**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-KSB**





**ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the year ended September 30, 2006**





**Commission
      File Number** **0-50051**





**ARIEL
      WAY, INC.**


(Name
      of
      Small Business Issuer in Its Charter)





**FLORIDA**
            
            **65-0983277**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**8000
                Towers Crescent Drive, Suite 1220, Vienna, VA**
            
            **22182**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





**(703)
      918-2430**


(Issuer’s
      Telephone Number, Including Area Code)





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





None.





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





Common
      Stock, $0.001 par value per share





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





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





Ariel
      Way’s revenue for its most recent fiscal year ending September 30, 2006 was
      $2,459,012.





As
      of  January 12, 2007, the aggregate market value of the shares of common
      stock held by non-affiliates (based on the closing price of
      $0.004 ** for
      the
      common stock as quoted on that date) was approximately $ 55,906.





As
      of January 12, 2007, the Company had 40,036,785 shares
      of its common stock, $0.001 par value per share, outstanding.










**TABLE
      OF CONTENTS**





**ITEM
                NUMBER AND CAPTION**
            
            
            **PAGE****PART
                I**Item
                1.
            
            Description
                of Business
            
            1Item
                2.
            
            Description
                of Property
            
            6Item
                3.
            
            Legal
                Proceedings
            
            6Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            6**PART
                II**Item
                5.
            
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            7Item
                6.
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            10Item
                7.
            
            Financial
                Statements
            
            29Item
                8.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            30Item
                8A.
            
            Controls
                and Procedures
            
            30Item
                8B.
            
            Other
                Information
            
            30**PART
                III**Item
                9.
            
            Directors
                and Executive Officers of the Registrant
            
            31Item
                10.
            
            Executive
                Compensation
            
            33Item
                11.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            36Item
                12.
            
            Certain
                Relationships and Related Transactions
            
            38Item
                13.
            
            Exhibits
            
            40Item
                14.
            
            Principal
                Accountant Fees and Services
            
            46










**PART
      I**





**SPECIAL
      NOTE REGARDING FORWARD LOOKING STATEMENTS**





This
      Annual Report on Form 10-KSB contains forward-looking statements that involve
      risks and uncertainties. The statements contained in this document that are
      not
      purely historical are forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934, or the Exchange Act, including without limitation statements regarding
      our expectations, beliefs, intentions or strategies regarding our business.
      This
      Annual Report on Form 10-KSB includes forward-looking statements about our
      business including, but not limited to, the level of our expenditures and
      savings for various expense items and our liquidity in future periods. We may
      identify these statements by the use of words such as “anticipate,” 
“believe,”  “continue,”  “could,”  “estimate,” 
“expect,”  “intend,”  “may,”  “might,”  “plan,” 
“potential,”  “predict,”  “project,”  “should,” 
“will,”  “would” and other similar expressions. All forward-looking
      statements included in this document are based on information available to
      us on
      the date hereof, and we assume no obligation to update any such forward-looking
      statements, except as may otherwise be required by law. Our actual results
      could
      differ materially from those anticipated in these forward-looking statements.





**Item
      1. Description of Business.**





**Overview
      of the Company**





Ariel
      Way, Inc. is a technology and services company for highly secure global
      communications, multimedia and digital signage solutions and technologies.
      We
      are focused on developing innovative and secure technologies, acquiring and
      growing profitable advanced technology companies and global communications
      service providers and creating strategic alliances with companies in
      complementary product lines and service industries. We were initially named
      Netfran Development Corp., and we provided franchise Internet web site design
      and consulting services until, on February 2, 2005, when we acquired Ariel
      Way,
      Inc. (“Old Ariel Way”) in a share exchange transaction. Old Ariel Way was
      engaged in the development of highly secure global communications technologies.
      After the acquisition of Old Ariel Way, we ceased to conduct the franchise
      business we had previously conducted in order to concentrate solely on the
      development of the highly secure global communications technology business.





As
      of
      September 30, 2006, we marketed and sold our multimedia communications solutions
      services to clients who are leading finance-oriented services companies
      primarily in United Kingdom. We also provided services to leading technology
      and
      manufacturing companies throughout the United States but in 2006 we closed
      this
      operation. As part of our multimedia communications solutions services, we
      are
      focused on growing our current customer bases, developing and deploying
      solutions for Business Television (BTV), digital signage and interactive media
      delivered over a combination of satellite, terrestrial and wireless local
      networks. Our wholly-owned subsidiary Ariel Way Media, Inc. (“Ariel Way Media”)
      provides a select set of services previously provided by dbsXmedia to include
      services for leading finance-oriented services companies, primarily in the
      United Kingdom.





We
      were
      incorporated under the laws of Florida in January, 2000. Our principal executive
      offices are located at 8000 Towers Crescent Drive, Suite 1220, Vienna, VA 22182
      and our telephone number at that address is (703) 918-2430. We maintain a
      corporate web site at *www.arielway.com* .
      We make
      available free of charge through our web site our annual report on Form 10-KSB,
      quarterly reports on Form 10-QSB, current reports on Form 8-K, and all
      amendments to those reports, as soon as reasonably practicable after we
      electronically file or furnish such material with or to the SEC. The contents
      of
      our web site are not a part of this report. The SEC also maintains a web site
      at *www.sec.gov* that
      contains reports, proxy statements and other information regarding various
      companies including Ariel Way, Inc.





**Recent
      Developments**





In
      January, 2007, dbsXmedia, Ltd, the UK subsidiary, was in the process of filing
      a
      liquidation of its operations with the United Kingdom Courts. This would
      conclude the operations of the subsidiary in the UK.




In
      January, 2007, Ariel Way Media, Ltd, a new UK subsidiary was formed to provide
      services in the United Kingdom and Europe for multimedia and digital signage
      solutions and technologies.





1


On
      July
      26, 2006, we reported that the Company, on behalf of dbsXmedia, had reached
      a
      settlement agreement and general release (the “Settlement and Release”) with
      Loral Skynet Network Services, Inc. (“Loral Skynet”).





The
      Settlement and Release provides that both the outstanding balance due from
      dbsXmedia to Loral Skynet of $2,470,842 and the parental guarantee to the
      benefit of Loral Skynet by Ariel Way at $1,500,000 on behalf of dbsXmedia will
      be cancelled and terminated, effective upon payment to Loral Skynet of the
      Settlement Payment (as defined below).


The Settlement and Release was made and entered into on July 25, 2006 by and
      among dbsXmedia, Ariel Way, Loral Skynet, Loral Cyberstar L.L.C. (“LCL”), and
      CyberStar LLC (“CL”). Loral Skynet, LCL and CL are sometimes referred to in the
      Settlement and Release collectively as the “Sellers”. Ariel Way and/or dbsXmedia
      shall pay Loral Skynet a cumulative total payment of $200,000 (the “Settlement
      Payment”) on the closing date, to occur no later than August 15, 2006, the
      payment of which may be paid entirely by Ariel Way, entirely by dbsXmedia,
      or
      divided between them in any proportion that is agreeable to Ariel Way and
      dbsXmedia.





Loral
      Skynet will, immediately upon receipt of the full amount of the Settlement
      Payment, deliver a bill of sale, assignment, or other appropriate document
      of
      conveyance transferring ownership of the foreclosed Collateral from Loral Skynet
      to dbsXmedia, to Ariel Way, or to a third party designated in writing by Ariel
      Way. Effective upon Loral Skynet’s receipt of the full amount of the Settlement
      Payment, each of the Transaction Documents (as defined in the Settlement and
      Release) related to the acquisition by dbsXmedia of certain assets from Loral
      Skynet, will be considered terminated by mutual consent of the parties. Upon
      such termination, all of the parties’ rights and obligations under each of the
      Transaction Documents will also terminate, including without limitation the
      non-competition obligations set forth in Section 6.4 of the Asset Purchase
      Agreement dated April 21, 2005 related to the acquisition by dbsXmedia of
      certain assets from Loral Skynet, and no party will thereafter have any
      liability based on such Transaction Documents to any other party. Effective
      upon
      Loral Skynet’s receipt of the full amount of the Settlement Payment, each of the
      Sellers agreed to waive any and all rights it may have to collect, and to
      release dbsXmedia and Ariel Way from paying, any and all amounts that may
      currently be due and payable, or may in the future become due and payable to
      any
      or all of the Sellers pursuant to any of the Transaction Documents.





The
      closing of the settlement and release transaction described in the Settlement
      and Release was required under the terms of the agreement to occur no later
      than
      August 15, 2006, unless otherwise agreed upon by the parties. In the event
      that
      the closing did not occur on or before August 15, 2006, unless the parties
      otherwise agree in writing, the Settlement and Release and any and all rights
      and obligations of the parties thereunder will automatically terminate.




The
      Company reported that it was engaged in discussions with a potential investor
      in
      order to provide it with funding to, among other things, enable the Company
      us
      to make the Settlement Payment to Loral Skynet under the Settlement and Release.
      There can be no assurance that the Company we will be able to obtain such
      funding and, consequently, be able to consummate the closing under the
      Settlement and Release.





On
      August
      15, 2006, we announced that the Company and dbsXmedia reached a verbal agreement
      with Loral Skynet, Loral Cyberstar L.L.C. and CyberStar LLC related to a certain
      Settlement Agreement and General Release, dated as of July 26, 2006 (the
“Settlement Agreement”) and a letter agreement was on August 31, 2006 ratified,
      signed and executed by all parties. By this letter agreement, the Settlement
      Agreement was amended to change the references to “15 August 2006” in Section 16
      of the Settlement Agreement to “15 September 2006”. The amendment shall be
      retroactive to the date of the Settlement Agreement.





As
      of
      January 12, 2007, the company was not able to satisfy the funding of the
      settlement agreement to Loral Skynet. As a result, the Company is in default
      of
      the agreement and does not have the ability to fulfill the payment of $200,000
      to Loral Skynet. Loral Skynet has not advised the Company of its intentions
      regarding this default. Loral Skynet may enforce its full rights and the Company
      may be forced into liquidation in the event the settlement is not satisfied.





2


On
      September 15, 2006 we filed with the Securities and Exchange Commission a Notice
      and attached Schedule 14C Information Statement to inform the holders of record
      of shares of our common stock as of the close of business on the record date,
      August 23, 2006, that our Board of Directors had recommended, and that the
      holders of a majority of our common stock, as of such record date, had approved,
      by written consent in lieu of a special meeting of stockholders dated August
      23,
      2006, amending our Articles of Incorporation to increase the total number of
      authorized shares of our capital stock from 250,000,000 shares, consisting
      of
      245,000,000 shares of our common stock and 5,000,000 shares of “blank check”
preferred stock, to 600,000,000, consisting of 595,000,000 shares of our common
      stock and 5,000,000 shares of “blank check” preferred stock. The Notice and the
      attached Information Statement were circulated to advise our stockholders of
      a
      corporate action that had already been approved by written consent of our
      stockholders who collectively hold a majority of our common stock. Therefore,
      the Notice and the attached Information Statement were sent to stockholders
      for
      informational purposes only. Pursuant to Rule 14c-2 under the Securities
      Exchange Act of 1934, as amended, the corporate action would not be effective
      until twenty days after the date that the Information Statement was mailed
      to
      our stockholders.





On
      October 19, 2006 we filed with Florida Division of Corporations an amendment
      of
      our Articles of Incorporation to increase the total number of authorized shares
      of our capital stock from 250,000,000 shares, consisting of 245,000,000 shares
      of our common stock and 5,000,000 shares of “blank check” preferred stock, to
      600,000,000, consisting of 595,000,000 shares of our common stock and 5,000,000
      shares of “blank check” preferred stock. On October 23, 2006 we received a
      confirmation that the amendment of our Articles of Incorporation had been
      accepted by Florida Division of Corporations.





**Financial
      Condition**





The
      table
      below provides a summary of some of our key financial metrics. This information
      should be read in conjunction with, and is qualified by reference to, our
      consolidated financial statements and notes thereto in Item 7 of this report
      and
“Management’s Discussion and Analysis or Plan of Operations” in Item 6 of this
      report.





**Year
                ended September 30,**
            
            **Year
                ended September 30,**
            
            **Cumulative
                totals February 10, 2004 to September 30,****2006**
            
            **2005**
            
            **2004****Operating
                Results:****Operating Revenue**
            
            $
            2,459,012
            
            $
            1,052,616
            
            $
            41,000**Cost of Services**
            
            $
            2,423,722
            
            $
            1,123,497
            
            $
            -**Gross Profit (Loss)**
            
            $
            35,290
            
            $
            (70,881
            )
            $
            41,000**Operating Expenses**
            
            $
            3,578,424
            
            $
            2,275,055
            
            $
            144,273**Net Income (Loss)**
            
            $
            (3,623,144
            )
            $
            (2,389,342
            )
            $
            (103,273
            )




3




**September
                30,**
            
            **September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2004****Balance
                Sheet Data:****Current Assets**
            
            $
            97,305
            
            $
            496,064
            
            $
            79,546**Current Liabilities**
            
            $
            3,288,087
            
            $
            2,890,380
            
            $
            174,962**Accumulated Deficit**
            
            $
            (6,115,759
            )
            $
            (2,492,615
            )
            $
            (103,273
            )**Shareholder’s Equity (Deficit)**
            
            $
            (3,149,820
            )
            $
            (1,841,181
            )
            $
            422,727




Over
      the
      past year we had experienced significant growth in revenues and related
      expenses. Our increase in revenues was due primarily to our acquisition of
      dbsXmedia. The increased cost of services resulted from the satellite contract
      with Loral Skynet. Operating expenses remained constant compared to the prior
      year, despite the increased revenue.





Due
      to
      continued substantial losses incurred in the dbsXmedia subsidiaries, the Company
      ceased the operations of the US subsidiary, and in 2007 liquidated the assets
      of
      the UK subsidiary.





The
      Company has continued to incur substantial losses in the current year, is
      currently unable to satisfy its current debts, has limited cash flow available
      for operations and is in the process of negotiating with creditors to settle
      its
      debts. If the Company is unable to secure sufficient funding or generate
      sufficient profitable revenues, the financial condition will continue to
      deteriorate and the Company may be forced to liquidate or cease
      operations.




**The
      Company**





Ariel
      Way, Inc. is a technology and services company for highly secure global
      communications and digital signage solutions and technologies. We are focused
      on
      developing innovative and secure technologies, acquiring and growing profitable
      advanced technology companies and global communications service providers and
      creating strategic alliances with companies in complementary product lines
      and
      service industries. During the fiscal year 2006, our communications solutions
      were provided by our majority-owned subsidiary dbsXmedia, Inc., a Delaware
      corporation (“dbsXmedia”). As previously noted this operational unit was
      discontinued in 2006.





During
      2005 we had certain ongoing technology development efforts for highly secure
      telecommunications services through our wholly-owned subsidiary Enfotec, Inc.,
      a
      Delaware corporation (“Enfotec”). However, the Enfotec operation was during 2006
      on hold due to lack of customer opportunities and is pending a decision as
      to
      its future operation.





