care provides to implement security and
privacy safeguards by 2003. The Company's HIPAA compliance program is generating
significant interest in the health care community. The U.S. and American College
of Physician Executives (ACPE) has selected JAWZ as their security partner of
choice.

     In the government sector, Industry Canada has chose the Company as their
only third party security manager of secure information technology. The Company
managed the security and Public Key Infrastructure ("PKI") for the spectrum
auctions of 2000 and 2001. The Company has also provided technical expertise to
facilitate the electronic signing of a joint statement on Global Electronic
Commerce and E-Government between Canada and the United Kingdom to establish an
agenda for bilateral and multilateral cooperation on e-Commerce. The signatures
of the Canadian ministers are routed through Industry Canada's Certificate
Authority, managed by the Company. The Company ensured that the PKI keys and
proper software were functional on both ends of the international event. The
Company is also working with various state governments in the United States on
various PKI and security projects.

     In an attempt to create and maintain a competitive advantage in the
information security industry, JAWZ strives to continually differentiate itself
from other industry players and works towards establishing strong brand loyalty
for its products and services through multiple channels of distribution. The
distribution strategy used by JAWZ addresses the requirements of small
organizations to large enterprises and matches the appropriate sales and
distribution channels to the software and services offered.

     The key elements of the Company's strategy to be a leading provider of
e-security include:

o    Deliver e-Security Solutions. The Company believes e-security is driven by
     the proliferation of Internet based applications, whether for internal
     network security, for e-business applications deployed to customers,
     suppliers or employees, or for e-commerce Internet sites. Further, the
     Company believes that traditional, fear based security is being augmented
     and in many cases replaced by e-security as an enabling technology that
     opens up new markets and channels for communications and commerce. The
     Company intends to defend and grow its position in providing information
     security and secure e-business solutions.

o    Expand Market Opportunities. The Company intends to expand its market
     opportunities through strategic alliances and partnerships and has expanded
     through a series of acquisitions. Strategic alliances such as Verizon and
     Telus, its government partners such as the Government of Canada and the
     U.S. and American College of Physician Executives in health care are
     examples of this. The Company plans to continue to foster and leverage
     these partnerships and enter into additional relationships with companies
     that can provide a strategic advantage. The Company has discontinued
     certain alliances and partnerships previously announced that were found not
     to be effective. The Company has also
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     expanded market opportunities through a series of acquisitions which the
     Company believes will contribute to market expansion.

o    Expand Indirect Sales and Support Channel. The Company currently sells its
     products and services through a direct sales force and through
     relationships with a significant number of OEM's and value-added resellers.
     The Company believes that an expanded indirect sales and support channel
     enables it to enter new markets and gain access to a larger installed base
     of potential customers in a cost effective manner.

o    Maintain Technological Leadership. The Company plans to continue to add new
     capabilities and features to its e-security products and services to meet
     its customers evolving needs.

PRODUCTS AND SERVICES

       The Company's products and services include:

Professional Security Services:

     o    JAWZ offers its customers a comprehensive review and analysis of
          managerial, technical and operational controls in order to determine
          the availability, integrity, and confidentiality of electronic data.
          The analysis includes a review of security strategy and policies,
          attack threats and vulnerabilities, the structure of existing security
          components and an assessment of the customer's electronic data in
          order to determine what information warrants protection. It also
          includes a review of the technical and operational controls and an
          examination of any hosting security, networks, physical, external and
          Internet security such as: how the customer currently responds to
          security breaches, contingency plans for security breaches, personnel
          hiring practices, the customer's change control management,
          documentation of customer computer programming and the organization of
          internal responsibility for security. Once the customer's existing
          security has been assessed, JAWZ will then develop a security
          architecture (solution) designed to take into account the customer's
          business model, available technology and security industry practices.

     o    JAWZ offers customers an assessment of data vulnerabilities to theft
          from third party internet attacks by attempting to gain access to the
          customer's electronic data from a location external to the customer.

     o    JAWZ offers customers a review and assessment of the security of the
          customer's computer operating system and how it protects the
          customer's computer network.

     o    JAWZ assists customers by providing covert attempts, with managements'
          consent, to obtain crucial information as a test of internal controls
          in order to better attack and penetrate a system.

     o    JAWZ offers customers a service pursuant to which JAWZ assesses,
          selects and implements a firewall, which is a computer program that
          prevents unauthorized entry into the whole of, or parts of the
          customer's computer network. If the customer has an existing firewall,
          JAWZ will assess its effectiveness and make recommendations for it's
          improvement. If a customer's network does not contain a firewall,
          requirements will be determined and JAWZ will recommend a third party
          manufactured firewall, install the firewall and monitor the system.

     o    In the event of a customer's security breach, JAWZ offers customers
          access to a team of professional services staff to undertake emergency
          repairs to the customer's system and security.

     o    JAWZ also offers customers assistance with development and/or an
          assessment of existing business continuity/disaster recovery plans and
          the development of improvements.

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Managed Services:

     JAWZ administers information security systems for customers who do not have
the necessary staff, experience or inclination to implement or administer the
day to day security operations of their system. These services include firewall
management where JAWZ provides the day to day monitoring of the customer's
firewalls and any vulnerabilities such as mailing lists and permitted users, as
well as the maintenance of customer access requirements, Secure Network Storage
("SNS") and PKI system monitoring. SNS is an internet based data backup and
recovery solution. Security monitoring services also provide customers with
information on potential threats and the vulnerabilities of electronic data.

Application Development:

     Where security is a customer's primary concern, JAWZ will develop and
implement a secure Internet based application and computer network. An example
being internet based applications using PKI techniques. PKI refers to the
electronic authentication of individual users of the Internet. PKI enabled
Internet based applications permit the verification of Internet users and is
critical in financial transactions and other business transactions occurring
over the Internet.

     JAWZ has developed its services around the premise of providing full
information security solutions. This means providing services and strong product
offerings to maintain the best possible solution for each client. JAWZ
information security services are offered to government agencies, military
agencies, small corporations, large corporations, financial institutions and
industrial clientele.

     Once JAWZ collects the data during an assessment and fully analyzes the
potential security risks revealed, a client-specific proposal for information
systems security can be developed and presented to the client. At the option of
the client, JAWZ can then integrate the appropriate software and products into a
complete solution that meets the client's information security needs. The
proposal generally includes a cost analysis to ensure the client understands the
true cost of security in relationship to its risk and the value of the
information being protected. JAWZ also provides training for the clients' staff
to ensure that its employees are able to adopt the technology, policies and
procedures provided by the information security solution.

     As a client's business changes, information technology modifications are
inevitable. With these modifications, potential security risks are created. JAWZ
offers clients the option of re-assessing their information systems as needed or
to have regularly scheduled re-assessments in order to maintain adequate
information systems security.

     The provision of these services is product neutral and may therefore offer
both JAWZ' own suite of products, competitor's products or a combination of both
to meet a client's specific needs. The goal of JAWZ is to provide the best
possible solution. It is anticipated that competitor's products and services
will be provided by JAWZ through standard licensing/reseller contracts with
other security product vendors (e.g. Network Associates).

Products:

     JAWZ develops, sells, installs and supports both its own and third party
information security products. JAWZ products are encryption based. The most
recently released JAWZ product is the JAWZ DataGator. DataGator is a software
product which automatically encrypts all data on Palm(TM) OS handheld devices.
DataGator, a successor product to JAWZ Memo. JAWZ Memo was released in December
1998 and the second modified version was released in June 1999. This application
can completely replace the existing Memo Pad function in the Palm Pilot III, V
and VII. The material features of this product are the encryption and decryption
of memos, compatibility with Palm Pilot III, V and VII and other compatible
operating systems, symmetric algorithm mode, a relatively small size of
executable as the operational execution of L5 requires minimal incremental disk
space, the strength of a 4096 bit key length and certified as a Palm Platinum
Solution under Palm's Platinum Solution certification program. In order to
obtain the Palm Platinum Solution certification, a product must successfully
undergo rigorous compatibility testing using


<PAGE>   9
                                       9

standardized testing products. JAWS Memo is the only Palm Platinum Solution
certified security related software available to Palm users as listed in the
1999 "Solutions for Your Enterprise" magazine of Palm.

     Another product, JAWZ Xmail, allows the secure exchange of e-mail messages
via a POP3-compatible environment. JAWZ Xmail sits between the user's e-mail
program (e.g. Microsoft Outlook) and the user's mail server and intercepts
incoming and outgoing messages. When receiving encrypted messages, the user is
prompted to enter his private key to decrypt the ciphertext. Conversely,
outgoing messages are automatically encrypted with the recipient's public key.
The JAWZ certificate server is a central repository holding user certificates.
The material features of this product are the ability to send and receive secure
e-mail messages over the Internet, compatibility with Windows 95/98/NT,
centralized key management, compatibility with most POP3-based e-mail servers
including Microsoft Outlook, Microsoft Outlook Express, Eudora, Pegasus, and
Netscape Communicator, the encryption and decryption of e-mail messages and
attachments, public and private key mode, temporary caching of password phrase,
transparency to the user during operation as the application works in the
background, on-line help, the strength of a 4096 bit key length and the
self-pollinating nature of the product. JAWZ Xmail was first released in 1998.

     JAWZ Xmail is self-pollinating in that an intended recipient of an e-mail
that does not have JAWZ Xmail is sent a notice that indicates that the sender of
the original message is trying to send a secure message but cannot because the
intended recipient is not currently using JAWZ Xmail. The intended recipient is
then invited to click on a button that will initiate the download, through a
web-browser, of a decrypt-only version of the product that will allow the
intended recipient to receive the message. The downloaded version does not allow
the sending of secure e-mail messages. To become fully enabled and registered
the user, or the user's organization, must compensate JAWZ. Once payment is
received, a registration program is automatically sent to the user thus fully
enabling the downloaded version of the product.

     A discontinued product, JAWZ Data Encryption software was targeted towards
both corporate and private users, which allows such users to protect important
data on their workstations and network drives by encrypting such data with a
symmetric algorithm or an asymmetric algorithm. The software also allows the
exchange of secure data when using the public key mode. This software program
has taken approximately 18 man months of research and development effort. The
material features of this product are the encryption and decryption of data
files, the encryption and decryption of folders, including recursive folders if
desired, compatibility with Windows 95/98/NT and Citrix, symmetric algorithm
mode, asymmetric algorithm mode, a simple easy-to-use interface developed in
accordance with Microsoft standards of user-interface design, a relatively fast
speed of execution as compared to competitors' algorithms, a relatively small
size of executable, as the operational execution of L5 requires minimal
incremental disk space and the strength of a 4096 bit key length. JAWZ Data
Encryption first release was in July 1998.

     Although the print media coverage of L5 was positive in numerous articles
and requests for information from investors, potential clients and interested
parties have been numerous, there has not been significant sales of JAWZ
products, and thus the discontinuance of certain products. From the client
feedback that JAWZ has received, it is the opinion of management that although
potential purchasers are aware of security as an issue surrounding information
systems and may have been educating themselves as to what products and services
are available, specific needs have not been identified. Therefore purchasers may
not be ready to make specific buying decisions. Further, the selling cycle for
security software with reseller and value added resellers ("VAR") programs takes
considerable time to conclude. Export restrictions which slow down the flow of
trade and the selling process as well as widespread 128 bit key length security
product entrenchment within existing security products are additional factors
which may affect sales.

     Third party manufacturers of information security products whose products
JAWZ resells include: ActivCard, Aladdin, Axent, Blue Lance, Borderware, Check
Point, Cisco Systems, Content Technologies, DataKey, Entrust, F-Secure Inc.,
Funk Software, Harris Corporation - STAT, Internet Security Systems, LogiKeep,
Master


<PAGE>   10
                                       10

Design & Development, McAfee, Network Flight Recorder (NFR), Network
Associates (NAI), Network ICE, PGP Security, Proginet, Rainbow Technologies,
Securant, Secure Computing, RSA Security, Security Tools for NT, Sniffer
Technologies, Tech Assist - Tools that Work, Tripwire, Viasec, and WebTrends.

Support:

     Client support services are currently available to JAWZ clients through a
1-800 help desk, onsite (as demand grows, it is intended that technicians will
be available through regional JAWZ offices), frequently asked questions
documents on the JAWZ website, e-mail support and online help built into JAWZ
products.

DISTRIBUTION

     The Company currently sells its products and services through a direct
sales force and through relationships with a significant number of OEM's and
value-added resellers. The Company believes that an expanded indirect sales and
support channel enables it to enter new markets and gain access to a larger
installed base of potential customers in a cost effective manner.

CUSTOMERS AND ALLIANCES

     As of December 31, 2000, the Company has more than 50 major account
customers and over 500 customers. Historically, the Company's principal
customers have been in the telecommunications, financial services, health care,
government, cyber crime and forensics and strategic and emerging markets. These
customers generally work with highly confidential information and are
sophisticated and knowledgeable purchasers of e-security systems. The Company
believes that as corporate networks proliferate and become more complex, the
number of industries concerned with e-security will grow.

     JAWZ has announced alliances with various other parties in 2000 including
the following: Verizon, Cu Connect, Intermedia, Group Telecom Telus, the
Government of Canada and the U.S. and American College of Physician Executives.
In October 2000, JAWZ entered into a two part contract with Cu Connect. Part one
of the contract is to implement and manage a secure Interac(R) Network Access
node for Credit Union clients. JAWZ revenues from this project are expected to
be $1.6 million. The second party of the Agreement is an option to purchase a
51% interest in a joint venture involving the long term management of the
Interac(R) Direct Connect Financial node for approximately five years.

     In November 2000, the Company announced the formation of a partnership with
Verizon to offer Verizon clients advanced information security services,
targeting e-business security needs.

     Another telecommunication company alliance is with Telus. Telus serves as a
VAR for security assessments and product sales to its business clientele. The
Company has also provided technical expertise to facilitate the electronic
signing of a joint statement on Global Electronic Commerce and E-Government
between Canada and the United Kingdom to establish an agenda for bilateral and
multilateral cooperation on e-Commerce. The signatures of the Canadian ministers
are routed through Industry Canada's Certificate Authority, managed by the
Company. The Company ensured that the PKI keys and proper software were
functional on both ends of the international event. The Company is also working
with various state governments in the United States on various PKI and security
projects. The Company has discontinued certain alliances and partnerships
previously announced that were found not to be effective.

     JAWZ has an agreement with Cobratech whereby JAWZ grants exclusive
marketing rights to Cobratech in Asia with respect to a variety of software
including DataGator, JAWZ Data Encryption, JAWZ Xmail and JAWZ Memo. The grant
is for a term of four years provided Cobratech achieves certain revenue targets.
In exchange for these rights, JAWZ obtained a 25% interest in Cobratech.
Further, Cobratech is to pay JAWZ a royalty equal to 25% of the gross sales
revenue generated by Cobratech with respect to the sale of JAWZ' products.
Cobratech has recently been acquired by CTI Holdings in February 2001.

<PAGE>   11

                                       11
COMPETITION

         Information auditing services, security business planning, security
plan implementation and security management are relatively new industries. Very
few large size competitors exist and mainly small firms are providing the
services at this time. However, large accounting and information technology
firms represent potential competitive threats due to such firms' existing brand
loyalty and access to resources.

     A number of companies have developed various information security products
such as encryption software, firewalls, intrusion detection software and
hardware solutions. A non-exhaustive list of generally available competitive
cryptographic algorithms includes: DES, TwoFish, Certicom ECC, RSA, MARS, and
PGP. No one particular product in the marketplace controls market share. Two
distinctive competitors, RSA Security and Network Associates, have been leaders
in the sale of encryption software. All of these companies compete with JAWZ in
the area of information security products.