During
      the fiscal year ended September 30, 2006, dbsXmedia provided communication
      infrastructure and integrated multimedia services to corporations throughout
      the
      United States and Europe. dbsXmedia operated from offices in Frederick, Maryland
      and Plymouth, United Kingdom, providing solutions for Business Television (BTV),
      digital signage and interactive media delivered over a combination of satellite,
      terrestrial and wireless local networks. Digital signage includes technologies
      using LCD TV and plasma screens to deliver video based messaging directly to
      consumer audiences. Digital signage is an effective direct advertising method
      providing focused marketing for targeted audiences. Integrated multimedia
      services include music radio, video, and IP (Internet Protocol)-based file
      transfer for training/catalogs/point of sale integrated with other information
      to the clients.





Our
      wholly-owned subsidiary Ariel Way Media provides a select set of services,
      including services for leading finance-oriented services companies, in the
      United Kingdom.





4


Enfotec
      is a development stage company that is intended to design, manufacture and
      market high-speed security appliance solutions with a fully-integrated Linux
      operating system, which is an open-based operating system that integrates
      high-performance Virtual Private Network, “VPN”, firewall, intrusion detection,
      anti-virus and management in a single network appliance. Enfotec’s “EN” Security
      Appliance and “CSA” Custom Security Appliance products feature hardware-based
      technology that delivers true wire-line data speed performance and high level
      of
      security.





**Competition**





We
      believe that we can be competitive based on several factor including price,
      engineering support to the customers and in maintenance support of the purchased
      or installed equipment.





Our
      highly secure global communications and digital signage solutions and
      technologies services are provided by Ariel Way Media. We believe our primary
      competitors include: GlobeCast, an operational division within France Telecom
      that has been proactive and successful with satellite services for BTV over
      the
      past three years, Convergent which we believe is the largest competitor in
      terms
      of revenue and specializes in interactive training to high tech industries
      and
      federal and local governments, and EchoStar, which is pursuing BTV largely
      due
      to the available satellite transmission capacity on its own satellites. Other
      significant competitors of which we are aware include Broadcast International
      and Inmedia, and British Telecom.





We
      believe that we can be competitive based on factors including price, service
      offering, installation service, maintenance support and engineering support.





For
      Enfotec, we believe our primary competitors to be various data security
      companies. As telecommunication networks become increasingly sophisticated
      and
      mission critical, we believe, the advent of true high-speed security
      alternatives becomes crucial for cost effective capacity scalable implementation
      strategies.





**Sales
      And Marketing**





We
      intend
      to focus our marketing to select opportunities and the media for profile
      building. We intend to emphasize marketing of our retail products, again using
      targeted marketing. We envisage this stage requiring trade shows, demonstration
      periods and a quality blend of salesmanship with effective documentation.





**Intellectual
      Property**





We
      have
      for Enfotec filed disclosure documents with the US Patent Office on two
      technologies, Chain Packet Processing and Pattern Signature Recognition. These
      technologies are at the core of our Enfotec products. These are the enabling
      technologies that, we believe, allow us to perform at speeds better than
      proprietary platforms offered by our competitors while having an open system
      architecture at our core.





Enfotec
      filed Disclosure Documents with the US Patent Office for protection of:





·
            Chained
                Packet Processing, “CPP”, with Patent Office Disclosure Document No.
                528391; and





·
            Packet
                Signature Recognition, “PSR” technologies, with Patent Office Disclosure
                Document No. 528389





We
      intend
      to actively pursue through research and development additional advanced
      intellectual properties in the area of global highly secure telecommunications
      and associated technologies and we intend to apply for protection of all
      intellectual properties with the US Patent Office.





5


**Governmental
      Approvals**





Our
      services require using third party providers with access to the required
      governmental permits and approvals. Thus we believe that there is no need for
      any specific government approval for our services.





We
      do not
      believe that there is a need for any specific government approval for any of
      Enfotec’s products and for their highly secure technologies since these do not
      include any radio transmitters and do not radiate any radio frequency signals.





Enfotec
      has applied for and been approved for exportation licensing regarding its entire
      product line.





**Employees**




As
      of
      January 12, 2007, we employed 2 full-time or part-time employees and 5
      consultants. We have no collective bargaining agreements with our employees.
      We
      anticipate that we will need additional people to fill administrative, sales
      and
      technical positions if we continue to be successful in raising capital to
      implement our strategic business plan.





**Item
      2. Description of Property**





Our
        principal headquarters executive offices are located in approximately 900
        square
        feet of office space at 8000 Towers Crescent Drive, Suite 1220, Vienna, VA
        22182. The term of the lease is on a month-to-month basis. Our subsidiary
        dbsXmedia occupies approximately 875 square feet of office space at Plymouth,
        United Kingdom. The lease is on a month-to-month basis.





**Item
      3. Legal Proceedings**





In
      June,
      2006, dbsXmedia, Inc. was notified that as a result of its vacating of the
      premises in its Frederick, MD office and the ceasing of operations at that
      site,
      the landlord had filed suit to collect the rent for three months under the
      default provisions of the lease. The lease term expired in April 2010, with
      a
      remaining balance of approximately $264,000, which may be accelerated due to
      the
      default of the lease agreement. The ultimate conclusion of this assessment
      is
      not determinable at this time and the entire balance has been accrued in the
      financial statements for the period ending September 30, 2006. The lease is
      personally guaranteed by the former President of dbsXmedia, Inc.




**Item
      4. Submission of Matters to a Vote of Security Holders.**





Not
      applicable.


6




**PART
      II**





**Item
      5. Market for Common Equity, Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities.**





Our
      common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
      “AWYI”.





The
      following table sets forth the average high and low bid prices for the common
      stock for each calendar quarter since October 1, 2003, as reported by the
      National Quotation Bureau, and represents interdealer quotations, without retail
      markup, markdown or commission and may not be reflective of actual transactions.




**Bid
                Price Per Share****High**
            
            **Low****2003**October
                2003 - December 2003
            
            $
            1.25
            
            $
            1.05**2004**January
                2004 - March 2004
            
            $
            1.25
            
            $
            0.90April
                2004 - June 2004
            
            $
            0.90
            
            $
            0.06July
                2004 - September 2004
            
            $
            1.04
            
            $
            0.11October
                2004 - December 2004
            
            $
            0.75
            
            $
            0.10**2005**January
                2005 - March 2005
            
            $
            0.37
            
            $
            0.25April
                2005 - June 2005
            
            $
            0.35
            
            $
            0.05July
                2005 - September 2005
            
            $
            0.05
            
            $
            0.02October
                2005 - December 2005
            
            $
            0.05
            
            $
            0.04**2006**January
                2006 - March 2006
            
            $
            0.08
            
            $
            0.01April
                2006 - June 2006
            
            $
            0.03
            
            $
            0.01July
                2006 - September 2006
            
            $
            0.01
            
            $
            0.01





**Stockholders**





As
      of
      January 12, 2007, we believe there were approximately 299 holders of record
      of
      our common stock. We believe that a substantially greater number of holders
      of
      our common stock are “street name” or beneficial holders, whose shares are held
      of record by banks, brokers and other financial institutions.





**Dividends**





We
      have
      never declared or paid cash dividends on our common stock. We currently intend
      to retain all available funds and any future earnings to fund the development
      and growth of our business and do not anticipate declaring or paying any cash
      dividends on our common stock in the foreseeable future.





**Equity
      Compensation Plan Information**





On
      February 11, 2003, the Board of Directors approved the Netfran Development
      Corp.
      2003 Stock Incentive Plan under which employees, officers, non-employee
      directors and consultants are eligible to receive grants of stock options,
      thereby creating a means to raise the level of stock ownership by such
      individuals in order to attract, retain, and reward such individuals. We have
      reserved a total of 600,000 shares of common stock under the 2003 Stock
      Incentive Plan. The Board of Directors administers the 2003 Stock Incentive
      Plan. Subject to the provisions of the 2003 Stock Incentive Plan, the Board
      of
      Directors has full and final authority to select the individuals to whom options
      will be granted, to grant the options and to determine the terms and conditions
      and the number of shares issued pursuant thereto. However, no option shall
      be
      exercisable more than ten years after the date of grant. Options shall be
      exercisable at such time and subject to such terms and conditions as shall
      be
      determined by the Committee at grant.





We
      did
      not grant any options during the year ended September 30, 2006 under the 2003
      Stock Incentive Plan. Options that had been granted by us prior to February
      2,
      2005 and had not been exercised as of that date were cancelled pursuant to
      the
      Share Exchange Agreement dated January 20, 2005, between Netfran, Old Ariel
      Way
      and the shareholders of Old Ariel Way common stock.




7


The
      following table sets forth certain information, as of September 30, 2006,
      concerning securities authorized for issuance under the 2003 Stock Incentive
      Plan:





**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders (1)
            
            0
            
            N/A
            
            275,000Equity
                compensation plans not approved by security holders (2)
            
            15,922,320
            
            $0.028
            
            N/ATotal
            
            15,922,320
            
            $0.028
            
            N/A





(1)
            Includes
                600,000 shares available for issuance under our 2003 Stock Incentive
                Plan,
                or Plan, all of which may be issued as stock options, restricted
                stock or
                stock bonuses.(2)
            Includes
                options to purchase 310,097 shares and warrants to purchase 15,612,223
                shares outstanding as of September 30, 2006 that were issued by Ariel
                Way
                under non-plan options and warrants.




**Ariel
      Way Non-Plan Option and Warrant Grants**





We
      currently have no option grant outstanding which was granted under our 2003
      Stock Incentive Plan. The remaining options and warrants outstanding were
      granted to individuals outside of any equity compensation plan adopted by us
      (“Non-Plan Grants”). As of September 30, 2006, of these Non-Plan Grants, options
      to purchase 310,097 shares, that have all vested, were held by one of our
      members of our board of directors, warrants to purchase 4,750,000 shares, out
      of
      which 2,831,105 that have vested, were held by members of our board of directors
      and warrants to purchase 3,150,000 shares, out of which 1,720,000 that have
      vested, were held by executive officers of Ariel Way. Warrants to purchase
      10,862,223 shares, out of which 9,432,223 that have vested, were held by other
      individuals or entities. Such Non-Plan Grants were made pursuant to the terms
      of
      option or warrant agreements, as applicable, with each such grant authorized
      by
      the board of directors of Ariel Way. The Non-Plan Grants have not been approved
      by our stockholders.




Pursuant
      to SFAS 123 (revised December 2004), we recorded $568,109 of compensation
      expense related to the options and warrants vested since January 1,
      2006.


**Recent
        Sales of Unregistered Securities**
 
 The
        following provides information concerning all sales of our securities within
        the
        last three years that were not registered under the Securities Act of 1933:
 
 On
        February 2, 2005, under the terms of the Share Exchange Agreement, by and
        among
        us, Old Ariel Way and the holders of Old Ariel Way common stock, dated as
        of
        January 20, 2005, each share of Old Ariel Way common stock outstanding
        immediately prior to February 2, 2005 was converted into 1.6762 shares of
        our
        common stock. Our then outstanding common stock was not affected by the
        acquisition. As a result of the acquisition, we issued 33,289,434 shares
        of
        common stock to the former stockholders of Old Ariel Way.
 
 On
        February 2, 2005, after we acquired Old Ariel Way, we issued 499,341 shares
        of
        our common stock to Joel Bernstein, Esq., for providing legal services in
        connection with the acquisition transaction and we issued 499,342 shares
        of
        common stock to Mr. Michael Jordan for advisory services in connection with
        the
        acquisition transaction.
  On
        October 12, 2005, the Company issued 100,000 shares of the Company’s common
        stock to MarketLink Technologies, L.L.C. pursuant to a settlement agreement
        between the Company and MarketLink Technologies, L.L.C. related to Enfotec,
        Inc.
        liabilities dated September 9, 2005. The market value per share at the time
        the
        shares were issued was $0.03 per share. An expense of $3,000 was recorded
        in
        relation to this issuance of shares.





8


On
        December 31, 2005, we granted Loral Skynet, a warrant to purchase 3,000,000
        shares of our common stock that is exercisable at $0.05 per share in connection
        with a financial settlement related to certain dbsXmedia, Inc. debt to Loral
        Skynet. Cost of services in the amount of $115,823 was recorded in relation
        to
        the issuance of this warrant, based upon the valuation utilizing the
        Black-Sholes model, at the date of issuance of the warrant.
 
 On
        February 28, 2006, the Company pursuant to an Investment Agreement by and
        between Ariel Way, Inc. and Cornell Capital and Montgomery Equity (collectively
        referred to as the “Buyers”), Ariel Way sold and issued to the Buyers one
        hundred sixty (160) Series A Preferred Shares for a consideration consisting
        solely of the surrender of certain Prior Securities. The value per share
        at the
        time the shares were issued was $10,031 per share of Series A Preferred Shares.
 
 On
        December 27, 2006, the Company received a conversion notice from Cornell
        Capital
        requesting the conversion of a quarter (1/4) of a Series A Convertible Preferred
        Share, or the sum of $2,508, representing the conversion under the terms
        of the
        Certificate of Designation dated February 28, 2006, into 1,649,842 shares
        of its
        common stock at a conversion price of $0.00152 per share.
  On
        September 30, 2004, Old Ariel Way entered into a 2004 Standby Equity
        Distribution Agreement with Cornell Capital. This agreement was terminated
        on
        July 20, 2005 and we entered into a new 2005 Standby Equity Distribution
        Agreement with Cornell Capital on July 21, 2005. In connection with the 2004
        Standby Equity Distribution Agreement, Cornell Capital received a commitment
        fee
        in the form of 1,980,000 shares of Old Ariel Way common stock that were
        converted into an aggregate of 3,318,876 shares of our common stock as a
        result
        of our acquisition of Old Ariel Way on February 2, 2005. The issuance of
        the
        shares was valued at $1,128,600, the fair value of our stock at that time.
        The
        2005 Standby Equity Distribution Agreement was terminated on February 28,
        2006
        pursuant to an Investment Agreement by and between the Company and Cornell
        Capital and Montgomery Equity for the purchase of one hundred sixty (160)
        Series
        A Preferred Shares.
 
 On
        April
        21, 2005, Old Ariel Way sold and issued to Cornell Capital, 2,000,000 shares
        of
        the Series A Redeemable Preferred Stock of Old Ariel Way, for a purchase
        price
        of $1.00 per share and an aggregate purchase price of $2,000,000 with the
        rights, preference and privileges set forth in the Certificate of Designation
        filed by Old Ariel Way on April 19, 2005 with the Delaware Secretary of State
        on
        the terms and conditions set forth in a Stock Purchase Agreement by and between
        Ariel Way, Inc. and Cornell Capital Partners, LP, dated April 19, 2005. These
        shares were redeemed by Old Ariel Way on August 10, 2005 for a redemption
        price
        of $2,074,301 including dividend and the preferred stock was returned to
        Old
        Ariel Way’s treasury.
 