MANUFACTURING AND SUPPLIERS

     Manufacturing and suppliers are not material issues for the Company as it
is focused primarily on providing services. The Company does face the issue of
recruiting and retaining staff that provide these services. There can be no
guarantee that the Company will be successful in recruiting and retaining the
required staff resources. For JAWZ software, this is produced in the JAWZ office
in Calgary, Alberta. JAWZ software requires computer equipment, compact discs,
compact disc burners, and human resources. The Company does sell third party
software and is reliant upon these vendors for continued supply and support of
their products.

INTELLECTUAL PROPERTY MATTERS

     JAWZ has applied for patent protection of L5 in the United States. The
United States patent office has confirmed receipt of the application and JAWZ
has qualified to have its patent application reviewed and evaluated. JAWZ has
applied to register a number of its trademarks, trade names or service marks. To
date, only the "Jaws" trademark, in the United States and Canada, have been
registered. However, JAWZ has acquired the Xmail tradename from British Telecom
PLC. JAWZ owns the copyright in all the software created by its employees and
the copyrights which it has contractually acquired. JAWZ maintains strict
confidentiality practices with its employees including contractual obligations
by the employees. JAWZ' business is not dependent on a single license or group
of licenses.

GOVERNMENT REGULATION AND EXPORT CONTROLS

     Export restrictions on encryption technology above 64 bits are tightly
controlled through the provisions of the Wassenaar Arrangement. The Wassenaar
Arrangement is a 26 country agreement, including Canada and the United States,
controlling the export of encryption technology to any destination outside of
continental North America. This arrangement requires exporters of encryption
technology to make an application prior to exportation. Applications for export
under the agreement are evaluated on a case by case basis and considerable
evaluation is done by both countries involved in the export review. The
application process slows down the selling cycle and flow of trade of JAWZ
products by requiring compliance with the terms of the Wassenaar Arrangement.
The Company recently obtained an Export Control License from the Canadian
government for the international export of DataGator.

ENVIRONMENTAL LAW

     No specific environmental laws are applicable to JAWZ products or business
activity other than general environmental controls related to non-hazardous
waste disposal. JAWZ does not have any specific environmental costs and all
costs related to waste disposal are accounted for under general operating costs.
Current environmental laws have no direct costs or effect on JAWZ business
activities. Environmental costs related to non-hazardous waste disposal are
incurred in the ordinary course of business.
<PAGE>   12
                                       12

EMPLOYEES

     As of March 23, 2001, JAWS employs 180 full time staff. During 2000, the
number of employees grew from 58 at the beginning of the year to 275 by year
end. However, in an effort to reduce costs, the Company implemented a work force
reduction in January 2001, eliminated 31 full time positions from across the
Company. A second work force reduction was implemented in February 2001,
eliminating an additional 64 full time positions from all areas of the Company,
including the closure of the California, British Columbia and Edmonton, Alberta
offices. None of JAWZ employees are represented by any type of labor
organization and JAWZ is not aware of any activity by employees seeking
organization. JAWZ considers its relationships with it employees to be
satisfactory. JAWZ has, in its early stages, developed strong human resources
practices with the belief that the growth of JAWZ is heavily reliant on its
human resources.

INSURANCE

     JAWZ maintains insurance coverage including key man life insurance,
policies, business interruption insurance, employment practice liability,
directors and officers, errors and omissions, asset protection and public
liability insurance.

ITEM 2. PROPERTIES.

     The Company's head office, with administrative and sales and marketing, is
located in Toronto, Ontario under a non-cancelable 5 year lease expiring in
2005. The facility is approximately 17,000 square feet with an annual base rent
of approximately Cdn$300,000 plus operating expenses.

     The Company also has two offices in Calgary, Alberta. The office at 630 -
8th Avenue S.W. (the "8th Avenue Office") is subject to a lease agreement from
Thorburn Inc. ("Thorburn"). The Company is leasing approximately 14,000 square
feet over two floors and is obligated to pay Thorburn Cdn$196,000 per annum,
plus operating expenses, for 5 years expiring in 2005. Administration and
Security Services occupy the 8th Avenue Office. A Director and Officer of JAWZ,
owns a majority of the shares of Thorburn. The terms of the lease are as
favorable as could be received from third parties.

     The Company also has an office in Calgary at 2340 Pegasus Way NE (the
"Pegasus Office"). The Pegasus Office houses research and development, sales and
marketing, and facilities personnel. JAWS is renting approximately 12,000 square
feet and is obligated to pay Bankton Development Corp. ("Bankton") Cdn $168,000
per annum, plus operating costs, for a 5 year term expiring in 2005. A Director
and Officer of JAWZ, owns a majority of the shares of Bankton. The terms of the
lease are as favorable as could be received from third parties.

     The Company also has certain lease obligations to Shelbourne Place Holding
Corp. ("Shelbourne") related to an office it previously occupied. The lease
covers approximately 10,000 square feet at cost of Cdn$140,000 per annum, plus
operating costs, expiring in 2004. The company has sublet this office space on
commercial terms to an arms length third party for the duration of the term. A
Director and Officer of JAWZ, owns a majority of the shares of Shelbourne. The
terms of the lease are as favorable as could be received from third parties.

     The Company also leases facilities for sales and marketing and customer
support throughout in New Jersey, Ottawa, Chicago, Pasadena, Burlington and
Edmonton at annual base rents aggregating approximately $180,000 plus operating
costs.

ITEM 3. LEGAL PROCEEDINGS.

     On August 10, 2000, Bristol Asset Management, LLC ("Bristol") filed a
complaint in the Superior Court of the State of California (Case No. SC062765)
against JAWZ and its Chairman alleging, amongst other things, breach of
contract, fraud in the inducement, breach of fiduciary duty and unfair
competition and requesting, amongst other things, specific performance,
statutory penalties and injunctive relief and damages in excess of $10 million
(the "Complaint"). The Complaint relates to a warrant (the "Warrant") issued by
JAWZ to Bristol to purchase
<PAGE>   13
                                       13

1 million shares of JAWZ common stock and Bristol's rights relating to the
exercise of the Warrant and the registration of shares underlying the Warrant.
JAWZ filed an Answer to the Complaint on October 3, 2000 denying the allegations
raised. The matter is currently proceeding in the normal course with exchanges
of documents and depositions. The Chairman is indemnified against certain
actions in his capacity as an officer and director of the Company in accordance
with the Company's bylaws and general Delaware corporate law. The Company
recently received an Offer to Compromise which it is considering.


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

     No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 2000. JAWZ filed an amendment to its certificate of
incorporation to effect a 10 for 1 reverse stock split effective March 30, 2001.
Such amendment was effected after obtaining requisite stockholder approval at a
meeting of the stockholders held on March 16, 2001, at the offices of Paul,
Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022,
counsel to JAWZ. All references to shares in this Annual Report on Form 10-K are
pre-consolidation references.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the names, ages and positions of the current
executive officers of the Company.




Name                             Age       Position
----                             ---       ---------
Robert J. Kubbernus              41        Chairman of the Board, Chief
                                           Executive Officer, President, and
                                           Director.

Riaz Mamdani                     32        Chief Financial Officer and
                                           Director

Peter Labrinos                   42        President, JAWZ Canada

Robert Mahood                    54        President, JAWZ USA





     ROBERT J. KUBBERNUS. Mr. Kubbernus has served as Chairman of the Board,
Chief Executive Officer and President since October 1997 and of Bankton
Financial since February 1998. Mr. Kubbernus' primary responsibilities have been
to oversee security product developers, provide executive direction and develop
key contacts with governmental authorities, investors, clients, insurance
underwriters and the investment community. From October 1992 to September 1997,
Mr. Kubbernus held the position of President and Chief Executive Officer of
Bankton Financial Corporation, a company which provides business and lending
advisory services, where he led a team of corporate financial consultants who
specialized in the placement of debt instruments with institutional and private
lenders.

     RIAZ MAMDANI. Mr. Mamdani has been Chief Financial Officer of JAWZ since
July 1999. Previous to this appointment, he was Director of Corporate Finance
from March 1999 to July 1999. Mr. Mamdani is responsible for the development of
operational financing including securities issuances, the documentation needed
to close these issuances, establishing and implementing professional
relationships and assisting in matters of corporate compliance as well as
company structure. From May 1996 to August 1998, Mr. Mamdani was a Barrister and
Solicitor with Beaumont Church, a Calgary-based law firm, where his practice
focused in the areas of Corporate, Commercial and Securities law. From May 1992
to April 1996, he was a Pharmacist at the Foothills Hospital in Calgary while
attending law school at the University of Calgary, from September 1993 to May
1996. Since 1992, Mr. Mamdani graduated with a Bachelor of Law degree from the
University of Calgary in 1996. He also graduated from the University of Manitoba
with a Bachelor of Science degree in Pharmacy in 1992.
<PAGE>   14
                                       14


     PETER LABRINOS. Mr. Peter Labrinos, 42, has been appointed President of
JAWZ Canada. Mr. Labrinos came to JAWZ in November 1999 when JAWZ acquired his
company, Pace Systems Group, a provider of strategic business and IT solutions,
which he founded in 1986. After the acquisition, he became Executive
Vice-President, Eastern Region at JAWZ and was appointed COO on July 1, 2000.

     ROBERT MAHOOD. Mr. Robert (Bob) Mahood, 54, has been appointed President of
JAWZ U.S. operations. Formerly, Mr. Mahood was Executive Vice-President of JAWZ
Corporate Development. From 1998 to 1999 Mr. Mahood was the Chairman and CEO of
Offsite Data Services Ltd. Before joining Offsite, Mr. Mahood was President and
CEO of TELUS Advanced Communications. Prior to this position, Mr. Mahood held
many senior officer and executive roles at TELUS Corporation.



                                    PART II

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

     As of March 28, 2001, there were approximately 149 shareholders of record
of JAWZ common stock. JAWZ common stock is currently listed for trading on the
NASDAQ National Market under the symbol "JAWZ." The following table sets forth
the high and low bid prices for JAWZ common stock as reported by the Nasdaq
National Market and Nasdaq OTC Bulletin Board since February 1, 1998. It should
be noted that such over-the-counter quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transaction prices.

<TABLE>
<CAPTION>

Period                                        Price Range - High                  Price Range - Low
-------                                      --------------------                -------------------

<S>                                                <C>                                 <C>
Fourth Quarter 2000                                 $ 2.43                              $ 0.47
Third Quarter 2000                                  $ 4.25                              $ 2.50
Second Quarter 2000                                 $ 7.66                              $ 3.28
First Quarter 1999                                  $14.66                              $ 5.97
Fourth Quarter 1999                                 $10.75                              $ 1.32
Third Quarter 1999                                  $ 2.78                              $ 1.13
Second Quarter 1999                                 $ 4.25                              $ 0.59
First Quarter 1999                                  $ 1.19                              $ 0.38
Fourth Quarter 1998                                 $ 0.66                              $ 0.13
Third Quarter 1998                                  $ 0.84                              $ 0.28
Second Quarter 1998                                 $ 1.50                              $ 0.50
First Quarter 1998                                  $ 1.06                              $ 0.48
(beginning Feb 1, 1998)
</TABLE>



     On March 28, 2001, the last reported sales price for shares of JAWZ common
stock was $0.20 per share.

ITEM 6. SELECTED FINANCIAL DATA.

Summary Financial Information

     (a) Summary Financial Information

     The following table sets forth selected financial data of the Company for
the periods indicated. The selected financial data for the years ended December
31, 1997, 1998, 1999 and 2000 have been derived from the Company's audited
consolidated financial statements, which appear elsewhere in this Annual Report.
The following unaudited summary financial information, in the opinion of
management, has been prepared on the same basis as the audited consolidated
financial statements and contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations for such periods. The table sets forth, in
U.S. dollars, the selected financial data as prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP").
<PAGE>   15
                                       15


The results for the periods presented are not necessarily indicative of the
results that may be expected for any future period. The financial data should be
read in conjunction with "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this Annual
Report.

<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31ST

CONSOLIDATED STATEMENT OF LOSSES                2000              1999            1998             1997
                                                ----              ----            ----             ----
                                                       ( In $ thousands, except per share data )

<S>                                              <C>                 <C>                <C>             <C>
REVENUE                                          10,343              578                27              0
OPERATING EXPENSES
Cost of sales                                     5,299                2                --             --
Research and development                            777               17                --             --
Advertising and promotion                         1,801              364               219             35
Bad debts                                         1,632               --                --             --
Selling, General and administration              20,992            5,571             1,574            101
Software development costs                           --               --               909             --
                                               --------           ------            ------           ----
Total operating expenses                         30,501            5,954             2,702            136
Operating loss before depreciation and
  amortization                                  (20,158)          (5,376)           (2,675)          (136)
Depreciation                                        731              105                14              1
Amortization                                     24,029              126                --             --
                                               --------           ------            ------           ----
Operating loss                                  (44,918)          (5,607)           (2,689)          (137)
                                               --------           ------            ------           ----
Interest income                                    (217)             (14)               (2)            --
Interest expense, financing fees and
  debt discount                                      36            1,587               390             --
Foreign exchange (gain)/loss                        290              (12)               (1)            --
Loss on impairment of investment                    880               --                --             --
                                               --------           ------            ------           ----
NET LOSS FOR THE YEAR                           (45,906)          (7,168)           (3,076)          (137)
                                                =======           ======            ======         =======
Weighted Average Shares Outstanding              33,906           14,342             7,405          4,000
NET LOSS PER COMMON SHARE                         (1.35)          (0.50)             (0.42)         (0.42)

</TABLE>

<TABLE>
<CAPTION>

                                                                  AS OF DECEMBER 31ST
BALANCE SHEET                                   2000              1999            1998             1997
                                                ----              ----            ----             ----

<S>                                            <C>               <C>               <C>              <C>
Total Assets                                   15,694            12,606            273              10
Total Liabilities                               8,952             1,321            727             111
Total Shareholders Equity (Deficit)             6,741            11,285           (454)           (101)
</TABLE>



     (b)  Canadian and U.S. Dollar Exchange Rates

          The company reports results in US dollars but carries on substantial
          operations in Canada. As a result the company is subject to exchange
          rate risk with respect to fluctuations in the Canadian to US dollar
          exchange rates.

<PAGE>   16
                                       16

     (c)  Dividends

     The Company has not paid any cash dividends since its inception. The
Company does not intend to pay cash dividends in the foreseeable future, but
intends to retain earnings, if any, for use in its business operations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION.

     The purpose of this section is to discuss and analyze JAWZ' results of
operations. In addition, some analysis and information regarding JAWZ' financial
condition and liquidity and capital resources is provided. This analysis should
be read jointly with the financial statements, related notes, and the cautionary
statement regarding forward-looking statements, which appear elsewhere in this
filing.


RESULTS OF OPERATIONS

     The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, after elimination of intercompany accounts and
transactions. All amounts are expressed in United States dollars.


     Revenue. Revenues include the sale of encryption software, professional
security consulting services, integration and installation of secure information
systems, remote data storage and recovery systems. These different segments have
been segregated into consulting revenue, product revenue and other income.

     Total revenues for 2000 increased 1,690% to $10.3 million from $577,842 in
1999. Revenues were $27,042 for the same period in 1998. The significant
increase in 2000 revenues is primarily attributable to the integration and
subsequent growth associated with acquisitions made over the past year. The
acquisitions brought four key customers: eFinancial Depot.com Inc.
("eFinancial"), Cu Connection Ltd. ("Cu Connect"), Telus Corporation ("Telus")
and General Electic ("GE"), which collectively accounted for approximately 50%
of the revenues.

     Consulting revenue in 2000 increased 1,289% from $0.5 million in 1999 to
$7.4 million, or 71.9% of revenues in 2000. Consulting revenue in 1998 was
$16,848. Product revenue increased 7,422% from 33,667 in 1999 to $2.5 million in
2000, or 24.4% of 2000 revenues. Product revenue in 1998 was $10,194. Other
income increased 4,141% in 2000 from 8,806 in 1999 to $373,486, or 3.6% of 2000
revenues. Other income was nil in 1998.

     The Company's geographical sales are divided between Canada and the United
States. In 2000, 83% of revenues or $8.8 million was generated in Canada and 17%
or $1.7 million in the United States. In 1999, $554,676 (94%) was generated in
Canada and $37,370 (6%) in the United States. In 1998, all revenue was generated
in Canada. All of the Company's revenues to date have been generated in either
Canada or the United States.

     Revenue for the three months ended December 31, 2000 were $3.6 million,
compared to $219,416 for the same period in 1999.

     Cost of Sales. Cost of sales were 50.2% of total revenues in 2000. Cost of
Sales was nil in 1999 and 1998. The increase in cost of sales is the result of
one time, extra-ordinary subcontract costs associated with an acquisition,
increased revenues and the direct and identifiable costs associated with
generating these revenues. Cost of sales as a percentage of total revenue was
74% in the three months ended December 31, 2000 compared to 0% in the same
period in 1999. The Company has implemented new recording mechanisms to better
track cost of sales and gross profits.

     Research and Development. Research and development expenses consist
primarily of software development costs and are expenses when technological
feasibility has not yet been established. Subsequent to establishing
technological feasibility such costs are capitalized until the commencement of
commercial sales. Research and development expenses increased 4,573% to $0.8
million in 2000 from $16,630 in 1999. There were no research and development
expenses in 1998. As a percentage of total

<PAGE>   17
                                       17

revenue, research and development expenses increased to 7.4% in 2000 from 2.8%
in 1999. The significant increase in research and development expenses is
primarily attributable to development costs for DataGator. Research and
development expenses were $151,463 for the three months ended December 31, 2000
as compared to $16,630 for the same period in 1999. The Company believes that
investment in research and development is required to maintain its products and
compete in its business.

Selling, General and Administration. Selling, general and administration
expenses consist primarily of compensation of sales, marketing and
administrative personnel, preparation of sales and marketing documents,
corporate overhead, directors fees, consulting services, management fees and
facilities expenses. Selling, general and administrative expenses increased 277%
to $21.0 million in 2000 from $5.6 million in 1999 and $1.6 million in 1998. The
significant increase in 2000 was primarily due to the continued growth of
operations and the expenses related to acquisitions. Selling, general and
administration expenses for the three months ended December 31, 2000 were $7.0
million, compared to $2.6 million in the same period in 1999. The Company has
recently taken steps to significantly reduce selling, general and administration
expenses through general cost reductions and two reductions in workforce (total
reduction in headcount of 95 people or approximately one third of its
workforce). In 2000, selling, general and administration expenses included no
management fees to officers and shareholders of the Company as compared to
$233,643 in 1999 and $198,168 in 1998. In 2000, selling, general and
administration expenses included $424,627 of directors fees compared to $124,384
in 1999 and $33,333 in 1998). In 2000, selling, general and administration
expenses included $299,805 in rent expenses paid to related parties, compared to
$129,611 in 1999 and $3,991 in 1998. Total rent expenses in 2000 were $777,096.

Advertising and Promotion. Advertising and promotion expenses consist primarily
related to a branding initiative, company name change, marketing and print media
and collateral sales materials. Advertising and promotion expenses increased
395% to $1.8 million in 2000 from $0.4 million in 1999 and $0.2 million in 1998.
For the three months ended December 31, 2000, advertising and promotion expenses
were $536,888 compared to $129,518 in the same period in 1999, an increase of
315%. This increase in 2000 spending was directly attributable to increased
sales and marketing activities related to moving products toward and into the
commercialization stage. The Company has recently significantly reduced
advertising and promotion expenses as part of a general effort to reduce costs.

Bad Debts. The Company recorded a bad debt provision of $1.6 million in 2000,
$1.1 million of which was recorded in the three months ended December 31, 2000.
Of the bad debt provision more than 50% relates to two customers, namely KPC
Medical Systems, and Investination.com. There was no bad debt provision in 1999
or 1998. The Company has implemented a new credit policy, which should improve
cash flow and reduce this provision to more acceptable levels.

Interest Income. Interest income accounted for $2,026, $14,204 and $216,693 in
1998, 1999 and 2000 respectively.

Interest Expense. Interest expense, which includes financing fees and
amortization of deferred financing fees/debt discount, decreased by
approximately 98% to $35,716 in 2000 from $1.6 million in 1999. Interest expense
was $389,715 in 1998. The decrease was due almost entirely to a fewer number of
financing arrangements in 2000. The Company recovered $301,613 in the three
months ended December 31, 2000 compared to incurring an expense of $672,324
during the same period in 1999.

Foreign Exchange. The Company incurred a foreign exchange loss in 2000 of
$289,726 as compared to foreign exchange gains of $12,452 and $431 in 1999 and
1998, respectively. The foreign exchange loss in the three month period ended
December 31, 2000 was $149,397 compared to a foreign exchange gain of $22,700 in
the same period in 1999. Transactions denominated in foreign currencies are
translated at the exchange rate on the transaction date. Foreign currency
denominated monetary assets and liabilities are converted at exchange rates in
effect at the balance sheet date.

Depreciation. Depreciation expense increased by approximately 597% to $731,155
in 2000 from $104,836 in 1999 and $14,041 in 1998. This increase was primarily
due to
<PAGE>   18
                                       18

the increase in fixed assets consistent with the expansion of operations (more
offices and equipment).

Amortization. Amortization expense increased significantly from $126,386 in 1999
to $24.0 million in 2000. No amortization expense was recorded in 1998. For the
three month period ending December 31, 2000, the amortization expense was $19.3
million, compared to $126,386 during the same period in 1999. The increased
amortization expense relates to a one time write off of goodwill associated with
the acquisitions undertaken by the Company in 2000 and employee and consultants
base associated with these acquisitions.

Loss on Impairment of Investment. The Company recorded a $879,544 loss within
the last three months of 2000 related to an investment in eFinancial. On
December 12, 2000, the Company received 2,384,000 shares of common stock of
eFinancial in settlement of work performed by the Company in the amount of
$2,112,946. eFinancial is a publicly traded company. An advisor to eFinancial
is also a director and officer of JAWZ. At December 31, 2000, the investment was
assessed as permanently impaired given the eFinancial stock price and a write
down was taken to value the investment at estimated fair market value. There was
no such provision recorded in 1999 or 1998.

PROVISION FOR INCOME TAXES

     The Company has not recorded a provision for income taxes due to previously
incurred losses, credits and costs. As at December 31, 2000, the Company has
U.S. operating losses carried forward of approximately $11.5 million which
expire over the period 2018 to 2020. At December 31, 2000, the Company has
non-capital losses carried forward for Canadian income tax purposes of
approximately $17.0 million, expiring over the period 2003 through 2007.

LIQUIDITY AND CAPITAL RESOURCES

     In 2000, net cash used in operations was $17.4 million as compared with
$4.2 million in 1999. Cash used in operations in 2000 consisted primarily of a
$45.9 million loss offset in part by $24.0 million amortization, $1.3 million
changes in non-cash working capital balances, $1.2 million general and
administration expense not involving the payment of cash, $0.9 million loss on
impairment of investment and $0.7 million depreciation.

     In 2000, cash used in investing activities was $8.9 million, primarily
related to $3.9 million purchase of investments (eFinancial, Cobratech and
Cu Connect), $3.1 million purchase of equipment and leasehold improvements and
$1.8 million purchases of subsidiaries. In 1999, cash used in investing
activities was $0.7 million primarily related to the purchase of equipment and
leasehold improvements. Term deposits are on deposit with a Canadian chartered
bank. Of the deposits, $13,344 ($24,923 in 1999, have been pledged as collateral
for certain corporate credit cards and point of sale.

     In 2000, cash provided by financing activities was $17.8 million, of which
$15.0 million (net of issue costs) was generated from the issuance of common
stock from four private placements and the balance from demand promissory notes
issued. In 1999, $13.7 million cash was provided by financing activities,
primarily from the issuance of common stock and proceeds from issuance of a
convertible debenture.

     At December 31, 2000, cash and cash equivalents were $335,901, a decrease
from $8.9 million at December 31, 1999. This decrease is as a result of the cash
losses that have been incurred.

     Accounts payable and accrued liabilities have increased 366% to $5.2
million in 2000 as compared to $1.2 million in 1999. This increase is the result
of the increase in size of the Company's operations and cash flow. Accounts
receivable have increased 838% from $340,602 in 1999 to $3.2 million in 2000.
There has been an increase from $6,887 in 1999 to $45,000 in 2000 due from
related parties.

     During 1998, the Company had entered into a Put Option agreement with an
investor which allowed the Company to require the investor to purchase up to
<PAGE>   19
                                       19

25,000,000 shares of the common stock of the Company. In addition, the investor
was to be granted warrants to purchase up to 3,000,000 shares of common stock.
On April 26, 1999, the agreement was cancelled in exchange for warrants to the
investor to purchase up to 1,000,000 shares of common stock at an exercise price
of $0.70 per share. The warrants expire April 15, 2002. On June 5, 2000, 150,000
common shares were issued in exchange for $105,000.

     On September 25, 1998, JAWZ entered into a $2,000,000, 10% Convertible
Debenture Agreement with Thomson Kernaghan and 1,428,572 warrants to purchase
1,428,572 common shares at $0.28 per common share. These Thomson Kernaghan
warrants were to expire on October 31, 2002 and were to be exercised in whole or
in part, from time to time, prior to October 31, 2002 in accordance with the
terms of the Thomson Kernaghan warrants and the amended debenture agreement. The
Thomson Kernaghan warrants are assignable, and non-callable.

     On April 27, 1999, JAWZ and Thomson Kernaghan amended the debenture
agreement, increasing the amount available to $5,000,000, of which $1,520,000
was advanced.

     On June 21, 1999, the Company issued 1,000,000 share purchase warrants,
which entitle the holder to purchase 1,000,000 common shares at $2.25 per share
until June 30, 2001.

     On November 1, 1999, the Company issued 411,765 share purchase warrants,
which entitle the holder to purchase 411,765 common shares at $1.70 per share
until November 30, 2002.

     Effective November 1, 1999, JAWZ executed a Debenture Acquisition Agreement
Amendment and Settlement Agreement with Thomson Kernaghan, (the "Settlement
Agreement") in order to settle the outstanding obligations of the parties
relating to the $5,000,000 Debenture Acquisition Agreement dated September 25,
1998, as amended on April 27, 1999. The Settlement Agreement settles the
conversion terms of the $1,520,000 advanced under Debenture Agreement and the
exercise of outstanding warrants issued under the Debenture Agreement and
terminates all further obligations related to the Debenture Agreement.
Debentures issued pursuant to the Debenture Agreement have been converted to
5,127,672 restricted shares. Thomson Kernaghan has exercised all of the
outstanding warrants issued pursuant to the Debenture Agreement for the issuance
of 2,180,220 shares in the common stock of JAWZ. The parties have signed a
mutual release.

     Around this time JAWZ also entered into an agreement with Bristol Asset
Management LLC ("Bristol") whereby JAWZ was given the right to obligate Bristol
to buy up to 25,000,000 shares of common stock for up to $7,000,000 in "put"
options. On April 26, 1999, JAWZ signed a settlement agreement with and in
consideration of the cancellation of the previous financing arrangement JAWZ has
granted warrants to Bristol to purchase 1,000,000 shares of the common stock of
JAWZ at $0.70 USD, expiring April 15, 2002. The cancellation of this financing
did not have an immediate impact on operations. The Company is currently
involved in litigation with Bristol - see Item 3 - Legal Proceedings.

     On December 31, 1999, the Company issued 2,176,418 share purchase warrants
in connection with an issuance of 2,176,418 shares of common stock, which
entitle the holder to purchase one-half of one share of common stock of the
Company at an exercise price of $6.50 per share. As a financing fee, the Company
issued 217,642 warrants to the placement agent, which entitle the agent to
purchase one share of common stock at an exercise price of $4.25 per share. Each
warrant will expire on March 29, 2003. If the share price of the Company exceeds
$9.75 for 30 consecutive days any time after March 29, 2000, the Company, with
30 days notice, may repurchase these warrants at a price of $0.001 per warrant.

     On February 23, 2000, the Company issued 294,119 share purchase warrants in
connection with an issuance of 588,238 shares of common stock, which entitle the
holder to purchase one half of one share of common stock of the Company at $6.50
per share. In addition, as a financing fee, the Company issued 58,824 warrants
to the placement agent, which entitle the agent to purchase one share of common
stock at an exercise price of $4.25 per share. Each warrant will expire on March
29, 2003.


<PAGE>   20
                                       20


     On June 22, 2000 the Company issued 240,000 share purchase warrants in
connection with an issuance of 800,000 shares of common stock which entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. Each warrant will expire on June 22, 2005. In addition, the holders
received adjustable warrants to purchase common stock at an exercise price of
$0.001 per share. The number of shares to be purchased will be determined
pursuant to a formula that is applied at three separate 40 day adjustment
periods commencing between the 150th and 240th day following June 22, 2000. At
each adjustment date, the holders will be entitled to purchase under the
adjustable warrants a number of shares equal to 33.33% of the common stock
purchased, multiplied by the difference between the quotient of $5.00 divided by
 .89 and the average of the 10 lowest closing bid prices for the company's common
stock during the 40 trading day period preceding the applicable adjustment date.
On November 17, 2000, (the date of the end of the first vesting period), the
holders undertook a cashless exercise of warrants resulting in the issue of
1,456,176 common shares. On January 17, 2001, (the date of the end of the second
vesting period), the holders undertook a cashless exercise of warrants resulting
in the issue of 4,698,846 common shares. On March 15th, 2001, (the date of the
end of the third and final vesting period), the holders undertook a cashless
exercise of warrants resulting in the issue of 8,778,290 common shares.

     On July 17, 2000, the Company issued an additional 120,000 share purchase
warrants which entitle the holder to purchase one share of common stock at an
exercise price of $5.00 per share. Each warrant will expire on July 17, 2005. In
addition, the investors received adjustable warrants to purchase common stock,
at an exercise price of $0.001 per share. The number of shares to be purchased
will be determined pursuant to a formula that is applied at three separate 40
day adjustment periods commencing between the 150th and 240th day following July
17, 2005. The terms of the adjustable warrants are consistent with the terms of
the adjustable warrants issued on June 22, 2000 as described above.

     Between August 1, 1999 and July 30, 2000 the Company issued a total of
60,000 warrants (5000 per month) which allow the holder to purchase 60,000
common shares of the Company at an exercise price of $2.00 per share. Each
warrant expires July 26, 2005.

     On August 21, 2000, the Company issued 180,000 share purchase warrants in
connection with an issuance of 600,000 shares which entitle the holder to
purchase one share of common stock at an exercise price of $5.00 per share. Each
warrant will expire on August 21, 2005. In addition, the holders received
adjustable warrants to purchase a number of shares of common stock, at an
exercise price of $0.001 per share. The number of common stock to be purchased
will be determined pursuant to a formula that is applied at three separate 40
day adjustment periods commencing between the 150th and 240th day following
August 21, 2005. The terms of the adjustable warrants are consistent with the
terms of the adjustable warrants issued on June 22, 2000 as described above.

     On August 22, 2000 the Company issued 400,000 warrants. The warrants
include cashless exercise provisions and each warrant is exercisable into one
share of common stock at an exercise price of $5.07. These warrants expire on
August 22, 2005.

     On August 22, 2000 the Company issued 200,000 warrants which entitle the
holder to purchase one common share at an exercise price of $6.64 per share.
Each warrant will expire on August 22, 2005.

     On October 2nd, 2000, in connection with the private placement financing
agreement dated August 21, 2000, the Company issued 400,000 common shares for
proceeds of $2,000,000. In connection with this private placement, the Company
issued 120,000 share purchase warrants which entitle the holder to purchase one
share of common stock at an exercise price of $5.00 per share. Each warrant will
expire on October 2nd, 2005. In addition, the holders received adjustable
warrants, pursuant to a formula, to purchase a number of shares of common stock,
at an exercise price of $0.001 per share.