 Except
        as
        otherwise noted, the securities described in this Item were issued pursuant
        to
        the exemption from registration provided by Section 4(2) of the Securities
        Act
        of 1933 and/or Regulation D promulgated under the Securities Act. Each such
        issuance was made pursuant to individual contracts that are discrete from
        one
        another and are made only with persons who were sophisticated in such
        transactions and who had knowledge of and access to sufficient information
        about
        our Company to make an informed investment decision. Among this information
        was
        the fact that the securities were restricted securities.


9
 
 **Item
          6. Management’s Discussion and Analysis or Plan of Operation**


The
      following is a discussion and analysis of the results of operations and
      financial position as of and for the two years ended September 30, 2006 and
      the
      factors that could affect our future financial condition and results of
      operations. Historical results may not be indicative of future performance.





This
      discussion and analysis should be read in conjunction with our consolidated
      financial statements and the notes thereto included elsewhere in this 10-KSB.
      Our consolidated financial statements are prepared in accordance with United
      States Generally Accepted Accounting Principles. All references to dollar
      amounts in this section are in United States dollars.





**Revenue
      and Expenses**





**Overall
      Operating Results:**




Revenue
      was $2,459,012 and $1,052,616 for the fiscal years ended September 30, 2006
      and
      2005 respectively. The increased revenue resulted from the acquisition of the
      assets of dbsXmedia in April 2005, which resulted in revenue for a portion
      of
      fiscal year 2005. Gross margin for the fiscal year ended September 30, 2006
      was
      $35,290, compared to a gross margin loss of $70,881 for the fiscal year ended
      September 30, 2005. The low margin and loss was due to substantial costs
      incurred related to the satellite provider.


Total
        operating expenses were $3,578,424 and $2,275,055 for the fiscal years ended
        September 30, 2006 and 2005. Operating expenses increased from 2005 to 2006
        due
        to several factors. Professional fees incurred in 2006 increased by
        approximately $390,000 as a result of utilization of outside service providers
        due to the termination of the dbsXmedia management and the CFO. Rent expense
        increased by approximately $330,000 due to the vacating of the Frederick
        office
        facilities and the accrual of balance of rent due on the lease obligation.
        Bad
        debt expense increased by approximately $268,000, due to the assessment of
        collectibility of the accounts receivable balances. Goodwill impairment
        decreased by approximately $400,000 from 2005 to 2006 as the remaining goodwill
        was written off based upon management’s assessment of the value of the assets.
        Additional expenses for the issuance of warrants, and the impact of SFAS
        123
        (revised) resulted in approximately $568,000 of compensation and expense
        for the
        year ended September 30, 2006.


As
      of
      September 30, 2006 cash and cash equivalents was $46,050 compared to $122,640
      as
      of September 30, 2005. Cash balances decreased as the company worked to satisfy
      substantial outstanding debts. As of September 30, 2006, accounts payable and
      accrued expenses were $2,889,260, compared to September 30, 2005 balances of
      $1,390,380. This increase was due to substantial losses incurred in the fiscal
      year ended September 30, 2006 and the reduced cash flow from operations.





As
      noted
      and more fully discussed in the footnotes to the financial statements, the
      promissory note and debentures payable at September 30, 2005, of $1,000,000
      and
      $500,000 were converted to Series A convertible preferred stock during the
      fiscal year ended September 30, 2006.





**Operations
      and Net Losses**


The
        net
        loss for the fiscal year ended September 30, 2006 was $3,623,144 compared
        to a
        net loss of $2,389,342 for the fiscal year ended September 30, 2005. The
        increased losses were due to the reduced margins and reduced revenues from
        the
        dsbXmedia operations. The losses were further increased by the ceasing of
        the
        dbsXmedia business in the United States, the termination of the office space
        lease, the substantial accounts receivable write-offs, the reduction in goodwill
        assets, and the increased professional fees incurred in 2006.
 
 As
        of September 30, 2006 the accumulated deficit was $6,115,759, that may, on
        a
        limited basis, be offset against future taxable income. There are limitations
        on
        the amount of net operating loss carryforwards that can be used due to the
        change in the control of the ownership as a result of our stock exchange
        transaction on February 2, 2005 of the now wholly-owned Old Ariel Way
        subsidiary. No tax benefit has been reported in the financial
        statements.


10


**Application
      of Critical Accounting Policies**




We
      prepare our consolidated financial statement in accordance with accounting
      principles generally accepted in the United States of America ("U.S. GAAP").
      Our
      significant accounting policies are discussed in Note 2 to the consolidated
      financial statements.





We
      consider the accounting policies related to revenue and related cost
      recognition, valuation of goodwill and other intangible assets and accounting
      for income taxes to be critical to the understanding of our results of
      operations. Critical accounting policies include the areas where we have made
      what we consider to be particularly subjective or complex judgments in making
      estimates and where these estimates can significantly impact our financial
      results under different assumptions and conditions. The preparation of financial
      statements in accordance with U.S. GAAP requires management to make certain
      estimates, judgments and assumptions that affect the reported amounts of assets
      and liabilities and disclosures of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Management bases its estimates on historical
      experience, where available, and on various other assumptions and information
      that are believed to be reasonable under the circumstances, the results of
      which
      form the basis for making judgments about the carrying values of assets and
      liabilities. Actual results may differ from estimates under different
      assumptions or conditions.




Management
      believes the following reflect its more significant accounting policies and
      estimates used in the preparation of its consolidated financial statements.
      Our
      senior management has discussed the development of each of the following
      accounting policies and estimates and the following disclosures with the audit
      committee of our board of directors.




**Goodwill**




We
      reported goodwill impairment during the fiscal year ended September 30, 2006
      of
      $100,000. The impairment was the reduction of goodwill recorded as a result
      of
      the asset purchase transaction with Loral Skynet in April 2005. See footnote
      2
      Goodwill and Other Intangible Assets, to the consolidated financial
      statements.




Goodwill
      must be reviewed for impairment annually or more frequently if events or changes
      in circumstances indicate that the asset might be impaired. There can be no
      assurance that upon review at a later date material impairment charges will
      not
      be required.




The
      intangible asset impairment test consists of comparing the fair value of the
      intangible asset to the carrying amount of the intangible asset. If the carrying
      amount exceeds the fair value, an impairment loss is recognized for the
      difference. The goodwill impairment test is a two-step process. The first step
      compares the fair value of the goodwill unit to its carrying value. If the
      carrying amount exceeds the fair value, the second step of the test is performed
      to measure the amount of impairment loss, if any. The second step compares
      the
      implied fair value of the goodwill with the carrying amount of that goodwill.
      The more complete methodology to calculate the implied fair value of goodwill,
      is that an enterprise allocates the fair value of a reporting unit to all of
      the
      assets and liabilities of that reporting unit (including any unrecognized
      intangible assets) as if the reporting unit had been acquired in a business
      combination and the fair value was the price paid to acquire the reporting
      unit.
      The excess of the fair value of the reporting unit over the amounts assigned
      to
      the assets and liabilities of the reporting unit is the implied fair value
      of
      goodwill. If the carrying amount exceeds the implied fair value, an impairment
      loss is recognized for that difference.




The
      fair
      value of an intangible asset, such as a software technology license, and
      reporting unit goodwill is the amount at which that asset or reporting unit
      could be bought or sold in a current transaction between willing parties.
      Therefore, quoted market prices in active markets are the best evidence of
      fair
      value and should be used when available. If quoted market prices are not
      available, the estimate of fair value is based on the best information
      available, including prices for similar assets and the use of other valuation
      techniques. Other valuation techniques include present value analysis, multiples
      of earnings or revenue or a similar performance measure. The use of these
      techniques involves assumptions by management about factors that are highly
      uncertain including future cash flows, the appropriate discount rate and other
      inputs. Different assumptions for these inputs or valuation methodologies could
      create materially different results.




11


**Property,
      Plant and Equipment**




Annually,
      property, plant and equipment lives are reviewed to ensure that the estimated
      useful lives are appropriate. The estimated useful lives of property, plant
      and
      equipment is a critical accounting estimate because changing the lives of assets
      can result in larger or smaller charges for depreciation expense. Factors used
      in determining useful lives include technology changes, regulatory requirements,
      obsolescence and type of use.We did not change the useful lives of any property,
      plant and equipment in the year ended September 30, 2006.




We
      review
      long-lived assets for impairment whenever events or circumstances indicate
      that
      the carrying amount may not be fully recoverable. During the year ended
      September 30, 2006 the Company wrote off approximately $71,000 in fixed assets
      due to the impairment of the value, in connection with the foreclosure by
      Loral.





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2006, the Company had cash and cash equivalents of $46,050. The
      Company was unable to satisfy current debts, and is in default in its loan
      obligations.





Net
      cash
      used by operating activities was $169,470 for the fiscal year ended September
      30, 2006 compared with $1,081,254 for the fiscal year ended September 30,
      2005.




As
      of September 30, 2006 the Stockholders’ Deficit was $3,149,820 compared with
      September 30, 2005, of $1,841,181. At September 30, 2006, we had a negative
      working capital (current assets minus current liabilities) of $3,190,782
      compared with negative working capital of approximately $2,394,000 at September
      30, 2005.





There
      is
      a significant working capital deficit. Additional funding is required in order
      to sustain our current operations. There is limited cash flow from current
      operations. We are attempting to secure debt and equity funding from external
      sources, including existing shareholders. We may not be able to obtain
      additional sources of financing. Funding is required to first satisfy existing
      debts and current operational expenses.





On
      February 28, 2006, in order to improve the liquidity and equity structure of
      the
      Company, $500,000 of Debentures payable and $1,000,000 of Promissory notes
      were
      converted to Convertible Preferred Stock, as referenced and detailed in Note
      4
      and Note 5 to the Notes to the Consolidated Financial Statements for the year
      ended September 30, 2006 and 2005.




12


If
      our
      revenue from operations and funds raised are not sufficient to implement our
      business plan, we will be required to raise money from other sources. Other
      sources of funds may not be available or may be available only on terms that
      are
      unfavorable to us. If we are unable to raise sufficient funds, the
      implementation of our Plan of Operation will be delayed and we may cease
      operations.





**Going
      concern**





The
      Company and its Subsidiaries’ consolidated financial statements have been
      prepared on the basis that it will continue as a going concern, which
      contemplates the realization of asset values and the satisfaction of liabilities
      in the normal course of business. Certain conditions indicate that the Company
      may be unable to continue as a going concern as follows:





The
      closing of the dbsXmedia US offices, notification to customers of the
      termination of services by Loral Skynet, the elimination of the revenue and
      costs from that operation, and the elimination of all staff at the
      site.





The
      inability of the company to fund current operations and satisfy its current
      debts when due.





The
      current default of its loans from shareholders.





The
      current default of the settlement agreement with Loral Skynet, and the potential
      foreclosure of corporate assets by the secured creditor.





The
      Company's ability to continue as a going concern is dependent upon increasing
      its revenues and gross profit margins to cover cost of services and other
      operating expenses, generating positive cash flows from operations, obtaining
      debt or equity capital to fund expected negative operating cash flows and
      returning the Company to profitable operations. In this connection, the Company
      has adopted the following operating and management plans in order to provide
      positive cash flow from operations and fiscal year 2007:





·
            Raise
                additional capital or secure funding from credit
                sources.





·
            Expand
                and develop its Business TV business with existing customer base
                and
                additional contracts for new services.


·
            Continue
                to develop and expand its digital signage business through targeted
                marketing initiatives in both the US and
                Europe.





·
            Continue
                overall cost and expense control and adoption of efficient service
                and
                equipment roll-out approaches resulting in improved gross profits
                and
                reduced operating expenses.





·
            Expand
                operation and revenue base through an aggressive acquisition program
                of
                profitable companies with operation and services with synergy to
                its
                current operation.




13




·
            Develop
                strategic partnerships with major companies in the area of secure
                wireless
                communications supporting the Company’s strategy. This strategic
                initiative is believed to provide increased revenues and result in
                reduced
                operating expenses.





·
            Develop
                strategic partnerships with major companies providing content and
                advertising services for the Company’s digital signage operation
                roll-out.





Although
      the results of these actions cannot be predicted with any degree of certainty,
      management believes that if the Company can continue to increase its revenues
      and gross profit margins, reduce expenses, and can obtain additional debt or
      equity financing to fund the negative cash flow from operations in 2007, the
      Company has the ability ultimately to return to profitability.





**Off-Balance
      Sheet Arrangements**





At
      September 30, 2006, the following guarantees and indemnifications were issued
      and outstanding:





On
      April
      21, 2005 the Company’s subsidiary completed a transaction with Loral Skynet in
      which the Company provided a $3,000,000 parental guarantee on behalf of
      dbsXmedia. The Company’s commitment was reduced on April 21, 2006 to $1,500,000.
      dbsXmedia is, and thereby also the Company, is currently in default of this
      parental guarantee and is in the process of negotiating a settlement with Loral
      Skynet.





On
      April
      21, 2005, as part of a transaction pursuant to an asset Purchase Agreement
      with
      Loral Skynet, we delivered a commitment to the benefit of dbsXmedia in the
      form
      of a Conditional Guaranty for satellite services in favor of Loral Skynet,
      having a total value of $3,000,000 that was reduced to $1,500,000 on April
      21,
      2006 and fully expire on April 21, 2007.





On
      April
      21, 2006, the Company’s subsidiary dbsXmedia, Inc. received a letter with a
      Notice of Default pursuant to Teleport Service Agreement dated 21 April 2005
      between dbsXmedia. Inc. ("dbsXmedia”) and Loral Skynet Network Services, Inc.
      ("Skynet") stating that dbsXmedia is currently in arrears with regard to payment
      for services rendered pursuant to the Agreement with Skynet in the amount of
      $540,112.50 (the "Current Outstanding Debt"). dbsXmedia’s failure to pay the
      Current Outstanding Debt constitutes a material default under Section 3(b)
      of
      the Agreement. The letter shall serve as written notice of payment past due
      and
      notice of a material default of the Agreement. Skynet demands that dbsXmedia
      effect immediate payment of the full mount of the Current Outstanding Debt.
      If
      dbsXmedia fails to pay the Current Outstanding Debt within three (3) business
      days of the date hereof, i.e., 5:00 P.M., EDT, Wednesday, 26 April, 2006, Skynet
      shall have the right to terminate the Agreement upon delivery of written notice.
      In such event, Skynet shall avail itself of all remedies to which it is
      entitled, including, but not limited to, the assessment and collection of
      termination charges pursuant to Section 3 (Term and Termination) of the
      Agreement. Moreover, by delivery of the notice and any action taken in
      connection herewith, Skynet does not waive its rights and remedies under the
      Agreement and any other agreements to which dbsXmedia and Skynet are parties,
      including without limitation the right to collect amounts owed by dbsXmedia
      to
      Skynet in addition to the amount set forth above.