     In January 2001, the Company closed a private placement with CALP II
Limited Partnership for the sale of 1.6 million common shares at a purchase
price of $1.25

<PAGE>   21

per share in consideration of the cancellation of $2.0 million worth of
promissory notes, less a financing fee.

     In January 2001, the Company concluded a private placement with Bathurst
Ltd. for the sale of 1,997,333 common shares at a purchase price of $0.375 for a
total purchase price of $749,000. Through one its acquisitions, the Company
acquired a line of credit outside of trade accounts which has been retired. The
Company has not established any lines of credit outside of trade accounts and
will not be in a position to negotiate any lines of credit until sales contracts
have been validated and matured. The Company is continuing to attempt to raise
additional funds through debt or other arrangements but has not secured any
further obligations at this time. This line of credit facility has been
terminated as of January, 2001.

     Since December 13, 2000, JAWZ has borrowed $4,195,000 USD from Thomson
Kernaghan & Co. Limited ("TK") and has issued promissory notes as follows:
<TABLE>
<CAPTION>


                     DATE                                         AMOUNT
                     -----                                       --------
                     <S>                                        <C>
                     December 13, 2000                          $ 1,000,000
                     January 26, 2001                           $ 1,000,000
                     February 14, 2001                           $ 400,000
                     February 27, 2001                           $ 945,000
                     March 15, 2001                              $ 800,000
</TABLE>


     It is a term of the March 15, 2001 promissory note that JAWZ and TK enter
into a secured loan agreement providing security for the total amount borrowed.
On March 29, 2001, JAWZ and TK executed a loan agreement and security agreement
charging all of the property and assets of JAWZ. Under the terms of the loan
agreement JAWZ can borrow up to $7.5 million dollars plus placement fees. To
date, JAWZ has given consideration for $185,000 in placement fees.

     On March 29, 2001, JAWZ and CALP II Limited Partnership entered into a
letter agreement (the "Letter Agreement") to further amend the Securities
Purchase Agreement and Registration Rights Agreement between JAWZ and CALP II
dated August 21, 2000, as amended on January 23, 2000 (the "Agreement"). The
Letter Agreement amends the Agreement by amending adjustable warrant AW-3B and
by amending the amended registration rights agreement. Adjustable warrant AW-3B
is amended by terminating the existing vesting provisions and replacing them
with monthly vesting from November 1, 2000 and October 31, 2001. In accordance
with the new vesting terms, CALP has given Notice to Purchase Warrant Shares and
JAWZ has issued 5,081,835 common shares. The Letter Agreement also amends the
registration rights agreement by deleting the requirement of effective
registration of common shares by March 30, 2001 and by eliminating any penalties
for late registration. The Letter Agreement provides for a new date of June 30,
2001 for effective registration of shares due under the Agreement.

     The Company has experienced net losses over the past three years and as of
December 31, 2000 had an accumulated deficit of approximately $56 million and
working capital deficiency of approximately $4.2 million. These losses are
attributable to both cash losses and losses resulting from costs incurred in the
development of services and infrastructure together with non-cash interest and
amortization charges. The Company expects operating losses to continue for the
short term but has recently taken initiatives to reduce expenses and operate on
a cash positive basis. There can be no assurances that the Company will be
successful in stemming its losses. The Company does not believe that its
existing cash and cash equivalents, available credit and anticipated cash
generated from operations will be sufficient to satisfy its currently
anticipated cash needs for at least the next twelve months. Management intends
to seek additional financing through private or public offerings of stock or
other instruments such as debt as required. Management is concurrently
aggressively pursuing a plan to generate positive cash flow from operations that
includes, but is not limited to, eliminating unprofitable business lines,
reducing overhead costs, closing unprofitable office locations, flattening its
organizational structure and downsizing its work force to better match short
term revenue opportunities and industry standards. However, there can be no
assurances that the Company will be able to generate positive cash flow, control
costs effectively, generate sufficient revenues, raise additional capital to

<PAGE>   22
                                       22

cover cash requirements or establish strategic relationships given present
market conditions and business environment. The Company's auditors, Ernst &
Young, have noted in their Auditor's report that the Company's recurring losses
from operations, working capital deficiency and accumulated deficit raise
substantial doubt about its ability to continue as a going concern. However, the
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

     While the Company believes that inflation has not had a material effect on
its results of operations, the can be no assurance that inflation will not have
a material effect on the Company's results of operations in the future.

QUARTERLY RESULTS OF OPERATIONS

     The following tables present certain unaudited statement of operations data
for each of the Company's last eight fiscal quarters and the percentage
relationship of certain items to total revenues for the respective periods. This
unaudited data has been prepared on the same basis as the audited financial
statements and, in the opinion of management, contains all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. The results for the periods presented are not
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>


QUARTERLY SUMMARY                                                           QUARTER ENDED
                                                   --------------------------------------------------------------
                                                        2000                                             1999
                                                        ----                                              ----

CONSOLIDATED STATEMENT OF             Dec 31     Sep 30     Jun 30     Mar 31      Dec 31     Sep 30     Jun 30     Mar 31
   LOSSES
                                      ------     ------     ------     ------      -------    ------     ------     ------
<S>                                    <C>        <C>        <C>          <C>        <C>         <C>         <C>         <C>
REVENUE                                3,535      4,033      2,221        547        219         348         10          3
                                     -------     ------     ------     ------     ------      ------     ------     ------
OPERATING EXPENSES
Cost of sales                          2,622      1,797        880          0          0           0          0          0
Research and development                 151        226          0          0         17           0          0          0
Advertising and promotion                537        172        617        475        130          50         36        149
Bad debts                              1,101        511          0          0          0           0          0          0
Selling, General and                   6,997      5,326      5,793      3,296      2,589       1,482        916        587
  administration
Software development costs
                                     -------     ------     ------     ------     ------      ------     ------     ------
Total operating expenses              11,408      8,031      7,290      3,771      2,736       1,532        952        736
Operating loss before                 (7,873)    (3,998)    (5,069)    (3,224)    (2,517)     (1,184)      (942)      (733)
  depreciation and
  amortization
Depreciation                             354        168        147         62         37          30         26         11
Amortization                          19,308      1,978      1,743      1,001        126           0          0          0
                                     -------     ------     ------     ------     ------      ------     ------     ------
Operating loss                       (27,535)    (6,138)    (6,959)    (4,287)    (2,680)     (1,214)      (968)      (744)
                                     -------     ------     ------     ------     ------      ------     ------     ------
Interest income                          (18)       (23)       (71)      (105)         0         (14)         0          0
Interest expense, financing             (302)       323          1         13        672         209        258        448
  fees and debt discount
Foreign exchange (gain)/loss             149        210        106       (176)       (23)         (3)         3         10
Loss on impairment of                    880          0          0          0          0           0          0          0
  investment]
                                     -------     ------     ------     ------     ------      ------     ------     ------
NET LOSS FOR THE YEAR                (28,244)    (6,647)    (6,995)    (4,020)    (3,329)     (1,406)    (1,231)    (1,202)

</TABLE>




         The Company's quarterly results of operations have fluctuated and are
expected to continue to fluctuate. In addition, revenues can be expected to vary
significantly as a result of a lack of significant order backlog, fluctuations
in demand for existing products and services, the rate of development of new
markets, the degree of market acceptance of new products and services, increased
competition and the general strength of domestic and international economic
conditions.



<PAGE>   23
                                       23

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company has determined its market risk exposures, which arise primarily
from exposures to fluctuation in interest rates and exchange rates, and in
particular the Canadian to US dollar exchange rate, are not material to its
future earnings, fair value, and cash flows.

     The Company does not use derivative financial instruments to manage risks
or for speculative or trading purposes.

     At December 31, 2000, we had $4.1 million in investments. The Company is
exposed to changes in stock prices as a result of its holdings in publicly
traded securities. Changes in stock prices can be expected to vary as a result
of general market conditions, technological changes, specific industry changes
and other factors. The company has classifies these investments as held to
maturity and consequently has recorded these investments at cost. In 2000, the
company recognized a loss of approximately $0.9 million due to a permanent
impairment of value with respect to one of its investments. Only upon conclusion
of permanent impairment or a sale, would these investments impact results as a
gain or loss on sale of investments.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial statements filed as part of this Annual Report on Form 10-K
are provided under Item 14 below.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     Not applicable.

                                    PART III

ITEMS 10-13.

     The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 2001 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management," "Election of Directors," "Board and
Committee Meetings," "Compensation for Directors," "Compensation for Executive
Officers" and "Certain Relationships and Related Transactions." Information
regarding executive officers of the Company is also furnished in Part I of this
Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) (1) Financial Statements JAWS' Consolidated Financial Statements as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000. See pages F-1 through F-29, which are included herein.

     (a) (2) Financial Statement Schedules All schedules are omitted because
they are inapplicable, not required or the information is included in the
consolidated financial statements or the notes thereto.

     (a) (3) Exhibits The exhibits listed in the Exhibit Index immediately
preceding the exhibits are filed as part of this Annual Report on Form 10-K.

<PAGE>   24


     (b) The following Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report:

     (1) Current Report on Form 8-K/A, filed with the Securities and Exchange
Commission on November 1, 2000; JAWZ Inc.

                          Index to Financial Statements
<TABLE>
<CAPTION>

                                                                                                                          Page
                                                                                                                          ----
<S>                                                                                                                       <C>
Independent Auditors' Report.............................................................................................. F-2
Consolidated Balance Sheets as at December 31, 2000 and 1999.............................................................. F-3
Consolidated Statements of Loss and Deficit and Comprehensive Loss for the years
     ended December 31, 2000, 1999 and 1998............................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998.......................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998................................ F-6
Notes to Consolidated Financial Statements................................................................................ F-7
</TABLE>
<PAGE>   25

  Consolidated Financial Statements

  JAWZ INC.
  December 31, 2000 and 1999



<PAGE>   26

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of JAWZ INC.:

We have audited the accompanying consolidated balance sheets of JAWZ INC. (and
subsidiaries) as at December 31, 2000 and 1999 and the related consolidated
statements of loss and deficit and comprehensive loss, changes in stockholders'
equity and cash flows for the years ended December 31, 2000, 1999, and 1998.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JAWZ INC. (and
subsidiaries) as at December 31, 2000 and 1999 and the consolidated results of
their operations and their cash flows for the years ended December 31, 2000,
1999, and 1998, in accordance with accounting principles generally accepted in
the United States.

As discussed in Note 1 to the financial statements, the Corporation's recurring
losses from operations, working capital deficiency and accumulated deficit raise
substantial doubts about its ability to continue as a going concern.
Management's plans as to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



Calgary, Canada
February 20, 2001                                          Chartered Accountants



<PAGE>   27

JAWZ INC.

                           CONSOLIDATED BALANCE SHEETS
                  (all amounts are expressed in U.S. dollars)
                      (see Note 1 - Basis of Presentation)


<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    DECEMBER 31,
                                                                         2000            1999
                                                                          $               $
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
ASSETS
Cash and cash equivalents                                                335,901       8,862,430
Accounts receivable [note 4]                                           3,193,198         340,602
Due from related parties [note 10]                                       499,569              --
Prepaid expenses and deposits                                            277,934          75,144
Deferred charges                                                         177,230              --
--------------------------------------------------------------------------------------------------
Total Current Assets                                                   4,483,832       9,278,176
Equipment and leasehold improvements, net [note 6]                     3,685,308         699,235
Intangible assets [note 7]                                             3,417,672       2,629,000
Investments [note 5]                                                   4,107,096              --
--------------------------------------------------------------------------------------------------
Total Assets                                                          15,693,908      12,606,411
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities                               5,164,805       1,161,409
Current portion of capital lease obligations payable [note 13]            97,972          25,235
Deferred revenues                                                        326,738              --
Due to related parties [note 10]                                          45,000           6,887
Lease inducement                                                         240,480          58,757
Promissory notes [note 8]                                              2,790,030              --
--------------------------------------------------------------------------------------------------
Total Current Liabilities                                              8,665,025       1,252,288
--------------------------------------------------------------------------------------------------
Capital lease obligations payable [note 13]                              286,983          68,227
--------------------------------------------------------------------------------------------------
Total Liabilities                                                      8,952,008       1,320,515
--------------------------------------------------------------------------------------------------
Commitments & Contingencies [notes 1, 13 and 19]

STOCKHOLDERS' EQUITY
Authorized
   95,000,000 common shares at $0.001 par value
    5,000,000 preferred shares at $0.001 par value
OUTSTANDING:
41,852,988 common shares issued and fully paid
   (December 31, 1999 - 25,040,188)
Common stock issued and paid-up [note 9]                                  41,853          25,040
Additional paid in capital [note 9]                                   63,535,271      21,823,490
Cumulative translation adjustment                                       (548,003)       (181,717)
Deficit                                                              (56,287,221)    (10,380,917)
--------------------------------------------------------------------------------------------------
                                                                       6,741,900      11,285,896
--------------------------------------------------------------------------------------------------
                                                                      15,693,908      12,606,411
==================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements

On behalf of the Board:



                              Director                   Director

<PAGE>   28

JAWZ INC.

       CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
                   (all amounts are expressed in U.S. dollars)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------
                                                      2000              1999             1998
                                                        $                $                 $
--------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>                <C>
REVENUE [note 10]
Consulting revenue                                  7,437,242          535,369            16,848
Product revenue                                     2,532,534           33,667            10,194
Other income                                          373,486            8,806                --
--------------------------------------------------------------------------------------------------
                                                   10,343,262          577,842            27,042
--------------------------------------------------------------------------------------------------

OPERATING EXPENSES [note 10]
Cost of sales (excluding depreciation)              5,298,681            2,066                --
Research and development                              777,097           16,630                --
Advertising and promotion                           1,800,990          363,916           218,574
Bad debts                                           1,631,924               --                --
Selling, General and administration                20,992,106        5,571,203         1,574,453
Software development costs                                 --               --           909,003
--------------------------------------------------------------------------------------------------
Total operating expenses                           30,500,798        5,953,815         2,702,030
Operating loss before depreciation and
  amortization                                    (20,157,536)      (5,375,973)       (2,674,988)
Depreciation                                          731,155          104,836            14,041
Amortization [note 7]                              24,029,320          126,386                --
--------------------------------------------------------------------------------------------------
Operating loss                                    (44,918,011)      (5,607,195)       (2,689,029)
--------------------------------------------------------------------------------------------------
Interest income                                      (216,693)         (14,204)           (2,026)
Interest expense, financing fees and debt
  discount                                             35,716        1,587,237           389,715
Foreign exchange (gain)/loss                          289,726          (12,452)             (431)
Loss on impairment of investment [note 5]             879,544               --                --
--------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR [note 12]                   (45,906,304)      (7,167,776)       (3,076,287)

OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment              (366,286)        (172,875)           (8,842)
COMPREHENSIVE LOSS                                (46,272,590)      (7,340,651)       (3,085,129)
--------------------------------------------------------------------------------------------------

DEFICIT, BEGINNING OF YEAR                        (10,380,917)      (3,213,141)         (136,854)
Net loss for the year                             (45,906,304)      (7,167,776)       (3,076,287)
--------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR                              (56,287,221)     (10,380,917)       (3,213,141)
--------------------------------------------------------------------------------------------------

NET LOSS PER COMMON SHARE [note 11]                     (1.35)          (0.50)             (0.42)
==================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>   29

JAWZ INC.

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                   (all amounts are expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                                    ACCUMULATED
                                                   ADDITIONAL          OTHER
                                          PAR       PAID IN        COMPREHENSIVE   ACCUMULATED
                          SHARES         VALUE      CAPITAL            LOSS          DEFICIT         TOTAL
                            #              $           $                 $                             $
--------------------------------------------------------------------------------------------------------------
<S>                    <C>               <C>       <C>              <C>            <C>             <C>
BALANCE, DECEMBER
  31, 1998 [note 9]    10,612,317        10,612     2,757,712         (8,842)       (3,213,141)      (453,659)
Issuance of common
  stock for cash        7,233,132         7,233    13,340,344             --                --     13,347,577
Share issue costs              --            --      (988,477)            --                --       (988,477)
Equity component
  of convertible
  debentures net
  of related
  financing fees               --            --            --             --                          474,511
Warrants issued
  with issuance of
  convertible
  debentures                   --            --       341,538             --                --        341,538
Issuance of common
  stock for
  services                360,547           360       309,379             --                --        309,739
Obligation to
  issue common
  stock for
  services                     --            --         4,384             --                --          4,384
Exercise of
  employee stock
  options                  15,000            15         2,235             --                --          2,250
Issued on
  conversion of
  debentures            5,395,575         5,396     2,149,840             --                --      2,155,236
Issuance of common
  stock on
  acquisition of
  subsidiary            1,423,617         1,424     2,622,024             --                --      2,623,448
Loss for the year              --            --            --       (172,875)       (7,167,776)    (7,340,651)
--------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER
  31, 1999             25,040,188        25,040    21,823,490       (181,717)      (10,380,917)    11,285,896
=============================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>   30

JAWZ INC.

        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CON'T
                   (all amounts are expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                                  ACCUMULATED
                                                 ADDITIONAL          OTHER
                                       PAR        PAID IN        COMPREHENSIVE    ACCUMULATED
                         SHARES       VALUE       CAPITAL            LOSS           DEFICIT         TOTAL
                           #            $            $                 $                              $
------------------------------------------------------------------------------------------------------------
<S>                  <C>              <C>        <C>              <C>           <C>              <C>
Issuance of common
  stock for cash
  [note 9]             5,615,711       5,616     14,603,677            --               --        14,609,293
Share issue costs             --          --     (1,332,129)           --               --        (1,332,129)
Exercise of
  employee stock
  options                735,503         736        229,857            --               --           230,593
Issuance of common
  stock for cash
  as a result of
  exercise of
  warrants             2,685,437       2,685      1,506,335            --               --         1,509,020
Stock options
  exercised for no
  consideration          356,140         356           (356)           --               --                --
Issuance of common
  stock for
  services               294,013         294      1,118,166            --               --         1,118,460
Obligation to
  issue common
  stock for
  services                   --           --        281,116            --               --           281,116
Issuance of common
  stock on
  acquisition of
  subsidiaries
  [note 3]             7,125,996       7,126     24,242,515            --               --        24,249,641
Common stock to be
  issued on
  acquisition of
  investment
  [note 5 (c)]               --           --      1,062,600            --               --         1,062,600
Loss for the year            --           --             --       (366,286)     (45,906,304)     (46,272,590)
------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER
  31, 2000           41,852,988       41,853     63,535,271       (548,003)     (56,287,221)       6,741,900
============================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>   31

JAWZ INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   (all amounts are expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                 ------------------------------------------------
                                                      2000              1999             1998
                                                        $                $                 $
-------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>               <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the year                             (45,906,304)      (7,167,776)       (3,076,287)
Add (deduct) non cash items:
Adjustments to reconcile loss to cash flows
  used in operating activities:
   General and administration expense not
    involving the payment of cash                   1,200,797           99,839           320,000
   Deferred revenue                                    15,779               --                --
   Deferred charges                                    35,661               --                --
   Depreciation                                       731,155          104,836            14,041
   Amortization                                    24,029,320          126,386                --
   Non-cash interest expense and amortization
    of deferred financing fees and debt                    --        1,129,709           386,846
    discount
   Non-cash compensation expense                           --          810,000                --
   Software development costs                              --               --           909,003
   Non-cash financing fees                                 --          447,187                --
Foreign exchange (gain)/loss                          289,726          (12,452)             (431)
Loss on impairment of investment                      879,544               --                --
Changes in non-cash working capital balances
  [note 14]                                         1,276,154          279,193           319,422
-------------------------------------------------------------------------------------------------
                                                  (17,448,168)      (4,183,078)       (1,127,406)
-------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of equipment and leasehold
  improvements                                     (3,093,401)        (636,267)         (115,153)
Purchase of intangible asset                         (100,182)              --                --
Purchases of subsidiaries                          (1,753,334)         (30,656)            1,380
Purchase of investments                            (3,938,251)              --                --
-------------------------------------------------------------------------------------------------
                                                   (8,885,168)        (666,923)         (113,773)
-------------------------------------------------------------------------------------------------
CASH FLOWS GENERATED BY FINANCING ACTIVITIES
Proceeds from the issuance of common stock,
  net of issue costs                               15,016,777       12,761,350           954,686
Promissory notes issued                             2,790,030               --                --
Repayment of stockholder advances                          --          (72,651)          (78,159)
Proceeds from stockholder advances                         --               --            20,273
Proceeds on issue of convertible debenture                 --        1,100,000           420,000
Financing fees on issue of convertible                     --         (110,000)          (42,000)
  debenture
-------------------------------------------------------------------------------------------------
                                                   17,806,807       13,678,699         1,274,800
-------------------------------------------------------------------------------------------------

INCREASE/(DECREASE) IN CASH                        (8,526,529)       8,828,698            33,621
Cash and cash equivalents, beginning of year        8,862,430           33,732               111
-------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                335,901        8,862,430            33,732
=================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>   32

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


1.   DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

JAWZ Inc., (the "Company") was incorporated on January 27, 1997 under the laws
of the State of Nevada. During the year, it changed its name to JAWZ Inc.
(formerly JAWS Technologies, Inc.) and migrated to the State of Delaware where
it is now subject to corporate laws of Delaware.

The Company provides e-security services. The Company assists in removing the
burden of information risk management for its customers by providing products
and services that cover the entire e-security market (from assessment to
implementation to monitoring), via its three divisions, Security Products,
Professional Security Services and Managed Security Services. The Company
targets six key market verticals: governments, cyber crime and forensics,
healthcare, financial services, e-commerce, and the telecom markets. The
company's International headquarters is located in Toronto, Canada with offices
in Calgary, Edmonton, Ottawa, Canada and Boston, New Jersey, Chicago and
Pasadena, USA.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries.

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future. The
Company has experienced significant losses and negative cash flows from
operations since inception and, as of December 31, 2000, has an accumulated
deficit of $56,287,221 and a working capital deficiency of $4,181,193. Such
losses are attributable to both cash losses and losses resulting from costs
incurred in the development of the Company's services and infrastructure and
non-cash interest and amortization charges. The Company's continuation as a
going concern is dependent on its ability to generate positive cash flow from
operations, to meet its obligations on a timely basis and to obtain additional
financing as may be required, and ultimately to attain successful operations.
However, no assurance can be given at this time as to whether the Company will
achieve any of these conditions. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to the carrying values and
classifications of recorded asset or liability amounts that might be necessary
should the Company be unable to continue as a going concern.

Additional funding will be required to maintain continuing operations.
Management intends to seek additional financing through future private or public
offerings of stock or other instruments (such as debt) as required. Management
is concurrently pursuing a plan to generate positive cash flow from operations
that includes (but is not limited to) eliminating unprofitable business lines,
reducing overhead costs, closing unprofitable office locations, flattening its
organizational structure, and downsizing its work force to better match short
term revenue opportunities and industry standards. Some additional financing has
been arranged subsequent to the end of the year (see note 20).


                                                                               1
<PAGE>   33

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


2.  SIGNIFICANT ACCOUNTING POLICIES

The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States.

USE OF ESTIMATES

Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.

CASH AND CASH EQUIVALENTS AND TERM DEPOSITS

Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and with original maturities of one month or
less when purchased. The Company invests its excess cash in term deposits
maintained primarily in Canadian financial institutions in an effort to preserve
principal and to maintain safety and liquidity.

Term deposits include investments with original maturities exceeding one month
when purchased.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are recorded at cost and are depreciated at
the following annual rates which are designed to amortize the cost of the assets
over their estimated useful lives.

         Security equipment                 - 20% straight line
         Furniture and fixtures             - 20% declining balance
         Computer hardware                  - 33% straight line
         Computer software for internal use - 33% straight line
         Leasehold improvements             - 20% straight line

CAPITAL LEASES

Leases in which substantially all the benefits and risks of ownership are
transferred to the Company are capitalized with an offsetting amount recorded as
a liability.


                                                                               2

<PAGE>   34

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


LONG-LIVED ASSETS

The Company follows financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present.

INTANGIBLE ASSETS

Employee and Consultants Base

The employee and consultants base arising from acquisitions are recorded at cost
and are being amortized on a straight-line basis over three years.

Goodwill

Goodwill is recorded at cost and is being amortized on a straight-line basis
over three years.

The recoverability of employee and consultants bases and goodwill are assessed
periodically based on management estimates of undiscounted future operating
income from each of the acquired businesses to which they relate.

If circumstances indicate that the carrying value may not be recoverable an
impairment loss is recognized in the amount by which the carrying value exceeds
the estimated fair value.

Software licenses

Software licenses are recorded at cost and are being amortized on a
straight-line basis over the five year license term.

RESEARCH AND DEVELOPMENT

Research and development costs relate to software development and are expensed
when technological feasibility has not yet been established. Subsequent to
establishing technological feasibility, such costs are capitalized until the
commencement of commercial sales.

REVENUE RECOGNITION

Product Revenue:  Revenue from selling encryption software and from the sale and
installation of computer software and hardware is recognized at the time of
delivery.

Consulting Revenue:  Revenue from information technology services and
outsourcing contracts is recognized when the service is rendered for time and
materials based agreements and is recognized on the successful completion of a
project or major milestone for projects based contracts.

Maintenance Revenue:  Revenue from maintenance contracts and their associated
costs are deferred and systematically recognized over the term of the
maintenance period.

Deferred Charges:  Costs incurred on maintenance or support contracts are
deferred and systematically recognized over the term of the maintenance or
support period.


                                                                               3

<PAGE>   35

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


ADVERTISING

Advertising costs are expensed as incurred.

FINANCING FEES

Financing fees associated with that portion of the convertible debentures
classified as debt were deferred and amortized straight-line over the life of
the debentures. Financing fees associated with that portion of the convertible
debentures classified as additional paid in capital was charged to that account.

INCOME TAXES

The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Future income taxes are recorded at the income tax rates
that are expected to apply when the future tax liability is settled or the
future tax asset is realized. When necessary, valuation allowances are
established to reduce future income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in future income tax assets and liabilities.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's Canadian subsidiaries is the Canadian
dollar. Accordingly, assets and liabilities of the Canadian subsidiaries are
translated at the year-end exchange rate and revenues and expenses are
translated at average exchange rates. Gains and losses arising from the
translation of the financial statements of the subsidiaries are recorded in a
"Cumulative Translation Adjustment" account in stockholders' equity.

Transactions denominated in foreign currencies are translated at the exchange
rate on the transaction date. Foreign currency denominated monetary assets and
liabilities are translated at exchange rates in effect on the balance sheet
date. The resulting exchange gains and losses on these items are included in net
earnings.

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share has been calculated based on the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per common share is calculated by adjusting outstanding shares, assuming
any dilutive effects of options, warrants, and convertible securities.

STOCK BASED COMPENSATION

The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.


                                                                               4

<PAGE>   36

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)

INVESTMENTS

The company accounts for its long term investments in accordance with Financial
Accounting Standards Board statement No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" and these investments are classified as
available-for-sale securities and are reported at fair value. Unrealized gains
and losses are excluded from earnings and reported in a separate component of
shareholders' equity, except where it is determined there has been a permanent
impairment in value, in which case the loss is recorded in the statement of
earnings.

The investments classified as held to maturity are recorded at cost.

3.   ACQUISITIONS

The Company acquired various e-security service businesses during 1999 and 2000.
Each of the acquisitions was accounted for using the purchase method, and the
purchase price was allocated to the net assets based on their fair values as
noted below. The excess of the purchase price over the underlying fair value of
the net assets of each acquisition has been assigned to employee and consultants
base and goodwill and is being amortized over the estimated benefit period of
three years. The operating results of the acquired businesses are included in
the consolidated statements of loss, deficit and comprehensive loss from the
dates of acquisition.


                                                                               5

<PAGE>   37

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                              2000                                            1999
                        --------------------------------------------------    -----------------------------------
                           A.           B.            C.                         D.
                        OFFSITE       BETACH        OTHER        TOTAL          PACE          OTHER       TOTAL
                           $            $             $            $             $              $           $
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>           <C>           <C>           <C>            <C>        <C>
NET ASSETS ACQUIRED:

Cash                      304,508           --           --        304,508           --           --           --
Equipment                    --             --           --             --           --      155,932      155,932
Employee and
  consultants base      7,823,281    2,137,048    2,612,748     12,573,077    1,193,042      184,651    1,377,693
Goodwill                7,823,282    2,137,048    2,812,749     12,773,079    1,193,042      184,651    1,377,693
Other net assets          125,201       18,968      512,650        656,819           --           --           --
-----------------------------------------------------------------------------------------------------------------
                       16,076,272    4,293,064    5,938,147     26,307,483    2,386,084      525,234    2,911,318
=================================================================================================================

CONSIDERATION:

Common stock - shares   5,253,786      750,400    1,121,810      7,125,996    1,385,546       38,071    1,423,617
-----------------------------------------------------------------------------------------------------------------
             - $       14,162,599    3,804,528    4,176,889     22,144,016    2,355,428      268,020    2,623,448
Value of warrants
  and options           1,649,625      456,000           --      2,105,625           --           --           --
  exchanged
Cash                           --           --    1,359,408      1,359,408           --           --           --
Promissory note                --           --           --             --           --      257,214      257,214
Acquisition costs         264,048       32,536      401,850        698,434       30,656           --       30,656
-----------------------------------------------------------------------------------------------------------------
                       16,076,272    4,293,064    5,938,147     26,307,483    2,386,084      525,234    2,911,318
=================================================================================================================
</TABLE>

 (a) The consideration given to acquire all of the outstanding share of Offsite
     Data Services Ltd. consisted of 5,253,786 exchangeable shares and 1,389,800
     warrants. Exchangeable shares have economic rights, including the right to
     any dividend, and voting attributes equivalent to the Company's common
     stock. The holders of the exchangeable shares have the right to receive
     Company common stock on a one for one basis.

(b)  The consideration given to acquire all of the outstanding shares of Betach
     System Inc. and Betach Advanced Solutions Inc. group consisted of 750,400
     exchangeable shares, which have the rights and attributes described in (a)
     above. In addition, 400,000 warrants were issued on closing, with an
     ascribed value of $1.14. These warrants, which expire on August 22, 2005,
     include cashless exercise provisions, and each warrant is exercisable into
     one share of common stock at an exercise price of $5.07.

     There is contingent share consideration of up to 369,600 exchangeable
     shares to be released subject to certain performance targets and continued
     employment of key individuals being met on the twelve month anniversary
     date of the acquisition. This contingent consideration has not been
     reflected in these consolidated financial statements as the outcome cannot
     be reasonably determined at this time. The additional share consideration
     will be recorded as employee and consultants based and goodwill if an when
     it becomes payable.



                                                                               6
<PAGE>   38

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


(c)  Other acquisitions in 2000 include Nucleus Consulting Inc.,
     Doctorvillage.com Inc., 4Comm.com Inc. and General Network Services Inc.
     Consideration given for the other acquisitions in 2000 includes 501,673
     exchangeable shares, which have the rights and attributes described in (a)
     above. In addition, these acquisitions include contingent share
     consideration totalling up to 1,896,376 shares of common stock or
     exchangeable shares which will be released on various dates upon the
     achievement of certain performance targets or continued employment of key
     individuals. The maximum number of shares which would be issued if these
     conditions are met is as follows:

<TABLE>
                      <S>                           <C>
                      2001                            692,484
                      2002                            697,485
                      2003                            501,407
                      2004                              5,000
                      ---------------------------------------
                                                    1,896,376
                      =======================================
</TABLE>

     This contingent consideration has not been reflected in these consolidated
     financial statements as the outcome cannot be reasonably determined at this
     time. The additional share consideration will be recorded as employee and
     consultants based and goodwill if and when it becomes payable.