On
      May 1,
      2006, the Company’s subsidiary dbsXmedia, Inc. received a letter from Loral
      Skynet stating: “Reference is hereby made to that certain Notice of Default
      Letter, dated 21 April 2006 (the "Notice of Default"), sent by Skynet to
      dbsXmedia declaring a material default by dbsXrnedia under Section 3.B. of
      the
      Agreement (i.e. failure to pay amounts due for services rendered pursuant to
      the
      Agreement). Be advised that dbsXmedia has not cured this material default within
      the prescribed period of time set forth in the Notice of Default. As a result,
      this letter hereby serves as a written notice of termination of the Agreement
      and that such termination shall be effective at 12 Noon, Eastern Standard Time,
      15 May 2006 (the "Termination Date"). Be further advised that Skynet intends
      to
      exercise any and all rights and remedies in respect of such default and
      termination available to Skynet under the Agreement, at law and/or in equity,
      all of which rights and remedies are hereby reserved by Skynet, including,
      without limitation, the right to: (a) assess and collect termination charges
      pursuant to Section 3 (Term and Termination) of the Agreement; and (b) collect
      amounts owed by dbsXmedia to Skynet in addition to the amount set forth in
      the
      Notice of Default.”





14


On
      May 8,
      2006, the Company’s subsidiary dbsXmedia, Inc. received a letter from Loral
      Skynet stating: “ Debtor is in default under that certain Security Agreement,
      dated as of April 21,2005 (the "Agreement"), by and among Debtor, Secured Party,
      CyberStar, L.P. and CyberStar, ELC, granting a security interest in, among
      other
      things, the Collateral. The outstanding balance due from Debtor to Secured
      Party, as of the date hereof, is $2,620,842.50 (the "Balance").





Secured
      Party hereby agrees to accept the Collateral in partial satisfaction of the
      Balance. Specifically, Secured Party shall accept the Equipment in satisfaction
      of $40,000 of the Balance and shall further reduce the Balance by $1 for each
      dollar that Secured Party recovers from your account debtors in connection
      with
      the AR. In addition, pursuant to Section 12 of the Agreement, Secured Party
      hereby requests that you send written notice to all account debtors and other
      persons obligated on any of the Customer Contracts (as defined in the Security
      Agreement) instructing that all future payments are to be made directly to
      Secured Party (to an account or financial institution named by Secured Party).
      If you fail to send such notices within thirty (30) days of the data hereof,
      the
      Secured Party shall prepare and send such notice on Debtor's behalf. If you
      have
      any objection to Secured Party's foregoing proposal, you must send Secured
      Party
      a signed, written statement of your objection within twenty (20) days of the
      date hereof. If Secured Party has not received a signed, written objection
      from
      you within the prescribed time period, you will be deemed to have consented
      to
      this proposal and will have no further right to object, and Secured Party will
      retain the Collateral in partial, satisfaction of the Balance, as described
      in
      this letter.





Finally,
      by delivery of this letter and any action taken in connection therewith, Secured
      Party does not waive any of its rights or remedies under the Agreement and
      other
      agreements to which Debtor and Secured Party are parties, including, without
      limitation, the right to foreclose on additional collateral to satisfy a portion
      of the Balance.”





As
      of
      January, 2007, the company was not able to satisfy the funding of the settlement
      agreement to Loral Skynet. As a result, the Company is in default of the
      agreement and does not have the ability to fulfill the payment of $200,000
      to
      Loral Skynet. Loral Skynet has not advised the Company of its intentions
      regarding this default. Loral Skynet may enforce its full rights and the Company
      may be forced into liquidation in the event the settlement is not
      satisfied.





**Plan
      of Operation**





In
      April
      2005, the Company completed the acquisition of the start-up company dbsXmedia,
      Inc. and established satellite business TV services as a new line of business
      through this subsidiary. Through dbsXmedia, we provided communication
      infrastructure and integrated multimedia services to corporations throughout
      the
      United States and Europe. dbsXmedia operated from offices in Frederick, Maryland
      and Plymouth, United Kingdom, providing solutions for Business Television (BTV),
      digital signage and interactive media delivered over a combination of satellite,
      terrestrial and wireless networks. Digital signage includes technologies using
      LCD TV and plasma screens to deliver video based messaging directly to consumer
      audiences. We believe digital signage is an effective direct advertising method
      providing individually targeted marketing. Integrated multimedia services
      include music radio, video, and IP (Internet Protocol)-based file transfer
      for
      training/catalogs/point of sale integrated with other information to the
      clients. As previously noted, dbsXmedia ceased operations in the US in May,
      2006.





Our
      wholly-owned subsidiary Ariel Way Media provides a select set of services
      previously provided by dbsXmedia to include services for leading
      finance-oriented services companies, primarily in the United Kingdom.




Over
      the
      past year we had experienced significant growth in revenues and related
      expenses. Our increase in revenues was due primarily to our acquisition of
      dbsXmedia. However, due to dbsXmedia not achieving anticipated profitability
      and
      cash flow, failing its financial business plan, and mounting debt to Loral
      Skynet for satellite services, its management team departing dbsXmedia, we
      were
      obligated to wind-up a majority of the activities by and services provided
      by
      dbsXmedia. We have embarked on building on the experience gained from the
      dbsXmedia operation and expanding into the dynamic digital signage business
      through our subsidiary company Ariel Way Media. In addition, we are taking
      a
      number of measures designed to improve our financial condition such as looking
      into other potential acquisitions, cost reductions, expansion of the dbsXmedia
      multimedia experience and the integration of various new acquisitions. However,
      if revenue and cash provided by operations do not outpace our expenses, if
      economic conditions weaken or if competitive pressures increase, our ability
      to
      meet our debt obligations and our financial condition could be materially and
      adversely affected, thereby potentially adversely affecting our credit ratings,
      our ability to access the capital markets and our compliance with debt
      covenants.





15


We
      are
      pursuing both acquisitions and strategic alliances to leverage our strategy
      of
      creating a technology and services company for highly secure global
      communications solutions and technologies. Our objectives are to create high
      margin revenues and shareholder value, expand our reach in the global market
      for
      highly secure global communications solutions and technologies and position
      us
      to play a more visible role in providing next generation highly secure
      communications digital signage solutions, products, services and technologies.





In
      order
      to implement our overall business plan including both the full development
      of a
      digital signage business, we intend to attempt to raise at least $5,000,000
      over
      the next 12 months in order to fund:





·
            Expenses
                associated with acquisitions of companies;





·
            Investment
                in laboratory facilities including test and simulation equipment;





·
            Acquisition
                or licensing of certain intellectual property related to the development
                of highly secure communications technology and software development
                technology;





·
            Compensation
                for employees and consultants;





·
            Legal
                and accounting fees and other general administrative overhead;





·
            General
                working capital purposes





In
      addition, we may need additional funds if we use a greater percentage of cash
      rather than stock in connection with future acquisitions.





**New
      Accounting Pronouncements**


In
        December 2004, the FASB issued SFAS No. 123 (Revised 2004),
“Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires that
        the compensation cost relating to share-based payment transactions be recognized
        in financial statements. That cost will be measured based on the fair value
        of
        the equity or liability instruments issued. The scope of SFAS No. 123R
        includes a wide range of share-based compensation arrangements including
        share
        options, restricted share plans, performance-based awards, share appreciation
        rights and employee share purchase plans. SFAS No. 123R replaces SFAS
        No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB
        Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS
        No. 123, as originally issued in 1995, established as preferable a
        fair-value-based method of accounting for share-based payment transactions
        with
        employees. However, that Statement permitted entities the option of continuing
        to apply the guidance in APB No. 25, as long as the footnotes to the
        financial statements disclosed what net income would have been had the
        preferable fair-value-based method been used. The impact of this SFAS is
        fully
        discussed in Note 2 to the Financial Statements as of September 30, 2006
        and
        2005.




In
      May
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections* ,
      which
      replaces APB Opinion No. 20, *Accounting
      Changes* ,
      and
      FASB Statement No.3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      This
      Statement replaces APB Opinion No. 20, *Accounting
      Changes,* and
      FASB
      Statement No. 3, *Reporting
      Accounting Changes in Interim Financial Statements,* and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This Statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. When a pronouncement includes specific
      transition provisions, those provisions should be followed.





**Inflation**





Our
      monetary assets, consisting primarily of cash and receivables, and our
      non-monetary assets, consisted primarily of intangible assets and goodwill,
      are
      not affected significantly by inflation. We believe that replacement costs
      of
      equipment, furniture and leasehold improvements will not materially affect
      our
      operations. However, the rate of inflation affects our expenses, such as those
      for employee compensation and costs of network services, which may not be
      readily recoverable in the price of services offered by us.





16


**RISK
      FACTORS**





**We
      are subject to various risks that may materially harm our business, financial
      condition and results of operations. You should carefully consider the risks
      and
      uncertainties described below and the other information in this filing before
      deciding to purchase our common stock. If any of these risks or uncertainties
      actually occur, our business, financial condition or operating results could
      be
      materially harmed. In that case, the trading price of our common stock could
      decline and you could loose all or part of your investment.**





**Risks
      Related To Our Business**





**We
      are a technology company with a revised and new and unproven enterprise
      technology model and a short operating history, which makes it difficult to
      evaluate our current business and future prospects and may increase the risk
      of
      your investment.**





We
      have
      only a limited operating history with our revised and new business model upon
      which to base an evaluation of our current business and future prospects. Our
      limited operating history with the new business model makes an evaluation of
      our
      business and prospects very difficult. You must consider our business and
      prospects in light of the risks and difficulties we may encounter as a
      developing company with a revised and new business model in the rapidly evolving
      market for technology and services supporting the business of highly secure
      global communications. These risks and difficulties include, but are not limited
      to, the following:





·
            our
                revised and new and unproven business and technology model;





·
            a
                limited number of service offerings and risks associated with developing
                new product and service offerings;





·
            the
                difficulties we may face in managing rapid growth in personnel and
                operations;





·
            a
                failure of our physical infrastructure or internal systems caused
                by a
                denial of service, third-party attack, employee error or malfeasance,
                or
                other causes;





17




·
            a
                general failure of satellite services and the Internet that impairs
                our
                ability to deliver our service;





·
            a
                loss or breach of confidentiality of customer data;





·
            the
                negative impact on our brand, reputation or trustworthiness caused
                by any
                significant unavailability of our service;





·
            the
                systematic failure of a core component of our service from which
                it would
                be difficult for us to recover;





·
            the
                timing and success of new service introductions and new technologies
                by
                our competitors;





·
            our
                ability to acquire and merge subsidiaries in a highly competitive
                market;
                and





·
            drastic
                changes in the regulatory environment that could have an adverse
                impact in
                the Telecommunications industry.





We
      may
      not be able to successfully address any of these risks or others. Failure to
      adequately do so could force us to curtail or cease our business operations.





**We
      have historically lost money and we expect losses will continue in the near
      term, which means that we may not be able to continue to operate as a going
      concern unless we obtain additional funding**


We
        have
        historically lost money. In the fiscal year ended September 30, 2006 we had
        a
        net loss of $3,623,144 and for the fiscal year ended September 30, 2005 we
        had a
        net loss of $2,389,342. Future losses are likely to occur. Accordingly, we
        are
        experiencing liquidity and cash flow problems and we may not be able to raise
        additional capital as needed and on acceptable terms. No assurances can be
        given
        that we will be successful in reaching or maintaining profitable operations;
        or
        that we will be able to raise or borrow adequate funds to execute our business
        plan and consummate any future acquisitions.
 
 **There
        is substantial doubt about our ability to continue as a going
        concern.**
 
 As
        of
        September 30, 2006, the Company’s independent public accounting firm issued a
“going concern opinion” wherein they stated that the accompanying financial
        statements were prepared assuming the Company will continue as a going concern.
        As discussed in Note 11 to the financial statements as of September 30, 2006,
        the Company did not generate sufficient cash flows from revenues during the
        year
        ended September 30, 2006, to fund its operations. Also at September 30, 2006,
        the Company had negative net working capital of $3,190,782. The Company’s net
        working capital position has continued to deteriorate. These matters raise
        substantial doubt about the Company’s ability to continue as a going concern.
        Management’s plan in regard to these matters is discussed in Note 11 to the
        accompanying financial statements as of September 30, 2006. The financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty. Unless the Company is successful in generating additional
        sources of revenue, or obtaining additional capital, or restructuring its
        business, the Company is at risk of ceasing operations or filing bankruptcy.





**We
      have a material weakness in internal controls due to a limited segregation
      of
      duties, and if we fail to maintain an effective system of internal controls,
      we
      may not be able to accurately report our financial results or prevent fraud.
      As
      a result, current and potential stockholders could lose confidence in our
      financial reporting which could harm the trading price of our
      stock.**





18


Effective
        internal controls are necessary for us to provide reliable financial reports
        and
        prevent fraud. Inferior internal controls could cause investors to lose
        confidence in our reported financial information, which could have a negative
        effect on the trading price of our stock. During the year ended September
        30,
        2006, we reduced our staffing in order to conserve cash, as our level of
        business activity declined. As a result, there is very limited segregation
        of
        duties, this is a material weakness in internal controls. However, we have
        implemented procedures to both limit access to bank accounts and to segregate
        the approval of invoices from disbursements of cash. However, with only two
        employees at the Company, segregation of duties is not practicable.


**We
      have historically generated revenue which has not been adequate to support
      our
      full operation and this may continue in the future, which means that we may
      not
      be able to continue operations unless we can increase our generated revenue.
      Further, we ceased the operations of two locations and future revenue is likely
      to be limited.**


We
        have
        generated revenue from operations; however, if we do not begin generating
        more
        revenue we may have to cease operations. As of September 30, 2006, we had
        an
        accumulated deficit of $6,115,759. In order to become profitable, we will
        need
        to generate revenues to offset our cost of operations and general and
        administrative expenses. We may not achieve or sustain our revenue or profit
        objectives and our losses may increase in the future and ultimately, we may
        have
        to cease operations.


Our
      operating results are not possible to predict because we have limited
      operations. As a result, we cannot determine if we will be successful in our
      proposed plan of operation. Accordingly, we cannot determine what the future
      holds for our proposed plan of business. As such an investment in our business
      is extremely risky and could result in the entire loss of your investment.