     At December 31, 2000 the Company had not yet issued 286,000 common shares
     related to the acquisition of Nucleus Consulting Inc. The value of these
     shares, in the amount of $151,952 is included in the above table. The
     shares will be issued in 2001.

(d)  The consideration given to acquire all of the outstanding shares of the
     Pace Systems Group Inc. consisted of 1,731,932 exchangeable shares, which
     have the rights and attributes described in (a) above including an initial
     1,385,346 shares issued in 1999. Contingent consideration of an additional
     346,386 exchangeable shares was issued in 2000. This additional
     consideration, valued at $909,263 was recorded as employee and consultants
     based and goodwill and is included in column (c) in the above table.



                                                                               7

<PAGE>   39

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


     The following pro forma results of operations give effect to the
     acquisitions as if the transactions had occurred January 1, 2000 and 1999
     and includes the amortization of goodwill and employee and consultants base
     calculated on a straight-line basis over a period of three years. The year
     ended December 31, 2000 includes the goodwill and employee and consultants
     base writedown totalling $17,112,567 as described in note 7.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                 --------------------------------
                                                                  DECEMBER 31,       DECEMBER 31,
                                                                     2000               1999
                                                                       $                  $
    ---------------------------------------------------------------------------------------------
    <S>                                                           <C>                 <C>
    REVENUE                                                        14,519,246          9,379,362
    ---------------------------------------------------------------------------------------------

    EXPENSES
    Cost of sales                                                   6,895,407          5,143,886
    Other cost and expenses                                        53,436,461         11,973,633
    ---------------------------------------------------------------------------------------------
                                                                   60,331,868         17,117,519
    ---------------------------------------------------------------------------------------------
    Net loss                                                      (45,812,622)        (7,738,157)
    ---------------------------------------------------------------------------------------------
    NET LOSS PER COMMON SHARE                                           (1.35)             (0.54)
    =============================================================================================
</TABLE>

4.  ACCOUNTS RECEIVABLE

Accounts Receivable are recorded net of an allowance for doubtful accounts of
$1,608,621 (1999 - $1,120; 1998 - $Nil).

5.  INVESTMENTS

Investments consist of the following:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,     DECEMBER 31,
                                                                   2000             1999
                                                                    $                 $
---------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>
(a)   eFinancial Depot Inc. (common shares)                      1,266,848                --
(b)   Cobratech Industries Inc. (common shares)                     20,000                --
(c)   Iconix Canada Inc. (common shares)                         1,062,600                --
(d)   CU Connection Ltd. (convertible debenture)                 1,757,648                --
---------------------------------------------------------------------------------------------
                                                                 4,107,096                --
=============================================================================================
</TABLE>

(a)   On December 12, 2000 the Company received 2,384,880 shares of common stock
      of eFinancial Depot Inc. in settlement of an account receivable of
      $2,146,392. eFinancial Depot Inc. is a publicly traded entity in which a
      director is also a director and officer of the Company. At December 31,
      2000 the investment was assessed as permanently impaired and has been
      written down by $879,544 to its estimated fair market value of $1,266,848.

(b)   On January 6, 2000, the Company exercised its option to purchase 2,000,000
      (25%) of Cobratech Industries Inc. common shares for $20,000, and granted
      Cobratech the exclusive right to market and sell the Company's products in
      Asia for a four year period commencing on October 19, 1999. The Company
      will receive a 25% royalty on all products sold by Cobratech. No royalties
      have been received to date. As Cobratech has issued additional


                                                                               8

<PAGE>   40

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


     common shares since January 6, 2000, JAWZ currently holds less than 20% of
     the outstanding Cobratech common shares, and the investment has been
     recorded at cost which approximates fair value.

(c)  On December 29, 2000, the Company acquired 130,762 common shares of Iconix
     Canada Inc. together with an option to purchase 51,000 additional shares,
     in exchange for 2,000,000 common shares of the Company valued at
     $1,062,600. Iconix is an entity whose majority shareholder is also a
     majority shareholder of the Company. As at December 31, 2000 a director of
     the Company is the sole director of Iconix. The investment is carried at
     cost which approximates fair value.

(d)  The convertible debenture of up to $2,335,000 was issued by CU Connection
     Ltd., a private Ontario Corporation ("CU Connect") as payment for services
     and fees provided by the Company. For additional consideration of $379,891,
     the Company may elect to convert the debenture into 51% of the outstanding
     common shares of CU Connect. The 10% debenture bears interest commencing
     immediately after the last day of the conversion period of a project the
     Company is delivering to CU Connect. To date $1,757,648 has been drawn on
     the debenture. This debenture is classified as being held to maturity and
     is recorded at cost.

6.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                               ------------------------------------
                                                                      2000              1999
                                                                        $                 $
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>
Security equipment                                                     28,602            26,106
Furniture and fixtures                                                890,689           206,785
Computer hardware                                                   1,995,214           367,301
Computer software                                                     224,699            32,703
Leasehold improvements                                              1,395,556           184,637
---------------------------------------------------------------------------------------------------
                                                                    4,534,760           817,532
---------------------------------------------------------------------------------------------------
Less accumulated depreciation                                         849,452           118,297
---------------------------------------------------------------------------------------------------
NET BOOK VALUE                                                      3,685,308           699,235
===================================================================================================
</TABLE>

Assets under capital leases at December 31. 2000 include security equipment of
$25,289 (1999 - $26,106) and computer hardware of $434,818 (1999 - $75,584),
with related accumulated depreciation of $8,671 (1999 - $3,613) and $109,411
(1999 - $25,195) respectively.



                                                                               9

<PAGE>   41

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


7.  INTANGIBLE ASSETS

Intangible assets includes the cost of software licenses and goodwill and
employee and consultants base acquired from recent acquisitions.

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 2000
                                                    ---------------------------------------------
                                                                     ACCUMULATED       NET BOOK
                                                         COST        AMORTIZATION        VALUE
                                                           $              $                $
-------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>              <C>
Employee and consultants base                          13,736,598     10,411,798       3,324,800
Goodwill                                               13,736,598     13,736,598              --
Software licenses                                         100,182          7,310          92,872
-------------------------------------------------------------------------------------------------
                                                       27,573,378     24,155,706       3,417,672
=================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1999
                                                    ---------------------------------------------
                                                                      ACCUMULATED      NET BOOK
                                                          COST        AMORTIZATION       VALUE
                                                           $               $               $
-------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>          <C>
Employee and consultants base                           1,377,693         63,193       1,314,500
Goodwill                                                1,377,693         63,193       1,314,500
Software licenses                                              --             --              --
-------------------------------------------------------------------------------------------------
                                                        2,755,386        126,386       2,629,000
=================================================================================================
</TABLE>

At December 31, 2000, it was determined that the goodwill acquired had no future
value to the company and it was written off in its entirety, in the amount of
$10,218,683. It was also determined that there was an impairment in the value of
the employee and consultants base acquired, and it has been written down to its
estimated fair value of $3,324,800, resulting in a writedown of $6,893,884. The
writedowns are included in amortization in the accompanying financial
statements.



                                                                              10

<PAGE>   42

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


8.  PROMISSORY NOTES

The promissory notes in the amount of $3,000,000 (net of a deferred financing
fee of $209,970) are non-interest bearing and due on demand. It is management's
expectation that the notes will be repaid in 2001 by the issuance of common
stock of the Company (see note 20).

9.  SHARE CAPITAL

AUTHORIZED
    95,000,000 common shares at $0.001 par value, including exchangeable shares
      5,000,000 preferred shares at $0.001 par value

COMMON STOCK ISSUED

<TABLE>
<CAPTION>
                                         2000                                   1999
                          ------------------------------------    ----------------------------------
                            NUMBER       PAR     ADDITIONAL         NUMBER       PAR     ADDITIONAL
                              OF        VALUE      PAID IN            OF        VALUE      PAID IN
                            SHARES        $       CAPITAL $         SHARES        $       CAPITAL $
----------------------------------------------------------------------------------------------------
<S>                      <C>            <C>      <C>             <C>            <C>        <C>
Balance, January 1       25,040,188     25,040   21,823,490      10,612,317     10,612     2,757,712
Issued for cash           5,454,905      5,455   14,500,797       7,233,132      7,233    13,340,344
Issued for services (a)     294,013        294    1,118,166         360,547        360       309,379
Obligation to issue
  common stock for
  services (b)                   --         --      281,116              --         --         4,384
Stock options exercised
  for cash                  661,974        663      332,971          15,000         15         2,235
Stock options exercised
  for no consideration
  (c)                       590,475        590         (590)             --         --            --
Warrants exercised for
  cash                    2,685,437      2,685    1,506,335              --         --            --
Issued on conversion of
  debentures (d)                 --         --           --       5,395,575      5,396     2,149,840
Issued on acquisition
  [note 3]                7,125,996      7,126   24,242,515       1,423,617      1,424     2,622,024
Equity component of
  convertible
  debentures net of
  related financing fees         --         --           --              --         --       474,511
Warrants issued with
  issuance of
  convertible debentures         --         --           --              --         --       341,538
Issuance of stock
  options recorded as
  compensation                   --         --           --              --         --       810,000
Shares to be issued for
  acquisition of
  investment [note 5(c)]         --         --    1,062,600              --         --            --
Share issue costs                --         --   (1,332,129)             --         --      (988,477)
----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31     41,852,988     41,853   63,535,271      25,040,188     25,040    21,823,490
====================================================================================================
</TABLE>



                                                                              11

<PAGE>   43

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


a)   During 2000 the Company issued 294,013 common shares totalling $1,118,460
     (1999 - 360,547 common shares totalling $309,739) in settlement of certain
     trade payables, and for services provided by consultants and certain
     directors as follows:

     -   30,166 common shares in settlement of trade payables totalling $82,956
         (1999 - 152,999 common shares totalling $199,739);

     -   150,639 restricted common shares for services provided by consultants
         totalling $706,493 (1999 - nil); and

     -   113,208 common shares for services provided by directors totalling
         $329,011 (1999 - 207,548 common shares totalling $110,000).

b)   At December 31, 2000 there was an obligation to issue shares in payment for
     directors fees and fees to certain shareholders for services provided, in
     the value of $100,000 (1999 - nil) and $138,616 (1999 - $4,384)
     respectively. In addition, there was an obligation to issue shares in the
     value of $42,500 (1999 - nil) to employees in fulfillment of employment
     contracts. All of these obligations have been recorded as Additional Paid
     in Capital. The shares will be issued in 2001.

c)   During 2000, 178,070 restricted common shares with a value of $812,355 were
     issued to a director and 178,070 common shares with a value of $812,355
     were issued to a shareholder as a result of the exercise of options for no
     consideration.

     234,335 common shares with a value of $1,794,069 were issued to a
     shareholder as a result of the exercise of 250,000 stock options for no
     consideration.

     The shares issued represented the difference in value between the total
     number exercisable and the cash consideration due on their exercise.

d)   During 1999, the entire principal amount of convertible debentures
     outstanding, in the amount of $1,246,606, together with accrued interest
     and penalties of $404,943, was converted into 3,215,355 common shares of
     the Company at a recognized value of $1,496,291. The Company also issued
     1,428,572 common shares upon the exercise of 1,428,572 warrants originally
     granted at $0.28 each, for proceeds of $400,000. A further 751,648 common
     shares were issued on the exercise of 923,077 warrants. In exchange for
     issuing 171,429 fewer shares than originally agreed, the warrant holders
     were not required to pay cash on the exercise of these warrants;
     accordingly, share capital has been credited in the amount of $258,945 with
     an offsetting amount charged to financing expense.



                                                                              12

<PAGE>   44

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


OPTIONS

The Company is authorized to grant employees options to purchase up to an
aggregate of common stock not in excess of 20% of the common stock issued and
outstanding, at prices based on the market price of the shares as determined on
the date of grant.

<TABLE>
<CAPTION>
                                                                                   WEIGHTED
                                               NUMBER OF         PRICE             AVERAGE
                                                OPTIONS        PER SHARE        EXERCISE PRICE
                                                                   $                  $
----------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                    <C>
OUTSTANDING AT DECEMBER 31, 1998               1,667,000      0.15 -  0.69           0.41
----------------------------------------------------------------------------------------------
Granted                                        2,371,725      0.37 -  7.56           2.33
Exercised                                        (15,000)             0.15           0.15
Cancelled                                        (85,267)     0.15 -  0.98           0.41
----------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1999               3,938,458      0.15 -  7.56           3.02
----------------------------------------------------------------------------------------------
Granted                                        2,247,946      0.47 - 13.25           4.28
Exercised                                       (735,503)     0.15 -  1.72           0.47
Cancelled                                       (422,535)     0.48 - 13.25           4.06
----------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2000               5,028,366      0.32 - 13.25           2.51
==============================================================================================
</TABLE>

The fair value of each option granted to date is estimated on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
expected volatility of 136% (December 31, 1999 - 151%); risk-free interest rate
of 5.66% (December 31, 1999 - 4.87%); no payment of common share dividends for
all years; and expected life of 3 years (December 31, 1999 - 3 years). Had
compensation cost for these plans been determined based upon the fair value at
grant date, consistent with the methodology prescribed in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per common share for the year ended December 31,
2000 would have been $47,353,812 and $1.40 respectively (December 31, 1999 -
$9,121,253 and $0.64).

During 1999 the Company granted a total of 500,000 options to two officers of
the Company at an exercise price of $1.88 per share which was calculated based
on the previous three month's average price. The difference between the exercise
price and the trading price on the day prior to the grant date, has been
recognized as compensation expense for the year ended December 31, 1999.

The weighted average fair value of options granted during 2000 was $5.02 (1999 -
$2.32).



                                                                              13

<PAGE>   45

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


WARRANTS ISSUED

During 1998, the Company had entered into a Put Option agreement with an
investor which allowed the Company to require the investor to purchase up to
25,000,000 shares of the common stock of the Company. In addition, the investor
was to be granted warrants to purchase up to 3,000,000 shares of common stock.

The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of December 31, 2000
were as follows:

<TABLE>
<CAPTION>
                        OPTIONS OUTSTANDING                                   OPTIONS EXERCISABLE
-------------------------------------------------------------------------------------------------------
                                        WEIGHTED
                                        AVERAGE         WEIGHTED                            WEIGHTED
    RANGE OF           NUMBER OF       REMAINING        AVERAGE                             AVERAGE
    EXERCISE            OPTIONS       CONTRACTUAL       EXERCISE            SHARES          EXERCISE
     PRICES           OUTSTANDING     LIFE (YEARS)        PRICE           EXERCISABLE        PRICE
       $                                                    $                                   $
-------------------------------------------------------------------------------------------------------
<S>                    <C>                <C>            <C>              <C>                  <C>
   0.32 -  0.37          205,499          3.71            0.34              160,666            0.35
   0.47 -  1.00        1,404,607          3.00            0.60            1,030,500            0.59
   1.19 -  3.06        2,214,992          2.68            2.03            1,409,097            1.89
   3.28 -  7.88        1,062,988          3.40            5.41              140,000            5.43
   8.56 - 13.25          140,280          3.19           10.40                   --              --
-------------------------------------------------------------------------------------------------------
</TABLE>

On April 26, 1999, the agreement was cancelled in exchange for warrants to the
investor to purchase up to 1,000,000 shares of common stock at an exercise price
of $0.70 per share. The warrants expire April 15, 2002. On June 5, 2000, 150,000
common shares were issued in exchange for $105,000.