**We
      will need to raise additional capital to continue our operations and consummate
      any future acquisitions or we may be unable to fund our operations, promote
      our
      products or develop our technology**


We
        have
        relied on external financing to fund our operations and acquisitions to date.
        Such financing has historically come from a combination of borrowings from,
        and
        sale of common stock to, third parties and funds provided by certain officers
        and directors. Over the next two years we need to raise additional capital
        to
        fund additional acquisitions and/or to fund operations. We anticipate that
        these
        additional funds will be in the range of $5 million to $10 million,
        depending on the pace and size of our acquisitions. We cannot assure you
        that
        financing, whether from external sources or related parties, will be available
        if needed or on favorable terms. The sale of our common stock to raise capital
        may cause dilution to our existing shareholders. If additional financing
        is not
        available when required or is not available on acceptable terms, we may be
        unable to fund our operations and expansion, successfully promote our brand
        name, products or services, develop or enhance our technology, take advantage
        of
        business opportunities or respond to competitive market pressures, any of
        which
        could make it more difficult for us to continue operations. Any reduction
        in our
        operations may result in a lower stock price.


A
      portion
      of our future revenue is dependent upon the success of long-term projects,
      which
      require significant up-front expense to us. We are dependent on external
      financing to fund our operations and the up-front costs. There can be no
      assurance that revenues will be realized until the projects are completed or
      certain significant milestones are met. Our failure, or any failure by a
      third-party with which we may contract, to perform services or deliver products
      on a timely basis could force us to curtail or cease our business operations.




**We
      have a working capital deficit; we need to raise additional capital to finance
      operations**





We
      have
      relied on significant external financing to fund our operations. As of September
      30, 2006, we had $46,050 cash on hand and our total current assets were $97,305
      as of September 30, 2006. We have a working capital deficit of $3,190,782.





19


We
      will
      need to raise additional capital to fund our working capital deficit, our
      anticipated operating expenses and our strategic business plan. Among other
      things, external financing will be required to cover our operating costs. Unless
      we obtain profitable operations, it is unlikely that we will be able to secure
      additional financing from external sources. If we are unable to secure
      additional financing, we may be forced to curtail or cease our business
      operations. We estimate that we will require $5,000,000 to fund our anticipated
      operating expenses for the next twelve months. The sale of our common stock
      to
      raise capital may cause dilution to our existing shareholders. Our inability
      to
      obtain adequate financing will result in the need to curtail business
      operations. Any of these events would be materially harmful to our business,
      may
      result in a lower stock price and you could lose your entire investment. Our
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





**Our
      common stock is deemed to be “penny stock,” which may make it more difficult for
      investors to resell their shares due to suitability requirements**





Our
      common stock is deemed to be “penny stock” as that term is defined in
      Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
      stocks are stocks:





·
            With
                a price of less than $5.00 per share;





·
            That
                are not traded on a “recognized” national exchange;





·
            Whose
                prices are not quoted on the NASDAQ automated quotation system (NASDAQ
                listed stock must still have a price of not less than $5.00 per share);
                or





·
            Of
                issuers with net tangible assets less than $2.0 million (if the
                issuer has been in continuous operation for at least three years)
                or
                $5.0 million (if in continuous operation for less than three years),
                or with average revenues of less than $6.0 million for the last three
                years.





Broker/dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker/dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. These requirements may reduce the
      potential market for our common stock by reducing the number of potential
      investors. This may make it more difficult for investors in our common stock
      to
      sell shares to third parties or to otherwise dispose of them. This could cause
      our stock price to decline and you could lose your entire investment.





Our
      securities are covered by the penny stock rules, which impose additional sales
      practice requirements on broker-dealers who sell to persons other than
      established customers and “accredited investors”. The term “accredited investor”
refers generally to institutions with assets in excess of $5,000,000 or
      individuals with a net worth in excess of $1,000,000 or annual income exceeding
      $200,000 or $300,000 jointly with their spouse. The penny stock rules require
      a
      broker-dealer, prior to a transaction in a penny stock not otherwise exempt
      from
      the rules, to deliver a standardized risk disclosure document in a form prepared
      by the SEC which provides information about penny stocks and the nature and
      level of risks in the penny stock market. The broker-dealer also must provide
      the customer with current bid and offer quotations for the penny stock, the
      compensation of the broker-dealer and its salesperson in the transaction and
      monthly account statements showing the market value of each penny stock held
      in
      the customer’s account. The bid and offer quotations, and the broker-dealer and
      salesperson compensation information, must be given to the customer orally
      or in
      writing prior to effecting the transaction and must be given to the customer
      in
      writing before or with the customer’s confirmation. In addition, the penny stock
      rules require that prior to a transaction in a penny stock not otherwise exempt
      from these rules, the broker-dealer must make a special written determination
      that the penny stock is a suitable investment for the purchaser and receive
      the
      purchaser’s written agreement to the transaction. These disclosure requirements
      may have the effect of reducing the level of trading activity in the secondary
      market for the stock that is subject to these penny stock rules. Consequently,
      these penny stock rules may affect the ability of broker-dealers to trade our
      securities. We believe that the penny stock rules discourage investor interest
      in and limit the marketability of, our common stock.





20


The
      National Association of Securities Dealers, or NASD, has adopted sales practice
      requirements which may also limit a stockholder’s ability to buy and sell our
      stock.





In
      addition to the “penny stock” rules described above, the NASD has adopted rules
      that require that in recommending an investment to a customer, a broker-dealer
      must have reasonable grounds for believing that the investment is suitable
      for
      that customer. Prior to recommending speculative low priced securities to their
      non-institutional customers, broker-dealers must make reasonable efforts to
      obtain information about the customer’s financial status, tax status, investment
      objectives and other information. Under interpretations of these rules, the
      NASD
      believes that there is a high probability that speculative low priced securities
      will not be suitable for at least some customers. The NASD requirements make
      it
      more difficult for broker-dealers to recommend that their customers buy our
      common stock, which may limit investors’ ability to buy and sell our stock and
      have an adverse effect on the market for our shares.




**Our
      common stock has a small public float and future sales of our common stock,
      may
      negatively affect the market price of our common stock.**




As
      of
      January 12, 2007, there were 40,036,785 shares
      of
      our common stock outstanding, at a closing market price of $0.004 for a total
      market valuation of approximately $160,000. As a group, our officers, directors
      and all other persons who beneficially own more than 10% of our total
      outstanding shares, beneficially own 21,173,735 shares of our common stock,
      including vested options and vested warrants. Our common stock has a public
      float of approximately 6.6 million shares, which shares in the hands of public
      investors, and which, as the term "public float" is defined by NASDAQ, excludes
      shares that are held directly or indirectly by any of our officers or directors
      or any other person who is the beneficial owner of more than 10% of our total
      shares outstanding. These shares are held by a relatively small number of
      stockholders of record. We cannot predict the effect, if any, that future sales
      of shares of our common stock into the market will have on the market price
      of
      our common stock. However, sales of substantial amounts of common stock,
      including future shares issued upon the exercise of warrants, or stock options
      (of which 15,922,320 are presently outstanding; see Item 5 of this report)
      and/or conversion of preferred stock into common stock, or the perception that
      such transactions could occur, may materially and adversely affect prevailing
      market prices for our common stock.





**We
      have and will continue to incur increased costs as a result of being a public
      company.**





As
      a
      public company, we have and will continue to incur significant legal, accounting
      and other expenses that we did not incur as a private company. We will incur
      costs associated with our public company reporting requirements. We also
      anticipate that we will incur costs associated with recently adopted corporate
      governance requirements, including requirements under the Sarbanes-Oxley Act
      of
      2002, as well as new rules implemented by the Securities and Exchange Commission
      and the NYSE and NASDAQ. We expect these rules and regulations to increase
      our
      legal and financial compliance costs and to make some activities more
      time-consuming and costly. We also expect that these new rules and regulations
      may make it more difficult and more expensive for us to obtain director and
      officer liability insurance and we may be required to accept reduced policy
      limits and coverage or incur substantially higher costs to obtain the same
      or
      similar coverage. As a result, it may be more difficult for us to attract and
      retain qualified individuals to serve on our Board of Directors or as executive
      officers. We are currently evaluating and monitoring developments with respect
      to these new rules, and we cannot predict or estimate the amount of additional
      costs we may incur or the timing of such costs. However, we believe that that
      it
      is important to provide a mechanism to grant stock options and other stock
      awards to employees, non-employee directors and consultants as an incentive,
      and
      to tie their interests closer to those of our stockholders.





**We
      have a new executive team and may not be successful in integrating the
      management teams of companies acquired which could adversely affect the
      leadership of Ariel Way, divert management time and adversely affect the
      business and results of operations**





21


As
      a
      result of completion of our acquisition of Old Ariel Way on February 2, 2005,
      Mr. Arne Dunhem became our new Chairman, President and Chief Executive
      Officer. Failure to successfully integrate the management teams of other
      acquired companies could divert management time and resources, which would
      adversely affect our operations. Our future success also depends on our ability
      to identify, attract, hire, retain and motivate other well-qualified managerial,
      technical, sales and marketing personnel.





**Our
      business revenue generation model is unproven and could fail**





Our
      revenue model is revised and new and evolving, and we cannot be certain that
      it
      will be successful. Our ability to generate revenue depends, among other things,
      on our ability to provide quality highly secure global communications and
      digital signage solutions and technologies to our customers and to develop
      and
      ultimately sell various security appliances products and digital signage
      services. We have limited experience with our highly secure global
      communications and digital signage solutions and technologies business and
      our
      success is largely dependent upon our ability to successfully integrate and
      manage any acquisitions we may consummate. If we are unable to sell our services
      and provide them efficiently, we will be forced to curtail or cease our business
      operations.





**The
      winding-up of activities by and operations of dbsXmedia and its business and
      transfer our Company to a new business model based on dbsXmedia experience
      may
      not be successful and could fail**





Over
      the
      past year we had experienced significant growth in revenues and related
      expenses. Our increase in revenues was due primarily to our acquisition of
      dbsXmedia. However, due to dbsXmedia not achieving anticipated profitability
      and
      cash flow, failing its financial business plan, and mounting debt to Loral
      Skynet for satellite services, its management team departing dbsXmedia, we
      were
      obligated to wind-up a majority of the activities by and services provided
      by
      dbsXmedia. We have embarked on building on the experience gained from the
      dbsXmedia operation and expanding into the dynamic digital signage business
      through our subsidiary company Ariel Way Media. In addition, we are taking
      a
      number of measures designed to improve our financial condition such as looking
      into other potential acquisitions, cost reductions, expansion of the dbsXmedia
      multimedia experience and the integration of various new acquisitions. However,
      if revenue and cash provided by operations do not exceed expenses, if economic
      conditions weaken or if competitive pressures increase, our ability to meet
      our
      debt obligations and our financial condition could be materially and adversely
      affected, and the company could be forced to cease operations.





**If
      we are not able to compete effectively in the highly competitive highly secure
      global communications** **and
      digital signage** **solutions
      and technologies industries we may be forced to curtail or cease operations**





Our
      ability to compete effectively with our competitors depends on the following
      factors, among others:





·
            the
                performance of our products, services and technology in a manner
                that
                meets customer expectations;





·
            the
                success of our efforts to develop effective channels of distribution
                for
                our products and services;





·
            our
                ability to price our products and services that are of a quality
                and at a
                price point that is competitive with similar or comparable products
                and
                services offered by our competitors;





·
            general
                conditions in the highly secure global communications and digital
                signage
                solutions and technologies industries;





·
            the
                success of our efforts to develop, improve and satisfactorily address
                any
                issues relating to our technology;





22




·
            our
                ability to effectively compete with companies that have substantially
                greater market presence and financial, technical, marketing and other
                resources than we have; and





·
            our
                ability to adapt to the consolidation of providers of highly secure
                global
                communications and digital signage solutions and technologies with
                or into
                larger entities, or entry of new entities into the highly secure
                global
                communications and digital signage solutions and technologies market,
                would likely result in greater competition for us.





If
      we are
      unable to successfully compete in our industry, we may be forced to curtail
      or
      cease our business operations.





**Consolidations
      in the industry in which we compete could adversely affect our businesses to
      include a reduction or elimination of our proportionate share of those markets**





The
      highly secure global communications and digital signage solutions and
      technologies industry has experienced consolidation of participants, and this
      trend may continue. If highly secure global communications and digital signage
      solutions and technologies providers consolidate with companies that utilize
      technologies that are similar to or compete with our secure technology, our
      proportionate share of the emerging market for highly secure global
      communications and digital signage solutions and technologies may be reduced
      or
      eliminated. This reduction or elimination of our market share could reduce
      our
      ability to obtain profitable operations and could cause us to curtail or cease
      our business operations.





We
      believe that our ability to compete successfully in the highly secure global
      communications and digital signage solutions and technologies market depends
      on
      a number of factors, including market presence; the adequacy of its member
      and
      technical support services; the capacity, reliability and security of its
      network infrastructure; the ease of access to and navigation of the capabilities
      provided by our solutions and technologies; our pricing policies, our
      competitors and suppliers; the timing of introductions of new services by us
      and
      our competitors; our ability to support existing and emerging industry
      standards; and industry and general economic trends. If any of these factors
      negatively impact us, we may be forced to curtail or cease our business
      operations.





**Management
      and directors of Ariel Way have a significant percentage of the fully diluted
      number of common shares and such concentration of ownership may have the effect
      of delaying or preventing a change of control of Ariel Way.**





Our
      management and directors beneficially own a significant percentage of our
      outstanding common stock, on a fully diluted basis. **** As
      a
      result, these management and director equity holders will have significant
      influence in matters requiring stockholder approval, including the election
      and
      removal of directors, the approval of significant corporate transactions, such
      as any merger, consolidation or sale of all or substantially all of our assets,
      and the control of our management and affairs. Accordingly, such concentration
      of ownership may have the effect of delaying, deferring or preventing a change
      in control of us, impeding a merger, consolidation, takeover or other business
      combination involving us or discouraging a potential acquirer from attempting
      to
      obtain control of us.





**We
      may not be able to effectively protect our intellectual property rights, the
      foundation of our business, which could harm our business by making it easier
      for our competitors to duplicate our services**





We
      regard
      certain aspects of our products, processes, services and technology as
      proprietary. We intend to take steps to protect them with patents, copyrights,
      trademarks, restrictions on disclosure and other methods. Despite these
      precautions, we cannot be certain that third parties will not infringe or
      misappropriate our proprietary rights or that third parties will not
      independently develop similar products, services and technology. Any
      infringement, misappropriation or independent development could cause us to
      cease operations.





23


Enfotec
      has filed with the US Patent Office for protection of technologies related
      to
      highly secure telecommunication: Chain Packet Processing, CPP and Packet
      Signature Recognition, PSR, but patents may not be issued, and if issued, may
      not protect the intellectual property from competition which could seek to
      design around or invalidate these patents. Our failure to adequately protect
      our
      proprietary rights in our products, services and technology could harm the
      business by making it easier for competitors to duplicate our services.





We
      own
      several Internet domain names, including www.arielway.com, www.dbsxmedia.com
      and
      www.enfotec.net. The regulation of domain names in the United States and in
      foreign countries may change. Regulatory bodies could establish additional
      top-level domains or modify the requirements for holding domain names, any
      or
      all of which may dilute the strength of our name. We may not acquire or maintain
      our domain name or additional common names in all of the countries in which
      our
      marketplace may be accessed, or for any or all of the top-level domains that
      may
      be introduced. The relationship between regulations governing domain names
      and
      laws protecting proprietary rights is unclear. Therefore, we may not be able
      to
      prevent third parties from acquiring domain names that infringe or otherwise
      decrease the value of our trademarks and other proprietary rights.