On June 21, 1999, the Company issued 1,000,000 share purchase warrants, which
entitle the holder to purchase 1,000,000 common shares at $2.25 per share until
June 30, 2001.

On November 1, 1999, the Company issued 411,765 share purchase warrants, which
entitle the holder to purchase 411,765 common shares at $1.70 per share until
November 30, 2002.

On December 31, 1999, the Company issued 2,176,418 share purchase warrants in
connection with an issuance of 2,176,418 shares of common stock, which entitle
the holder to purchase one-half of one share of common stock of the Company at
an exercise price of $6.50 per share. As a financing fee, the Company issued
217,642 warrants to the placement agent, which entitle the agent to purchase one
share of common stock at an exercise price of $4.25 per share. Each warrant will
expire on March 29, 2003. If the share price of the Company exceeds $9.75 for 30
consecutive days any time after March 29, 2000, the Company, with 30 days
notice, may repurchase these warrants at a price of $0.001 per warrant.



                                                                              14

<PAGE>   46

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


On February 23, 2000, the Company issued 294,119 share purchase warrants in
connection with an issuance of 588,238 shares of common stock, which entitle the
holder to purchase one half of one share of common stock of the Company at $6.50
per share. In addition, as a financing fee, the Company issued 58,824 warrants
to the placement agent, which entitle the agent to purchase one share of common
stock at an exercise price of $4.25 per share. Each warrant will expire on March
29, 2003.

On June 22, 2000 the Company issued 240,000 share purchase warrants in
connection with an issuance of 800,000 shares of common stock which entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. Each warrant will expire on June 22, 2005. In addition, the holders
received adjustable warrants to purchase common stock at an exercise price of
$0.001 per share. The number of shares to be purchased will be determined
pursuant to a formula that is applied at three separate 40 day adjustment
periods commencing between the 150th and 240th day following June 22, 2000. At
each adjustment date, the holders will be entitled to purchase under the
adjustable warrants a number of shares equal to 33.33% of the common stock
purchased, multiplied by the difference between the quotient of $5.00 divided by
 .89 and the average of the 10 lowest closing bid prices for the company's common
stock during the 40 trading day period preceding the applicable adjustment date.
On November 17, 2000, (the date of the end of the first vesting period), the
holders undertook a cashless exercise of warrants resulting in the issue of
1,456,176 common shares.

On July 17, 2000, the Company issued an additional 120,000 share purchase
warrants which entitle the holder to purchase one share of common stock at an
exercise price of $5.00 per share. Each warrant will expire on July 17, 2005. In
addition, the investors received adjustable warrants to purchase common stock,
at an exercise price of $0.001 per share. The number of shares to be purchased
will be determined pursuant to a formula that is applied at three separate 40
day adjustment periods commencing between the 150th and 240th day following July
17, 2005. The terms of the adjustable warrants are consistent with the terms of
the adjustable warrants issued on June 22, 2000 as described above.

Between August 1, 1999 and July 30, 2000 the Company issued a total of 60,000
warrants (5000 per month) which allow the holder to purchase 60,000 common
shares of the Company at an exercise price of $2.00 per share. Each warrant
expires July 26, 2005.

On August 21, 2000, the Company issued 180,000 share purchase warrants in
connection with an issuance of 600,000 shares which entitle the holder to
purchase one share of common stock at an exercise price of $5.00 per share. Each
warrant will expire on August 21, 2005. In addition, the holders received
adjustable warrants to purchase a number of shares of common stock, at an
exercise price of $0.001 per share. The number of common stock to be purchased
will be determined pursuant to a formula that is applied at three separate 40
day adjustment periods commencing between the 150th and 240th day following
August 21, 2005. The terms of the adjustable warrants are consistent with the
terms of the adjustable warrants issued on June 22, 2000 as described above.

On August 22, 2000 the Company issued 400,000 warrants. The warrants include
cashless exercise provisions and each warrant is exercisable into one share of
common stock at an exercise price of $5.07. These warrants expire on August 22,
2005.

On August 22, 2000 the Company issued 200,000 warrants which entitle the holder
to purchase one common share at an exercise price of $6.64 per share. Each
warrant will expire on August 22, 2005.




                                                                              15

<PAGE>   47

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


On October 2nd, 2000, in connection with the private placement financing
agreement dated August 21, 2000, the Company issued 400,000 common shares for
proceeds of $2,000,000. In connection with this private placement, the Company
issued 120,000 share purchase warrants which entitle the holder to purchase one
share of common stock at an exercise price of $5.00 per share. Each warrant will
expire on October 2nd, 2005. In addition, the holders received adjustable
warrants, pursuant to a formula, to purchase a number of shares of common stock,
at an exercise price of $0.001 per share.

10.  RELATED PARTY TRANSACTIONS

Unless otherwise noted, all related party transactions have been recognized at
their exchange amounts. Amounts due to/from related parties consist of the
following amounts:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,          DECEMBER 31,
                                                                    2000                  1999
                                                                     $                     $
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>
DUE FROM RELATED PARTIES
Oxford Capital Corp.                                                 57,866                   --
Iconix Canada Inc.                                                  147,707                   --
Bankton Financial Corp.                                               9,048                   --
eFinancial Depot Inc.                                               284,948                   --
---------------------------------------------------------------------------------------------------
                                                                    499,569                   --
===================================================================================================

DUE TO RELATED PARTIES
Net Communications LLC                                               45,000                   --
Officers and stockholders                                                --                4,821
Due to stockholders                                                      --                2,066
---------------------------------------------------------------------------------------------------
                                                                     45,000                6,887
===================================================================================================
</TABLE>

Oxford Capital Corp. is an entity whose shareholders are also shareholders of
the Company. The balance of $57,866 receivable at December 31, 2000 is for
administrative costs incurred by the Company on behalf of Oxford, which are
reimbursed to the Company on a periodic basis.

Revenues for the year ended December 31, 2000 include $171,667 in respect of
Iconix Canada Inc., an entity whose major shareholder is also a major
shareholder of the Company. As at December 31, 2000 a director of the Company is
the sole director of Iconix

Bankton Financial Corp. is an entity whose shareholders are also shareholders of
the Company. The balance of $9,048 receivable at December 31, 2000 is for
salaries, rent and office expenses incurred by the Company on behalf of Bankton,
which are reimbursed to the Company on a periodic basis.

Revenues for the year ended December 31, 2000 include $3,053,676 in respect of
eFinancial Depot Inc. an entity in which the Company is a shareholder.

Net Communications LLC, an entity in which a director is also a director of the
Company, provided $45,000 of consulting services to the Company during the year
ended December 31, 2000.




                                                                              16

<PAGE>   48

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


General and administration expenses for the period ended December 31, 2000,
includes $34,718 paid to eSupplies.com, an entity of which certain directors are
also directors and officers of the Company.

General and administration expenses for the year ended December 31, 2000
included, $1,983 (December 31, 1999 - $20,508; December 31, 1998 - $8,035) paid
to Willson Stationers Ltd., an entity of which certain directors were also
directors and officers of the Company.

During the year ended December 31, 2000, the Company expensed fees of $118,023
(December 31, 1999 - $22,714) associated with and for the benefit of the launch
of IT Florida.com, a government sponsored taskforce, the chairman of which is
also a director of the Company.

For the year ended December 31, 2000, general and administration expense
includes $nil (December 31, 1999 - $233,643; December 31, 1998 - $198,168) of
management fees to officers and stockholders of the Company for services
provided. General and administration for the period ended December 31, 2000
includes $424,627 (December 31, 1999 - $124,384; December 31, 1998 - $33,333) of
directors fees.

Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, incurred interest at 8%
per annum and was repaid in 1999.

General and administrative expenses for the year ended December 31, 2000 include
$754,340 of consulting services provided by stockholders. $590,967 of the amount
was settled in common stock of the company on April 5, 2000, April 6, 2000, July
1, 2000 and August 23, 2000.

The Company entered into agreements to lease premises for various terms from a
stockholder who is also an officer and a director of the Company. The net rent
expense, included in general and administrative expenses, was $299,805 for the
year ended December 31, 2000 (December 31, 1999 - $129,611; December 31, 1998 -
$3,991).

11.  EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per common share is net loss for the period divided by the
weighted average number of common shares outstanding. The effect on earnings
(loss) per share of the exercise of options and warrants, and the conversion of
the convertible debentures is anti-dilutive.

The following table sets forth the computation of earnings (loss) per common
share:

<TABLE>
<CAPTION>
                                                    DECEMBER 31,    DECEMBER 31,     DECEMBER 31,
                                                        2000            1999             1998
                                                          $               $               $
----------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>             <C>
NET LOSS                                            (45,906,304)     (7,167,776)     (3,076,287)
----------------------------------------------------------------------------------------------------

BASIC AND DILUTED LOSS PER COMMON SHARE:
Weighted average number of common shares
  outstanding                                        33,903,598      14,342,053       7,405,421
----------------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
                                                          (1.35)          (0.50)          (0.42)
====================================================================================================
</TABLE>




                                                                              17

<PAGE>   49

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


12.  INCOME TAXES

The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to the loss before income taxes for the following
reasons:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                         2000             1999             1998
                                                           $                $                $
------------------------------------------------------------------------------------------------------
                                                         (34%)           (34%)             (34%)

<S>                                                   <C>              <C>              <C>
Income tax benefit at U.S. statutory rate             (15,608,143)     (2,437,044)      (1,045,938)
Increase (decrease) in taxes resulting from:
   Change in deferred tax asset valuation
     allowances                                         7,661,738       2,500,670        1,106,172
   Non-deductible expenses                              9,530,677         322,810          128,162
   Foreign tax rate differences                        (1,279,127)       (368,588)        (188,396)
   State tax rate differences                            (357,266)          1,508               --
   Federal tax rate differences on opening assets          36,534              --               --
   Income not previously recognized                            --           2,439               --
   Foreign exchange                                        15,587         (21,795)              --
------------------------------------------------------------------------------------------------------
Income tax benefit                                             --              --               --
======================================================================================================
</TABLE>


                                                                              18

<PAGE>   50

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


For financial reporting purposes, loss before income taxes includes the
following components:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,    DECEMBER 31,      DECEMBER 31,
                                                           2000            1999              1998
                                                             $               $                 $
------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>               <C>
Pre-tax loss:
   United States                                       (10,575,726)    (3,697,076)       (1,302,313)
   Foreign                                             (35,330,578)    (3,470,700)       (1,773,974)
------------------------------------------------------------------------------------------------------
                                                       (45,906,304)    (7,167,776)       (3,076,287)
======================================================================================================
</TABLE>

Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the Company's
future tax assets are as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,         DECEMBER 31,
                                                                    2000                 1999
                                                                      $                    $
---------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>
Future tax assets:
   Net operating loss carryforwards                               10,874,485          3,209,318
   Start-up costs                                                     19,388             28,694
   Depreciation                                                      301,338             45,549
   Organization costs                                                  1,577                591
   Debt issue costs                                                       --                 --
    Finance costs                                                         --                 --
   Donations                                                           5,174                435
   Software costs                                                    113,147            368,784
---------------------------------------------------------------------------------------------------
Net future tax assets                                             11,315,109          3,653,371
Valuation allowance                                              (11,315,109)        (3,653,371)
---------------------------------------------------------------------------------------------------
Net future tax assets                                                     --                 --
===================================================================================================
</TABLE>

The Company has provided a valuation allowance for the full amount of future tax
assets in light of its history of operating losses since its inception.

At December 31, 2000, the Company has U.S. operating losses carried forward of
$11,459,000 which expire as follows:

<TABLE>
<CAPTION>
                                                        $
                                                  --------------
                                   <S>               <C>
                                   2018                880,000
                                   2019              2,750,000
                                   2020              7,829,000
</TABLE>



                                                                              19

<PAGE>   51


JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


The availability of these loss carryforwards to reduce future taxable income
could be subject to limitations under the Internal Revenue Code of 1986, as
amended. Certain ownership changes can significantly limit the utilization of
net operating loss carryforwards in the period following the ownership change.
The Company has not determined whether such changes have occurred and the effect
such changes could have on its ability to carry forward all or some of the U.S.
net operating losses.

At December 31,2000, the Company has non-capital losses carried forward for
Canadian income tax purposes of $17,025,000. These losses expire as follows:

<TABLE>
<CAPTION>
                                                        $
                                                  --------------
                                   <S>               <C>
                                   2003                  45,000
                                   2004                   7,000
                                   2005                 887,000
                                   2006               3,488,000
                                   2007              12,598,000
</TABLE>

13.  CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE

The future minimum lease payments at December 31, 2000 under capital and
operating leases are as follows:

<TABLE>
<CAPTION>
                                                             CAPITAL LEASES      OPERATING LEASES
--------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>
2001                                                            137,908                817,268
2002                                                            123,141                792,105
2003                                                            114,502                645,803
2004                                                             73,423                619,140
2005                                                             31,450                372,085
--------------------------------------------------------------------------------------------------
Total future minimum lease payments                             480,424              3,246,401
                                                                              ====================
Less: imputed interest                                          (95,469)
--------------------------------------------------------------------------
Balance of obligations under capital leases                     384,955
Less: current portion                                           (97,972)
--------------------------------------------------------------------------
Long term obligation under capital leases                       286,983
==========================================================================
</TABLE>

Rent expense was $771,096 for the year ended December 31, 2000 (1999 - $269,004;
1998 - $29,637).



                                                                              20

<PAGE>   52

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


14.  NET CHANGE IN NON-CASH WORKING CAPITAL

<TABLE>
<CAPTION>
                                                 DECEMBER 31,        DECEMBER 31,     DECEMBER 31,
                                                    2000                1999             1998
                                                      $                   $                 $
--------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>             <C>
OPERATING ACTIVITIES
Accounts receivable                              (2,854,373)          (331,582)         (7,243)
Prepaid expenses and deposits                      (202,790)            81,979        (132,956)
Due from related parties                           (497,792)            11,341         (13,118)
Accounts payable and accrued liabilities          4,003,396            799,691         395,624
Lease inducement                                    181,723
Due to related parties                               38,113            (25,022)         77,115
--------------------------------------------------------------------------------------------------
                                                    668,277            536,407         319,422

Attributed to investing activities                 (503,030)           257,214              --
--------------------------------------------------------------------------------------------------
Attributed to operating activities                1,171,307            279,193         319,422
==================================================================================================
</TABLE>

15.  SEGMENTED INFORMATION

The Company's activities include professional security consulting services,
integration and installation of secure information systems, and remote data
storage and recovery services. The activities are conducted in one operating
segment and are carried out in two geographic segments as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2000
                                                  -----------------------------------------------
                                                     CANADA           U.S.            TOTAL
                                                        $              $                $
-------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>
LOSS INFORMATION

Revenue                                               8,792,911     1,767,044      10,559,955
Cost of sales                                         4,378,693       919,988       5,298,681
Expenses                                             40,624,340     7,304,294      47,928,634
-------------------------------------------------------------------------------------------------
                                                    (36,210,122)   (6,457,238)    (42,667,360)
Corporate overheads                                                                (3,238,944)
-------------------------------------------------------------------------------------------------
Net loss                                            (36,210,122)   (6,457,238)    (45,906,304)
-------------------------------------------------------------------------------------------------

SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements                  3,272,256       413,052       3,685,308
Goodwill and employee and consultants base            3,216,794       200,878       3,417,672
=================================================================================================
</TABLE>


                                                                              21

<PAGE>   53

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1999
                                                  -----------------------------------------------
                                                      CANADA           U.S.              TOTAL
                                                         $              $                  $
-------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>             <C>
LOSS INFORMATION
Revenue                                               554,676         37,370            592,046
Cost of sales                                           2,066             --              2,066
Expenses                                            4,023,458         11,098          4,034,556
-------------------------------------------------------------------------------------------------
                                                   (3,470,848)        26,272         (3,444,576)
Corporate overheads                                                                  (3,723,200)
-------------------------------------------------------------------------------------------------
Net loss                                                                             (7,167,776)
-------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements                  547,886        151,349            699,235
Goodwill and employee and consultants base          2,259,698        369,302          2,629,000
=================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1998
                                                  -----------------------------------------------
                                                     CANADA            U.S.             TOTAL
                                                       $                $                 $
-------------------------------------------------------------------------------------------------
<S>                                               <C>                  <C>           <C>
LOSS INFORMATION

Revenue                                               29,068              --             29,068
Cost of sales                                             --              --                 --
Expenses                                           1,835,561              --          1,835,561
-------------------------------------------------------------------------------------------------
                                                                                     (1,806,493)
Corporate overheads                                                                  (1,269,794)
-------------------------------------------------------------------------------------------------
Net loss                                          (1,806,493)             --         (3,076,287)
-------------------------------------------------------------------------------------------------

SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements                  77,090           1,740             78,830
Goodwill and employee and consultants base                --              --                 --
=================================================================================================
</TABLE>

16.  FINANCIAL INSTRUMENTS

Financial instruments comprising cash and cash equivalents, term deposits,
accounts receivable, amounts due to and from related parties, investments,
accounts payable and accrued liabilities, capital lease obligations, promissory
notes and amounts due to stockholders approximate their fair value. It is
management's opinion that the Company is not exposed to significant currency
risks arising from these financial instruments.

17.  RECENT PRONOUNCEMENTS

In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("FAS") No. 133, "Accounting for Derivatives and
Hedging Activities", and its related amendments FAS 137 and FAS 138, became
effective for fiscal years beginning after June 15, 2000. The Company has fully
complied with FAS 133 and its related amendments and there has been no material
effect.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements", which became
effective December 31,



                                                                              22

<PAGE>   54

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


2000. The Company has fully implemented Staff Accounting Bulletin No. 101 and
there has been no material effect.

18. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current
period's presentation.

19. CONTINGENCY

On August 10, 2000, Bristol Asset Management, LLC ("Bristol") filed a complaint
against the Company and its Chairman alleging, among other things, breach of
contract, fraud in the inducement, breach of fiduciary duty and unfair
competition and requesting, among other things, specific performance, statutory
penalties and injunctive relief and damages in excess of $10 million. The
complaint relates to a warrant issued by the Company to Bristol to purchase
1,000,000 shares of the Company's common stock, and Bristol's rights relating to
the exercise of the Warrant and the registration of shares underlying the
Warrant. The Company is currently reviewing the Complaint and intends to defend
it vigorously. No adjustment has reflected in these consolidated financial
statements for this potential liability, as the outcome of this litigation and
possible resulting damages is not determinable at this time.

20.  SUBSEQUENT EVENTS

In January 2001, the August 21, 2000 securities purchase agreement, was amended
to, amongst other things, effect a post-closing purchase price reduction to
$1.25, which resulted in the issuance of an additional 3,000,000 common shares

In January 2001, the Company closed a private placement with CALP II Limited
Partnership for the sale of 1,600,000 common shares, at a purchase price of
$1.25 per share in consideration of the cancellation of $2,000,000 of promissory
notes, less a financing fee.

On January 17, 2001 the Company sold 1,997,333 shares at a purchase price of
$0.375 per share (for a total purchase price of $749,000) to Bathurst Ltd. in a
private placement

On January 17, 2001 the Company issued 1,033,158 common shares to Camborne
Invest Inc., to settle an outstanding debt of $387,434.

On January 23, 2001 the Company agreed to cancel the adjustable warrants that
had been issued on October 2, 2000 and replace these with a new adjustable
warrant which provides for a volume weighted average formula for the
determination of the number of warrants purchasable thereunder.

On January 23, 2001, the Company agreed to cancel 300,000 warrants with an
exercise price of $5.00 per share and issue new closing warrants to purchase an
equivalent number of shares (233,000 of which are now exercisable at a purchase
price of $2.00 per share and 67,000 of which are now exercisable at a purchase
price of $3.00 per share).


                                                                              23

<PAGE>   55

JAWZ INC.

                            NOTES TO THE CONSOLIDATED
                              FINANCIAL STATEMENTS
                   (all amounts are expressed in U.S. dollars)


21.  QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                                                           DECEMBER 31,
                                                                 ---------------------------------
                                                                       2000            1999
                                                                        $                $
--------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>
REVENUE
Consulting, product and other revenues                              3,535,158          219,416
--------------------------------------------------------------------------------------------------

OPERATING EXPENSES
Cost of sales (excluding depreciation)                              2,621,936               --
Research and development                                              151,463           16,630
Advertising and promotion                                             536,888          129,518
Bad debts                                                           1,101,288               --
Selling, General and administration                                 6,996,654        2,588,525
--------------------------------------------------------------------------------------------------
Total operating expenses                                           11,408,229        2,734,673
--------------------------------------------------------------------------------------------------
Operating loss before depreciation and amortization                (7,873,071)      (2,525,257)
Depreciation                                                          354,330           37,374
Amortization                                                       19,307,668          126,386
--------------------------------------------------------------------------------------------------
Operating loss                                                    (27,535,069)      (2,679,017)
--------------------------------------------------------------------------------------------------
Interest income                                                       (18,042)              --
Interest expense, financing fees and debt discount                   (301,613)         672,324
Foreign exchange (gain)/loss                                          149,397          (22,700)
Loss on impairment of investment                                      879,544               --
--------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD                                           (28,244,355)      (3,328,641)

OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment                              (408,727)         (36,074)
--------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                (28,653,082)      (3,364,715)
--------------------------------------------------------------------------------------------------

DEFICIT, BEGINNING OF PERIOD                                      (28,042,866)      (7,052,276)
Net loss for the period                                           (28,244,355)      (3,328,641)
--------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD                                            (56,287,221)     (10,380,917)
==================================================================================================
</TABLE>


                                                                              24
<PAGE>   56

                                       25

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 2001.

                                            JAWZ INC.


Date:  March 30, 2001                       By: /s/ Robert J. Kubbernus
                                                --------------------------------
                                                Robert J. Kubbernus, Chairman of
                                                the Board, Chief Executive
                                                Officer, President and Director


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                Signature                                   Title                            Date
                ---------                                   -----                            ----
<S>                                         <C>                                       <C>
/s/ Robert J. Kubbernus                     Chairman of the Board, Chief               March 30,2001
------------------------                    Executive Officer, President and
Robert J. Kubbernus                         Director
                                            (Principal Executive Officer)


/s/ Riaz Mamdani                            Chief Financial Officer and Director       March 30,2001
---------------------------                 (Principal Financial Officer)
Riaz Mamdani


/s/ Julia L. Johnson                        Director                                   March 30,2001
-----------------------------
Julia L. Johnson


/s/ James Canton                            Director                                   March 30, 2001
-----------------------------
James Canton


/s/ John S. Burn                            Director                                   March 30, 2001
-------------------------------
John S. Burns


/s/ Raghu Kilambi                           Director                                   March 30, 2001
-----------------------------
Raghu Kilambi


/s/ Arthur Wong                             Director                                   March 30,2001
----------------
Arthur Wong
</TABLE>


<PAGE>   57

                                       26

                                  EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report on Form 10-K.

3.1(1)   Articles of Incorporation of "e-biz" solutions, inc. (now JAWZ Inc., a
         Nevada corporation), dated January 27, 1997.

3.2(2)   Certificate of Amendment of Articles of Incorporation of JAWS
         Technologies, Inc., a Nevada corporation (now JAWZ Inc., a Nevada
         corporation), dated March 30, 1998, changing the name of E-Biz to JAWS
         Technologies, Inc.

3.3(3)   Certificate of Amendment of Articles of Incorporation of JAWS
         Technologies, Inc., a Nevada corporation, increasing the total number
         of common stock which JAWS is allowed to issue from 20,000,000 to
         95,000,000.

3.4(4)   Bylaws of "e-biz" solutions, inc. (now JAWZ Inc., a Delaware
         corporation), dated January 27, 1997.

3.5(5)   Certificate of Incorporation of JAWS Technologies, Inc., a Delaware
         corporation, dated April 28, 2000.


3.6(6)   Certificate of Amendment to Certificate of Incorporation of JAWS
         Technologies, Inc., a Delaware corporation, dated September 29, 2000,
         changing the name of JAWS Technologies, Inc. to JAWZ Inc.

4.1(7)   Investment Agreement by and between JAWS Technologies, Inc., a Nevada
         corporation, and Bristol Asset Management LLC dated August 27, 1998 and
         letter of termination.

4.2(8)   Debenture Acquisition Agreement by and between JAWS Technologies, Inc.,
         a Nevada corporation, and Thomson Kernaghan & Co. Limited, dated
         September 25, 1998.

4.3(9)   Amendment No. 1 to Debenture Purchase Agreement by and between JAWS
         Technologies, Inc. and Thomson Kernaghan & Co. Limited, dated April 27,
         1999.

4.4(10)  Warrant to purchase 1,000,000 shares of common stock of JAWS
         Technologies, Inc., a Nevada corporation, issued to Bristol Asset
         Management LLC, dated April 20, 1999.

4.5(11)  Form of Warrant to purchase 834,000 shares of common stock of JAWS
         Technologies, Inc., a Nevada corporation, issued to Glentel Inc., dated
         June 21, 1999.

4.6(12)  Schedule of Warrant holders which received the Form of Warrant set
         forth in 4.5 above.

4.7(13)  Form of Warrant issued by JAWZ in connection with the Private Placement
         Transaction.

4.8(14)  Schedule of Warrant holders which received the Form of Warrant set
         forth in 4.9 above.

4.9(15)  Warrant to purchase 217,642 shares of common stock of JAWS
         Technologies, Inc., a Nevada corporation, issued to Thomson Kernaghan &
         Co. Limited, dated December 31, 1999.

4.10(16) Certificate of the Designation, Voting Power, Preference and Relative,
         Participating, optional and other Special Rights and Qualifications,
         Limitations or Restrictions of the Special Series & Preferred Voting
         Stock of JAWS Technologies, Inc., dated November 30, 1999.



<PAGE>   58

                                       27

4.11(17)  Incentive and Non-Qualified Stock Option Plan of JAWS Technologies,
          Inc., a Nevada corporation.

4.12(18)  Placement Agency Agreement by and between JAWS Technologies, Inc., a
          Nevada corporation, and Thomson Kernaghan & Co. Limited, dated
          December 31, 1999.

4.13(19)  Placement Agency Agreement by and between JAWS Technologies, Inc., a
          Nevada corporation, and Thomson Kernaghan & Co. Limited, dated
          February 15, 2000.

4.14(20)  Placement Agency Agreement by and between JAWS Technologies, Inc., a
          Nevada corporation, and SmallCaps Online LLC, dated February 15, 2000.

4.15(21)  Form of Subscription Agreement to purchase 235,295 Units of JAWS
          Technologies, Inc., a Nevada corporation, by and between JAWS
          Technologies, Inc., a Nevada corporation, and BPI Canadian Small
          Companies Fund, dated December 20, 1999.

4.16(22)  Schedule of Subscribers that purchased subscriptions pursuant to the
          Form of Subscription Agreement set forth above in 10.14.

10.1(23)  Securities Purchase Agreement, dated as of June 22, 2000, among JAWS
          Technologies, Inc. and investors signatory thereto.

10.2(24)  Registration Rights Agreement, made and entered into as of June 22,
          2000, among JAWS Technologies, Inc. and the investors signatory
          thereto.

10.3(25)  Share Purchase Agreement, dated August 15, 2000, among JAWS
          Technologies, Inc., JAWS Acquisition Canada Corp., 4Comm.com, Inc.,
          and other signatories thereto.

10.4(26)  Share Purchase Agreement, dated August 15, 2000, among JAWS
          Technologies, Inc., JAWS Acquisition Canada Corp., General Network
          Services - GNS Inc., and other signatories thereto.

10.5(27)  Registration Right Agreement, dated August 15, 2000, between JAWS
          Technologies, Inc. and the Vendors signatories thereto.

10.6(28)  Support Agreement, dated August 1, 2000 between JAWS Technologies,
          Inc. and JAWS Acquisition Canada Corp.

10.7(29)  Voting and Exchange Trust Agreement, dated August 1, 2000, among JAWS
          Technologies, inc. and JAWS Acquisition Canada Corp. and Montreal
          Trust Company of Canada.

10.8(30)  Share Purchase Agreement, dated August 22, 2000, among JAWS
          Technologies, Inc., JAWS Acquisition Canada Corp., the shareholders of
          Betach Systems Inc., and the shareholders of Betach Advanced Solutions
          Inc.

10.9(31)  Form of Warrant Certificate made by JAWS Technologies, Inc. in favor
          of the shareholders of Betach Systems Inc. and the shareholders of
          Betach Advanced Solutions Inc.

10.10(32) List of warrant holders with respect to whom JAWZ issued warrants
          pursuant to the Form of Warrant Certificate set forth in Exhibit 4.1:
          Randy Walinga, Stephanie Muzyka, Lawrence Gordey and Soon Chong.

21.1      Schedule of Subsidiaries of JAWZ.

23.1      Consent of Ernst & Young LLP


<PAGE>   59
                                       28

(1)  Incorporated by reference to Exhibit 3.1 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(2)  Incorporated by reference to Exhibit 3.2 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(3)  Incorporated by reference to Exhibit 3.3 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(4)  Incorporated by reference to Exhibit 3.4 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(5)  Incorporated by reference to Exhibit 3.4 of the Company's Form S-1/A (File
     No. 333-38088), filed with the SEC on July 13, 2000.

(6)  Incorporated by reference to Exhibit 3.6 of the Company's Quarterly Report
     on Form 10-Q, filed with the SEC on November 14, 2000.

(7)  Incorporated by reference to Exhibit 4.1 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(8)  Incorporated by reference to Exhibit 4.2 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(9)  Incorporated by reference to Exhibit 4.3 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(10) Incorporated by reference to Exhibit 4.4 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(11) Incorporated by reference to Exhibit 4.5 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(12) Incorporated by reference to Exhibit 4.6 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(13) Incorporated by reference to Exhibit 4.7 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(14) Incorporated by reference to Exhibit 4.8 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(15) Incorporated by reference to Exhibit 4.9 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(16) Incorporated by reference to Exhibit 4.10 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(17) Incorporated by reference to Exhibit 4.11 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(18) Incorporated by reference to Exhibit 10.13 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(19) Incorporated by reference to Exhibit 4.13 of the Company's Form 10-K405,
     filed with the SEC on March 24, 2000.

(20) Incorporated by reference to Exhibit 4.14 of the Company's Form 10-K405,
     filed with the SEC on March 24, 2000.

(21) Incorporated by reference to Exhibit 10.14 of the Company's Form S-1 (File
     No. 333-30406), filed with the SEC on February 14, 2000.

(22) Incorporated by reference to Exhibit 4.16 of the Company's Form 10-K405,
     filed with the SEC on March 24, 2000.

(23) Incorporated by reference to Exhibit 10.19 of the Company's Form S-1/A
     (File No. 333-38088), filed with the SEC on July 13, 2000.

(24) Incorporated by reference to Exhibit 10.20 of the Company's Form S-1/A
     (File No. 333-38088), filed with the SEC on July 13, 2000.

(25) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 11, 2000.

(26) Incorporated by reference to Exhibit 2.2 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 11, 2000.

(27) Incorporated by reference to Exhibit 2.3 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 11, 2000.

(28) Incorporated by reference to Exhibit 2.4 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 11, 2000.

(29) Incorporated by reference to Exhibit 2.5 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 11, 2000.

(30) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 18, 2000.

(31) Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 18, 2000.

(32) Incorporated by reference to Exhibit 4.2 of the Company's Current Report on
     Form 8-K, filed with the SEC on September 18, 2000.