We
      may
      have to resort to litigation to enforce our intellectual property rights,
      protect our trade secrets, determine the validity and scope of the proprietary
      rights of others, or defend ourselves from claims of infringement, invalidity
      or
      unenforceability. Litigation may be expensive and divert resources even if
      we
      win. This could adversely affect our business, financial condition and operating
      results such that it could cause us to reduce or cease operations.





**Other
      parties may assert that our technology infringes on their intellectual property
      rights, which could divert management time and resources and possibly force
      us
      to redesign our technology**





Technology-based
      industries, such as ours, are characterized by an increasing number of patents
      and frequent litigation based on allegations of patent infringement. From time
      to time, third parties may assert patent, copyright and other intellectual
      property rights to technologies that are important to us. While there currently
      are no outstanding infringement claims pending by or against us, we cannot
      assure you that third parties will not assert infringement claims against us
      in
      the future, that assertions by such parties will not result in costly
      litigation, or that they will not prevail in any such litigation. In addition,
      we cannot assure you that we will be able to license any valid and infringed
      patents from third parties on commercially reasonable terms or, alternatively,
      be able to redesign products on a cost-effective basis to avoid infringement.
      Any infringement claim or other litigation against or by us could have a
      material adverse effect on us and could cause us to reduce or cease operations.


**If
        we are unable to successfully develop the technology necessary for our
        solutions, products and processes, we will not be able to bring our products
        to
        market and may be forced to reduce or cease operations**
  Our
        ability to commercialize our solutions and products is dependent on the
        advancement of our existing technology. In order to obtain and maintain market
        share we will continually be required to make advances in technology. We
        cannot
        assure you that our research and development efforts will result in the
        development of such technology on a timely basis or at all. Any failures
        in such
        research and development efforts could result in significant delays in product
        development and cause us to reduce or cease operations. We cannot assure
        you
        that we will not encounter unanticipated technological obstacles, which either
        delay or prevent us from completing the development of our products and
        processes.


24


**If
      we cannot deliver the features and functionality our customers demand, we will
      be unable to attract customers**





Our
      future success depends upon our ability to determine the needs of our customers
      and to design and implement technology products and highly secure global
      communications solutions and technologies that meet their needs in a cost
      efficient manner. If we are unable to successfully determine customer
      requirements or if our current or future services do not adequately satisfy
      customer demands, we will be forced to curtail or cease our business operations.





**Our
      limited operating history with the revised and new business model may impede
      acceptance of our technologies and service by medium-sized and large customers**





Our
      ability to increase revenue and achieve profitability depends, in large part,
      on
      widespread acceptance of our technologies and services by various sized and
      type
      of businesses. Our efforts to sell to these customers may not be successful.
      In
      particular, because we are a relatively new company with a revised and new
      business model and a limited operating history, these target customers may
      have
      concerns regarding our viability and may prefer to purchase critical hardware
      and/or software applications or other services from one of our larger, more
      established competitors. Even if we are able to sell our service to these types
      of customers, they may insist on additional assurances from us that we will
      be
      able to provide adequate levels of service, which could harm our business and
      forced to curtail or cease our business operations.





**Our
      future financial performance will depend on the introduction and widespread
      acceptance of new features to, and enhanced editions of, our technologies and
      services**





Our
      future financial performance will depend on our ability to develop and introduce
      new features to, and new editions of, our technologies and services. The success
      of new features and editions depends on several factors, including the timely
      completion, introduction and market acceptance of the feature or edition.
      Failure in this regard may significantly impair our revenue growth. In addition,
      the market for our technologies and solutions may be limited if prospective
      customers, particularly medium and large customers, require customized features
      or functions that are incompatible with our application delivery model. If
      we
      are unable to develop new features or enhanced editions of our technologies
      and
      solutions that achieve widespread levels of market acceptance or if prospective
      customers require customized features or functions, we will be forced to curtail
      or cease our business operations.





**We
      may be dependent on third parties to complete certain projects with the risk
      of
      failure of the project if the third party does not adequately perform**





A
      potential difficulty in completing a project could have a material adverse
      effect on our reputation, business and results of operations. In certain
      instances, we may be dependent on the efforts of third parties to adequately
      complete our portion of a project and, even if our products and processes
      perform as required, a project may still fail due to other components of the
      project supplied by third parties. Any such project failure could force us to
      curtail a crease our business operations.





**If
      we fail to develop our brand cost-effectively, our business may suffer**





We
      believe that developing and maintaining awareness of our brand in a
      cost-effective manner is critical to achieving widespread acceptance of our
      existing and future solutions and technologies and is an important element
      in
      attracting new customers. Furthermore, we believe that the importance of brand
      recognition will increase as competition in our markets develops. Successful
      promotion of our brand will depend largely on the effectiveness of our marketing
      efforts and on our ability to provide reliable and useful technologies and
      services at competitive prices. Brand promotion activities may not yield
      increased revenue, and even if they do, any increased revenue may not offset
      the
      expenses we incurred in building our brand. If we fail to successfully promote
      and maintain our brand, or incur substantial expenses in an unsuccessful attempt
      to promote and maintain our brand, we may fail to attract enough new customers
      or retain our existing customers to the extent necessary to realize a sufficient
      return on our brand-building efforts, and we could be forced to curtail or
      cease
      our business operations.





25


**Any
      failure to adequately expand our direct sales force will impede our growth**





We
      expect
      to be substantially dependent on a direct sales force to obtain new customers,
      particularly medium and large enterprise customers, and to manage our customer
      base. We believe that there is significant competition for direct sales
      personnel with the advanced sales skills and technical knowledge we need. Our
      ability to achieve significant growth in revenue in the future will depend,
      in
      large part, on our success in recruiting, training and retaining sufficient
      direct sales personnel. New hires require significant training and may, in
      some
      cases, take more than a year before they achieve full productivity. Our recent
      hires and planned hires may not become as productive as we would like, and
      we
      may be unable to hire sufficient numbers of qualified individuals in the future
      in the markets where we do business. If we are unable to hire and develop
      sufficient numbers of productive sales personnel, sales of our services will
      suffer and we could be forced to curtail or cease our business operations.





**Sales
      to customers outside the United States expose us to risks inherent in
      international sales**





Our
      anticipated sales outside the United States represent, in addition to our
      anticipated sales in the Americas, a significant portion of our future total
      revenue. We intend to expand our domestic and international sales efforts.
      As a
      result, we will be subject to risks and challenges that we would otherwise
      not
      face if we conducted our business only in the United States. These risks and
      challenges include:





·
            localization
                of our technologies and services, including translation into foreign
                languages and associated expenses;





·
            laws
                and business practices favoring local competitors;





·
            more
                established competitors with greater resources;





·
            compliance
                with multiple, conflicting and changing governmental laws and regulations,
                including tax, privacy and data protection laws and regulations;





·
            different
                employee/employer relationships and the existence of workers’ councils and
                labor unions;





·
            different
                pricing environments;





·
            difficulties
                in staffing and managing foreign operations;





·
            longer
                accounts receivable payment cycles and other collection difficulties;
                and





·
            regional
                economic and political conditions.





These
      factors could force us to curtail or cease our business operations.





**We
      may not be able to keep up with rapid technological changes, which could render
      our solutions, technologies and processes obsolete**





The
      highly secure global communications and digital signage solutions and
      technologies industry is characterized by rapid technological change, changes
      in
      customer requirements and preferences, frequent introduction of products and
      services embodying new technologies and the emergence of new industry standards
      and practices that could render our existing technology and systems obsolete.
      Our future success will depend on our ability to enhance and improve the
      responsiveness, functionality, accessibility and features of our products.
      We
      expect that our marketplace will require extensive technological upgrades and
      enhancements to accommodate many of the new products and services that we
      anticipate will be added to our marketplace. If we are unable to expand and
      upgrade our technology and systems, and successfully integrate new technologies
      or systems in the future, to accommodate such increases in a timely manner,
      we
      may be forced to curtail or cease our business operations.





26


**We
      may not effectively manage the growth necessary to execute our business plan,
      which could adversely affect the quality of our operations and our costs**





In
      order
      to achieve the critical mass of business activity that we believe is necessary
      to successfully execute our business plan; we must significantly increase the
      business operation through acquisitions in addition to increasing the number
      of
      strategic partners and customers that use our solutions, technologies and
      services. This growth will place significant strain on our personnel, systems
      and resources. We also expect that we will continue to hire employees, including
      technical, management-level employees, and sales staff for the foreseeable
      future. This growth will require us to improve management, technical,
      information and accounting systems, controls and procedures. We may not be
      able
      to maintain the quality of our operations, control our costs, continue complying
      with all applicable regulations and expand our internal management, technical
      information and accounting systems in order to support our desired growth.
      If we
      do not manage our growth effectively, we could be forced to curtail or cease
      our
      business operations.





**We
      may not successfully execute or integrate acquisitions**





Our
      business model is dependent upon growth through acquisition of other technology
      and communications solutions providers. We expect to attempt to complete
      acquisitions that we anticipate will enable us to build our highly secure global
      communications solutions and technologies business. Acquisitions involve
      numerous risks, including the following:





·
            Difficulties
                in integrating the operations, technologies, products and personnel
                of the
                acquired companies;





·
            Diversion
                of management’s attention from normal daily operations of the business;





·
            Difficulties
                in entering markets in which we have no or limited direct prior experience
                and where competitors in such markets have stronger market positions;





·
            Initial
                dependence on unfamiliar partners;





·
            Insufficient
                revenues to offset increased expenses associated with acquisitions;
                and





·
            The
                potential loss of key employees of the acquired companies.





Acquisitions
      may also cause us to:





·
            Issue
                common stock that would dilute our current shareholders’ percentage
                ownership;





·
            Assume
                liabilities;





·
            Record
                goodwill and non-amortizable intangible assets that will be subject
                to
                impairment testing on a regular basis and potential periodic impairment
                charges;





·
            Incur
                amortization expenses related to certain intangible assets;





·
            Incur
                large and immediate write-offs, and restructuring and other related
                expenses; or





·
            Become
                subject to litigation.





Mergers
      and acquisitions of high-technology companies are inherently risky, and no
      assurance can be given that our previous or future acquisitions will be
      successful and will not materially adversely affect our business, operating
      results or financial condition. Failure to manage and successfully integrate
      acquisitions we make could force us to curtail or cease our business operations.





27


**If
      we were to lose the services of members of our management team, we may not
      be
      able to execute our business strategy**





Our
      future success depends in a large part upon the continued service of key members
      of our senior management team. In particular, our CEO Arne Dunhem is critical
      to
      the overall management of Ariel Way as well as the development and
      implementation of our business strategy. Although we do not have a formal
      employment agreement with Mr. Dunhem and other key personnel, we intend to
      design each of their employment agreements to provide incentives to our
      executives to fulfill the terms of their agreements with us, each executive
      or
      employee may terminate their employment with us at any time. We do not maintain
      any key-person life insurance policies. The loss of any of our management or
      key
      personnel could seriously harm our business.





**Our
      business depends upon the growth and maintenance of the global satellite,
      telecommunications and internet infrastructure**





Our
      success will depend on the continued growth and maintenance of the global
      satellite, telecommunications and Internet infrastructure. This includes
      maintenance of a reliable network backbone with the necessary speed, data
      capacity and security for providing reliable Internet services. Satellite,
      telecommunications and Internet infrastructures may be unable to support the
      demands placed on it if the number of users continues to increase, or if
      existing or future users access the Internet more often or increase their
      bandwidth requirements. In addition, viruses, worms and similar programs may
      harm the performance of the Internet. The Internet has experienced a variety
      of
      outages and other delays as a result of damage to portions of its
      infrastructure, and it could face outages and delays in the future. These
      outages and delays could reduce the level of telecommunications and Internet
      usage as well as our ability to provide our solutions. Any failure of the
      Internet infrastructure could force us to curtail or cease our business
      operations.




28


**Item
      7. Financial Statements**




**ARIEL
      WAY, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**


**FOR
      YEARS ENDED SEPTEMBER 30, 2006 AND**


**SEPTEMBER
      30, 2005**





29


**ARIEL
        WAY, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 **FOR
        YEARS ENDED SEPTEMBER 30, 2006 AND**
 **SEPTEMBER
        30, 2005**
 
 **INDEX
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 PAGE(S)Report
                  of Independent Registered Public Accounting Firm
              
              F-1-2Consolidated
                  Financial StatementsConsolidated
                  Balance Sheet as of September 30, 2006
              
              F-3Consolidated
                  Statements of Operations for the Years Ended
                September
                  30, 2006 and September 30, 2005
              
              F-4Consolidated
                  Statements of Stockholders’ Equity (Deficit) for the Years
                September
                  30, 2006 and September 30, 2005
              
              F-5Consolidated
                  Statements of Cash Flows for the Years Ended
                September
                  30, 2006 and September 30, 2005
              
              F-6-7Notes
                  to Consolidated Financial Statements
              
              F-8-24
 
 
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
        of
        Directors and Stockholders
 Ariel
        Way, Inc.
 8000
        towers Crescent Drive, Ste. 1220
 Vienna,
        VA 22182
 
 We
        have
        audited the accompanying consolidated balance sheet of Ariel Way, Inc., (the
        “Company”) as of September 30, 2006, and the related consolidated statements of
        operations, changes in stockholders’ equity (deficit), and cash flows for each
        of the years in the two-year period ended September 30, 2006. These consolidated
        financial statements are the responsibility of the Company's management.
        Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, 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 consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Ariel Way, Inc., as of
        September 30, 2006, and the results of its operations and its cash flows
        for
        each of the years in the two-year period ended September 30, 2006 in conformity
        with accounting principles generally accepted in the United States of
        America.
  F-1
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed in Note11 to the
        consolidated financial statements, the Company did not generate sufficient
        cash
        flows from revenues during the year ended September 30, 2006, to fund its
        operations. Also at September 30, 2006, the Company had negative net working
        capital of $3,190,782. The Company’s net working capital position has continued
        to deteriorate into the first quarter of 2007. Unless the Company is successful
        in generating new sources of revenue, or obtaining debt or equity financing,
        or
        restructuring its business, the Company is likely to deplete its working
        capital
        during 2007. These matters raise substantial doubt about the Company’s ability
        to continue as a going concern. Management’s plan in regard to these matters is
        also described in Note11. The consolidated financial statements do not include
        any adjustments that might result from the outcome of this
        uncertainty.
 
 
 /s/
        BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
 Bagell,
        Josephs, Levine & Company, L.L.C.
 Gibbsboro,
        NJ 08026
 
 December
        1, 2006
  F-2
   **ARIEL
                    WAY, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEET****SEPTEMBER
                    30, 2006****ASSETS**
 
 **CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                46,050Accounts
                    receivable - net
                
                
                30,907Prepaid
                    expenses and other current assets
                
                
                20,348**Total
                    current assets**
                
                
                97,305**PROPERTY
                    AND EQUIPMENT - NET**
                
                
                40,962**TOTAL
                    ASSETS**
                
                $
                138,267**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****(DEFICIT)****CURRENT
                    LIABILITIES**Accounts
                    payable and accrued expenses
                
                $
                2,889,260Deferred
                    revenue
                
                
                324,168Promissory
                    notes
                
                
                74,659**Total
                    current liabilities**
                
                
                3,288,087**Total
                    liabilities**
                
                
                3,288,087**STOCKHOLDERS'
                    EQUITY (DEFICIT)**Preferred
                    stock, $.001 par value; 5,000,000 shares authorized;160
                    shares issued and outstandingSeries
                    A Convertible Preferred stock, $0.001 par value165
                    shares authorized,160 issued and outstanding
                
                
                -Common
                    stock, $.001 par value; 245,000,000 shares authorized;38,386,943
                    shares issued and outstanding
                
                
                38,386Additional
                    paid-in capital
                
                
                2,927,553Accumulated
                    deficit
                
                
                (6,115,759
                )**Total
                    stockholders' equity (deficit)**
                
                
                (3,149,820
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY **(DEFICIT)****
                
                $
                138,267
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-3
 
 **ARIEL
          WAY, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **FOR
          THE YEARS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005**
 
 **September
                    30,**
                
                **September
                    30,****2006**
                
                **2005****REVENUES**
                
                $
                2,459,012
                
                $
                1,052,616**COST
                    OF SERVICES**
                
                
                2,423,722
                
                
                1,123,497**GROSS
                    PROFIT (LOSS)**
                
                
                35,290
                
                
                (70,881
                )**OPERATING
                    EXPENSES**Selling
                    and marketing
                
                
                24,915
                
                
                85,748General
                    and administrative
                
                
                3,361,005
                
                
                1,572,084Depreciation,
                    and amortization
                
                
                92,504
                
                
                112,395Goodwill
                    impairment
                
                
                100,000
                
                
                504,828**Total
                    Operating Expenses**
                
                
                3,578,424
                
                
                2,275,055**INCOME
                    (LOSS) BEFORE OTHER EXPENSE**
                
                
                (3,543,134
                )
                
                (2,345,936
                )**OTHER
                    INCOME (EXPENSE)**Interest
                    expense, net
                
                
                (80,010
                )
                
                (43,406
                )**Total
                    Other Income (Expense)**
                
                
                (80,010
                )
                
                (43,406
                )**INCOME
                    (LOSS) BEFORE PROVISION FOR INCOME TAXES**
                
                
                (3,623,144
                )
                
                (2,389,342
                )Provision
                    for income taxes
                
                
                -
                
                
                -**NET
                    INCOME (LOSS) PER APPLICABLE TO COMMON SHARES**
                
                $
                (3,623,144
                )
                $
                (2,389,342
                )**NET
                    INCOME (LOSS) PER BASIC AND DILUTED SHARES**
                
                $
                (0.09
                )
                $
                (0.07
                )**WEIGHTED
                    AVERAGE NUMBER OF COMMON SHARES OUTSTANDING**
                
                
                38,383,682
                
                
                35,215,785
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
 
 F-4
  **ARIEL
                    WAY, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)****FOR
                    THE YEARS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005**
 
 **Additional**
                
                
                
                **Deferred****Preferred
                    Stock**
                
                **Common
                    Stock**
                
                **Paid-In**
                
                **Accumulated**
                
                **Financing****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **(Deficit)**
                
                **Fees**
                
                **Total**Balance,
                    October 1, 2004
                
                
                -
                
                
                -
                
                
                19,860,000
                
                $
                19,860
                
                $
                1,634,740
                
                $
                (103,273
                )
                $
                (1,128,600
                )
                $
                422,727Common
                    stock issued in reverse merger
                
                
                
                
                
                
                
                
                17,428,260
                
                
                17,428
                
                
                (17,428
                )
                
                -
                
                
                -
                
                
                -Common
                    stock issued for services
                
                
                
                
                
                
                
                
                499,342
                
                
                499
                
                
                99,369
                
                
                -
                
                
                -
                
                
                99,868Common
                    stock issued for services
                
                
                
                
                
                
                
                
                499,341
                
                
                499
                
                
                99,368
                
                
                -
                
                
                -
                
                
                99,867Termination
                    Cornell deal
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                (1,128,600
                )
                
                -
                
                
                1,128,600
                
                
                -Preferred
                    stock issued
                
                
                2,000,000
                
                
                2,000,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,000,000Redemption
                    of preferred stock
                
                
                (2,000,000
                )
                
                (2,000,000
                )
                
                -
                
                
                -
                
                
                (74,301
                )
                
                -
                
                
                -
                
                
                (2,074,301
                )Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,389,342
                )
                
                -
                
                
                (2,389,342
                )Balance,
                    September 30, 2005
                
                
                -
                
                
                -
                
                
                38,286,943
                
                $
                38,286
                
                $
                613,148
                
                $
                (2,492,615
                )
                
                -
                
                $
                (1,841,181
                )Common
                    stock issued to MarketLink
                
                
                
                
                
                
                
                
                100,000
                
                
                100
                
                
                2,900
                
                
                -
                
                
                -
                
                
                3,000****Preferred
                    stock conversion
                
                
                160
                
                
                -
                
                
                -
                
                
                -
                
                
                1,604,967
                
                
                -
                
                
                -
                
                
                1,604,967Issuance
                    of Warrants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                706,538
                
                
                
                
                
                
                
                
                706,538Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,623,144
                )
                
                -
                
                
                (3,623,144
                )Balance,
                    September 30, 2006
                
                
                160
                
                
                -
                
                
                38,386,943
                
                $
                38,386
                
                $
                2,927,553
                
                $
                (6,115,759
                )
                
                -
                
                $
                (3,149,820
                )
 
 The accompanying notes are an integral part of these consolidated financial
          statements.
  F-5
 
 **ARIEL
                    WAY, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS****FOR
                    THE YEARS ENDED SEPTEMBER 30, 2006 AND
                    2005**
 
 **September
                    30,**
                
                **September
                    30,****2006**
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    (loss)
                
                $
                (3,623,144
                )
                $
                (2,389,342
                )**Adjustments
                    to reconcile net income (loss) to net cash****provided
                    by (used in) operating activities:**Issuance
                    of stock for services
                
                
                -
                
                
                199,736Depreciation,
                    and amortization
                
                
                92,504
                
                
                112,395Write
                    off of fixed assets
                
                
                143,431
                
                
                -Issuance
                    of warrants for compensation
                
                
                706,538
                
                
                -Minority
                    interest
                
                
                88,264
                
                
                (88,264
                )Goodwill
                    impairment
                
                
                100,000
                
                
                504,828**Changes
                    in assets and liabilities:**(Increase)
                    in accounts receivable
                
                
                284,248
                
                
                (315,155
                )Decrease
                    (Increase) in prepaid expenses
                
                
                112,921
                
                
                (19,870
                )(Increase)
                    in deferred revenue
                
                
                324,168
                
                
                -Increase
                    in accounts payable and accrued expenses
                
                
                1,603,847
                
                
                914,418**Total
                    adjustments**
                
                
                3,455,921
                
                
                1,308,088**Net
                    cash provided by (used in) operating activities**
                
                
                (167,223
                )
                
                (1,081,254
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of intangible asset
                
                
                -
                
                
                (100,000
                )Acquisition
                    of property and equipment
                
                
                (2,247
                )
                
                (208,373
                )Acquisition
                    of financing fees
                
                
                -
                
                
                (107,500
                )**Net
                    cash (used in) investing activities**
                
                
                (2,247
                )
                
                (415,873
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**(Advances)
                    to related party
                
                
                15,221
                
                
                90,221Proceeds
                    from promissory note - related party
                
                
                -
                
                
                1,000,000Proceeds
                    from long-term debt, net
                
                
                77,659
                
                
                -Proceeds
                    from convertible debenture
                
                
                -
                
                
                500,000**Net
                    cash provided by financing activities**
                
                
                92,880
                
                
                1,590,221**INCREASE
                    (DECREASE) IN CASH AND CASH EQUIVALENTS**
                
                
                (76,590
                )
                
                93,094**CASH
                    AND CASH EQUIVALENTS - BEGINNING OF YEAR**
                
                
                122,640
                
                
                29,546**CASH
                    AND CASH EQUIVALENTS - END OF YEAR**
                
                $
                46,050
                
                $
                122,640
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-6
 
 **ARIEL
                    WAY, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS (CONTINUED)****FOR
                    THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005**
 
 **September
                    30,**
                
                **September
                    30,****2006**
                
                **2005****SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                    paid during the period for:Interest
                    paid
                
                $
                -
                
                $
                3,945Income
                    taxes paid
                
                $
                -
                
                $
                -**SUPPLEMENTAL
                    DISCLOSURE OF NON-CASH INFORMATION:**Net
                    effect of acquisition of dbsXmedia Inc.:Equipment,
                    net
                
                
                -
                
                
                90,000Contracts
                
                
                -
                
                
                210,000Goodwill
                
                
                -
                
                
                100,000Note payable
                
                
                -
                
                
                (400,000
                )Net
                    effect of the acquisition of dbsXmedia, Inc.
                
                $
                -
                
                $
                -Common
                    stock issued for services
                
                $
                -
                
                $
                199,736Conversion
                    of notes payable and convertible debentures for preferred
                    stock
                
                $
                1,500,000
                
                $
                -Preferred
                    stock issued for note interest
                
                $
                104,967
                
                $
                -
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
 
 F-7
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          1-** **ORGANIZATION
          AND BASIS OF PRESENTATION**
 
 Ariel
          Way, Inc., a Florida corporation (“Ariel Way” or the “Company”), is a technology
          and services company for highly secure global communications, multimedia
          and
          digital signage solutions and technologies. The Company is focused on developing
          innovative and secure technologies, acquiring and growing profitable advanced
          technology companies and global communications service providers and creating
          strategic alliances with companies in complementary product lines and service
          industries.
 
 F-8
 
 **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          2-** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
          of Consolidation**
 
 The
          consolidated financial statements include the accounts of the Company and
          its
          subsidiaries. All significant inter-company accounts and transactions have
          been
          eliminated in consolidation.
  **Cash
          and Cash Equivalents**
 
 The
          Company considers all highly liquid debt instruments and other short-term
          investments with an initial maturity of three months or less to be cash
          or cash
          equivalents.
 
 The
          Company does not maintain cash and cash equivalents with a financial institution
          that exceeds the limit of insurability under the Federal Deposit Insurance
          Corporation.
  **Revenue
          Recognition**
 
 The
          Company records its transactions under the accrual method of accounting
          where
          income is recognized when the services are rendered.
 
 **Fixed
          Assets**
 
 Furniture
          and equipment are stated at cost. Depreciation is computed using the
          straight-line method over the estimated useful lives of the assets. The
          costs
          associated with normal maintenance, repair, and refurbishment of equipment
          are
          charged to expense as incurred. The capitalized cost of equipment under
          capital
          leases is amortized over the lesser of the lease term or the asset’s estimated
          useful life, and is included in depreciation and amortization expense in
          the
          consolidated statements of operations.
 
 When
          assets are retired or otherwise disposed of, the costs and related accumulated
          depreciation are removed from the accounts, and any resulting gain or loss
          is
          recognized as income for the period. The cost of maintenance and repairs
          is
          charged to income as incurred; significant renewals and betterments are
          capitalized. Deductions are made for retirements resulting from renewals
          or
          betterments.
 
 F-9
 
 **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **Long-Lived
          Assets**
 
 The
          Company reviews its long-lived assets for impairment whenever events or
          changes
          in circumstances indicate that the carrying amount of an asset may not
          be
          recoverable.
 
 **Asset
          Impairment**
 
 Under
          SFAS 121 need to measure the impairment loss by the difference between
          the fair
          value of the assets and its carry value. The Company performs an impairment
          test
          on an asset group to be discontinued, or otherwise disposed of when management
          has committed to the action and the action is expected to be completed
          within
          one year. We estimate fair value to approximate the expected proceeds to
          be
          received, less transaction costs and compare it to the carrying value of
          the
          asset group. An impairment charge is recognized when the carrying value
          exceeds
          the estimated fair market value. When the estimated fair market value exceeds
          the carrying value of the asset group, gain is recognized upon disposal.
 
 **Foreclosed
          Assets**
 
 On
          June
          21, 2006, the Company filed with the Securities and Exchange Commission
          its
          quarterly report for the period ending March 31, 2006. In this filing,
          the
          Company disclosed that on May 8, 2006, the Company’s subsidiary dbsXmedia, Inc.
          (“dbsXmedia or “Debtor”) received a letter from Loral Skynet Network Services,
          Inc. (“Loral Skynet”), with the text of the letter included in the disclosure.
          The disclosed letter stated that Debtor was in default under that certain
          Security Agreement, dated as of April 21, 2005 (the "Security Agreement"),
          by
          and among Debtor, Loral Skynet, CyberStar, L.P. and CyberStar, LLC, granting
          a
          security interest in the Collateral there under (which includes all business
          television-related assets and receivables of dbsXmedia). dbsXmedia carried
          the
          fixed assets with a book value of $90,000 as of the date of this notice.
          In the
          letter, Loral Skynet requested that dbsXmedia send to Loral Skynet a signed,
          written statement of dbsXmedia’s objection to certain of its actions, to include
          foreclosure of the Collateral, within twenty (20) days of the date of the
          letter. If Loral Skynet had not received a signed, written objection from
          dbsXmedia within the prescribed time period, dbsXmedia would be deemed
          to have
          consented to the proposed actions by Loral Skynet and would have no further
          right to object thereto, and Loral Skynet would retain the Collateral in
          partial
          satisfaction of the Balance, as described in the letter. The Company’s
          subsidiary dbsXmedia did not send a written statement of objection to Loral
          Skynet by May 28, 2006 and, as a result, dbsXmedia was deemed to have consented
          to the actions proposed by Loral Skynet in its May 8, 2006 letter, has
          no
          further right to object thereto, and Loral Skynet was entitled to retain
          the
          Collateral in partial satisfaction of the Balance, as described in the
          letter.
          As of September 30, 2006 the company has written off all of the $90,000
          in
          assets attributed to this transaction.
  F-10
 **ARIEL
            WAY, INC., AND SUBSIDIARIES**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2006 AND 2005**
 The
          company has also determined that the value of the fixed assets in the UK
          and
          abandoned Frederick, MD office are subject to this foreclosure and those
          assets
          have been written off in the amount of $27,093 as of September 30,
          2006.
  An
            additional $26,338 of fixed assets were written-off in the year ended
            September
            30, 2006.
 
 **Property
          and Equipment**
 
 Property
          and equipment are stated at cost and depreciated using straight-line and
          accelerated methods over the following estimated useful lives of the assets:
 
 Computer
                    equipment
                3
                    -
                    5 yearsAutomobile
                3
                    -
                    5 yearsEquipment
                5
                    -
                    7 years
 
 Differences
          between the straight-line method of depreciation and the tax-accelerated
          method
          of depreciation are immaterial.
 
 **Goodwill
          and Other Intangible Assets**
 
 In
          June
          2001, the FASB issued Statement No. 142, “ *Goodwill
          and Other Intangible Asset* ”.
          This
          statement addresses financial accounting and reporting for acquired goodwill
          and
          other intangible assets and supersedes APB Opinion No. 17, Intangible Assets.
          It
          addresses how intangible assets that are acquired individually or with
          a group
          of other assets (but not those acquired in a business combination) should
          be
          accounted for in financial statements upon their acquisition. This Statement
          also addresses how goodwill and other intangible assets should be accounted
          for
          after they have been initially recognized in the financial statements.
  F-11
   **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          2-** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Income
          Taxes**
 
 The
          Company has adopted the provisions of Statement of Financial Accounting
          Standards (“SFAS”) No. 109, Accounting for Income Taxes. The Statement requires
          an asset and liability approach for financial accounting and reporting
          of income
          taxes, and the recognition of deferred tax assets and liabilities for the
          temporary differences between the financial reporting bases and tax bases
          of the
          Company’s assets and liabilities at enacted tax rates expected to be in effect
          when such amounts are realized or settled.
 
 **Use
          of Estimates**
 
 The
          preparation of financial statements in conformity with the accounting principles
          generally accepted in the Untied States of America requires management
          to make
          estimates and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of
          the financial statements, and the reported amounts of revenue and expenses
          during the reporting period. Actual results could differ from those estimates.
 
 **Reclassification**
 
 Certain
          amounts in the September 30, 2005 financial statements were reclassified
          to
          conform to the September 30, 2006 presentation.
  
  F-12
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          2-** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Recent
          Accounting Pronouncements**
 
 In
          May
          2005, the FASB issued SFAS No. 154, *Accounting
          Changes and Error Corrections* ,
          which
          replaces APB Opinion No. 20, *Accounting
          Changes* ,
          and
          FASB Statement No.3, *Reporting
          Accounting Changes in Interim Financial Statements* .
          This
          Statement replaces APB Opinion No. 20, *Accounting
          Changes,* and
          FASB
          Statement No. 3, *Reporting
          Accounting Changes in Interim Financial Statements,* and
          changes the requirements for the accounting for and reporting of a change
          in
          accounting principle. This Statement applies to all voluntary changes in
          accounting principle. It also applies to changes required by an accounting
          pronouncement in the unusual instance that the pronouncement does not include
          specific transition provisions. When a pronouncement includes specific
          transition provisions, those provisions should be followed. The Company
          does not
          anticipate that the implementation of this standard will have a material
          impact
          on its financial position, results of operations or cash flows.
 
 **Fair
          Value of Financial Instruments**
 
 The
          carrying amounts reported in the consolidated balance sheets for cash and
          cash
          equivalents, and accounts payable approximate fair value because of the
          immediate or short-term maturity of these financial instruments.
 
 **Marketing
          and Advertising Costs**
 
 The
          Company expenses the costs associated with marketing and advertising as
          incurred. Marketing, advertising and promotional expenses were approximately
          $24,915 and $85,748 for the years ended September 30, 2006 and 2005,
          respectively.
 
 **Accounts
          Receivable**
 
 The
          Company conducts business and extends credit based on an evaluation of
          the
          customers’ financial condition, generally without requiring collateral. Exposure
          to losses on receivables is expected to vary by customer due to the financial
          condition of each customer. The Company monitors exposure to credit losses
          and
          maintains allowances for anticipated losses considered necessary under
          the
          circumstances.
  Accounts
          receivable are generally due within 30 days and collateral is not required.
          The Company has made allowance of $268,026 for the doubtful accounts as
          of
          September 30, 2006.
 
 **Deferred
          Revenue**
 
 The
          Company’s balance sheet as of September 30, 2006 includes deferred revenue at
          $324,168. This relates to a pre-payment from a UK customer for services to
          be performed by the Company during calendar year 2006. The amount was
          recorded as deferred revenue and will be recognized monthly as earned.
 
 **Policy
          for Charging Bad Debt**
 
 The
          allowance for doubtful accounts is our estimate of the credit losses related
          to
          impaired receivables at the date of the financial statements. This allowance
          is
          based on factors including the credit quality of our customers and general
          economic measures. Additions to the allowance for doubtful accounts are
          made by
          recording charges to the bad debt expense account on our statement of income.
          Accounts receivable balances are charged to the allowance for doubtful
          accounts
          when an account is deemed to be uncollectible, taking into consideration
          the
          financial condition of the borrower, and other factors. Recoveries on accounts
          receivable balances previously charged off as uncollectible are credited
          to the
          allowance for doubtful accounts.
 
 F-13
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          2-** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Deferred
          Financing Fees**
 
 On
          September 30, 2004, Old Ariel Way entered into a 2004 Standby Equity
          Distribution Agreement with Cornell Capital. This agreement was terminated
          on
          July 20, 2005 and the Company entered into a new 2005 Standby Equity
          Distribution Agreement with Cornell Capital on July 21, 2005. In connection
          with
          the 2004 Standby Equity Distribution Agreement, Cornell Capital received
          a
          commitment fee in the form of 1,980,000 shares of Old Ariel Way common
          stock
          that were converted into an aggregate of 3,318,876 shares of our common
          stock as
          a result of our acquisition of Old Ariel Way on February 2, 2005. These
          shares
          were issued as payment for financing fees to Cornell Capital for issuing
          the
          2004 Standby Equity Distribution Agreement and was valued at $1,128,600.
          The
          2005 Standby Equity Distribution Agreement runs for a period of 24 months.
          The
          2005 Standby Equity Distribution Agreement was terminated on February 28,
          2006
          pursuant to an Investment Agreement by and between the Company and Cornell
          Capital and Montgomery Equity for the purchase of one hundred sixty (160)
          Series
          A Preferred Shares. The prior agreement was terminated and the financing
          fee was
          written off against Additional Paid-In Capital. All deferred financing
          fees were
          expensed in the year ended September 30, 2006.
 
 **Stock-Based
          Compensation**
  Prior
            to
            the January 1, 2006 adoption of the Financial Accounting Standards Board
            ("FASB") Statement No. 123(R), "Share-Based Payment" ("SFAS 123R"), the
            Company
            accounted for stock-based compensation using the intrinsic value method
            prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
            for Stock Issued to Employees," and related interpretations. As permitted
            by
            SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
            stock-based compensation was included as a pro forma disclosure.
 
 Effective
            January 1, 2006, the Company adopted the fair value recognition provisions
            of
            SFAS 123R, using the modified-prospective transition method. Under this
            transition method, stock-based compensation expense is recognized in
            the
            consolidated financial statements for granted, modified, or settled stock
            options. Compensation expense recognized included the estimated expense
            for
            stock options granted on and subsequent to January 1, 2006, based on
            the grant
            date fair value estimated in accordance with the provisions of SFAS 123R,
            and
            the estimated expense for the portion vesting in the period for options
            granted
            prior to, but not vested as of January 1, 2006, based on the grant date
            fair
            value estimated in accordance with the original provisions of SFAS 123.
            Results
            for prior periods have not been restated, as provided for under the
            modified-prospective method.
  The
            Company measures compensation expense for its non-employee stock-based
            compensation under the FASB Emerging Issues Task Force Issue No. 96-18,
            “Accounting for Equity Instruments ** that
            are
            Issued to Other Than Employees for Acquiring, or in Conjunction with
            Selling
            Goods or Services”. The fair value of the option issued is used to measure the
            transaction, as this is more reliable than the fair value of the services
            received. The fair value is measured at the value of the Company’s common stock
            on the date that the commitment for performance by the counterparty has
            been
            reached or the counterparty’s performance is complete. The fair value of the
            equity instrument is charged directly to compensation expense and additional
            paid-in capital.
  As
            of
            September 30, 2006 there was $2,091,754 of total compensation costs related
            to
            vested stock options and warrants. $568,109 was recognized in the year
            ended
            September 30, 2006 for the unvested stock options and warrants, leaving
            unrecognized compensation of $1,523,644 related to vested stock options
            and
            warrants. On
            December 31, 2005 the Company issued 3,000,000 warrants in connection
            with a
            settlement agreement with Loral Skynet and the fair market value of those
            warrants using the Black-Scholes pricing model was $115,823. In connection
            with
            the financing of a $600,000 promissory note on July 28, 2005, 1,000,000
            warrants
            were issued to Montgomery Equity. The fair market value of those warrants
            using
            the Black-Scholes pricing model was $22,606.
  The
            following table illustrates the effect on net income (loss) and earnings
            (loss)
            per share for the years ended September 30, 2006 and 2005 if the Company
            had
            applied the fair value recognition provisions of SFAS 123 (revised 2004)
            to
            stock-based employee compensation:
  **Year
                      ended September 30,****2006**
                  
                  **2005**Net
                      income (loss), as reported
                  
                  $
                  (3,623,144
                  )
                  $
                  (2,389,342
                  )Deduct:
                      Total stock-based employee compensationexpense
                      determined under fair value basedmethod
                      for all awards
                  
                  
                  -
                  
                  
                  (2,091,754
                  )Pro
                      forma net income (loss)
                  
                  $
                  (3,623,144
                  
                  $
                  (4,481,096
                  )Earnings
                      (loss) per share:As
                      reported:Basic
                  
                  $
                  (0.09
                  )
                  $
                  (0.13
                  )
 
 The
            fair
            value of each option or warrant grant on the date of grant is estimated
            using
            the Black-Scholes option-pricing model reflecting the following weighted
            average
            assumptions: Volatility, 90%; Expected Life of Warrants, 5 years; Risk Free
            Interest Rate, 3.9% to 4.27% ; and Dividend Yield, 0%. The weighted-average
            fair
            value of options granted during the year ended September
            30, 2006 was $0.15.
 F-14
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          2-** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Earnings
          (Loss) Per Share of Common Stock**
 
 Historical
          net income (loss) per common share is computed using the weighted average
          number
          of common shares outstanding. Diluted earnings per share (EPS) include
          additional dilution from common stock equivalents, such as stock issuable
          pursuant to the exercise of stock options and warrants. Common stock equivalents
          were not included in the computation of diluted earnings per share when
          the
          Company reported a loss because to do so would be antidilutive for periods
          presented.
 
 The
          following is a reconciliation of the computation for basic and diluted
          EPS:
 
 **Year
                    ended September 30,****2006**
                
                **2005**Net
                    loss
                
                $
                (3,623,144
                )
                $
                (2,389,342
                )Weighted-average
                    common sharesOutstanding
                    (Basic)
                
                
                38,383,682
                
                
                35,215,785Weighted-average
                    common stockEquivalentsStock
                    options
                
                
                -
                
                
                -Warrants
                
                
                -
                
                
                -Weighted-average
                    common sharesOutstanding
                    (Diluted)
                
                
                38,383,682
                
                
                35,215,785
 
 Options
          and warrants outstanding to purchase stock were not included in the computation
          of diluted EPS for September 30, 2006 and 2005 because inclusion would
          have been
          antidilutive.
 
 **Currency
          Risk and Foreign Currency Translation**
 
 The
          Company transacts business in currencies other than the U.S. Dollar, primarily
          the British Sterling Pound and the Euro Dollar. All currency transactions
          are
          undertaken in the spot foreign exchange market and the Company does not
          use
          currency forward contracts, currency options, currency borrowings interest
          rate
          swaps or any other derivative hedging strategy at this point in time. Foreign
          currency translation losses were immaterial during fiscal years ended September
          30, 2006 and 2005.
 
 **NOTE
          3-****EQUIPMENT**
 
 Property
                    and equipment at September 30, 2006 is as follows:**2006**Equipment
                
                $
                65,823Computers
                
                
                8,116Less:
                    accumulated depreciation
                
                
                (32,977
                )Net
                    equipment
                
                $
                40,962
 
 Depreciation
          expense for the years ended September 30, 2006 and 2005 was $22,504 and
          $12,398,
          respectively. Amortization of financing fees for the years ended September
          30,
          2006 and 2005 was $70,000 and $99,997 respectively.
 
 F-15
 
 **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          4-**  **DEBENTURE
          PAYABLE**
 
 The
          Company on September 30, 2004, issued a secured debenture to Cornell Capital,
          whereas the Company would receive $500,000, with a promise to pay to Cornell
          Capital the principal sum of $500,000 together with interest on the unpaid
          principal of this debenture at the rate of 5% per year from the date of
          the
          debenture until paid. The secured debenture was due on September 29, 2006
          and
          was secured by the Company’s stock. The $500,000 secured debenture was on
          February 28, 2006 converted pursuant to an Investment Agreement by and
          between
          the Company and Cornell Capital and Montgomery Equity to part of one hundred
          sixty (160) Series A Preferred Shares.
 
 **NOTE
          5-**  **PROMISSORY
          NOTES**
 
 The
          Company on February 2, 2005, borrowed $400,000 from Cornell Capital whereas
          the
          Company received the $400,000, with a promise to pay to Cornell Capital
          principal sum of $400,000 together with interest on the unpaid principal
          at the
          rate of 12% per annum and was due and payable on May 31, 2005 with an extension
          to February 28, 2006 and was secured by the Company’s stock. The $400,000 loan
          was on February 28, 2006 converted pursuant to an Investment Agreement
          by and
          between the Company and Cornell Capital and Montgomery Equity to part of
          one
          hundred sixty (160) Series A Preferred Shares.
 
 The
          Company on July 28, 2005, borrowed $600,000 from Montgomery Equity whereas
          the
          Company received the $600,000, with a promise to pay to Montgomery Equity
          the
          principal sum of $600,000 together with interest on the unpaid principal
          at the
          rate of 12% per annum and was due and payable on February 28, 2006 and
          was
          secured by the Company’s stock. The $600,000 loan was on February 28, 2006
          converted pursuant to an Investment Agreement by and between the Company
          and
          Cornell Capital and Montgomery Equity to part of one hundred sixty (160)
          Series
          A Preferred Shares.
 
 In
          May
          2005 the Company executed a promissory note in favor of a shareholder and
          employee in the amount of $70,000 with interest at 12% due on May 17, 2006.
          The
          loan was not paid when due and is in technical default. The Company has
          received
          a waiver from the shareholder regarding the default interest rate of the
          loan.
          The balance of the note as of September 30, 2006 is $59,312 consisting
          of
          principal and unpaid interest.
 
 In
          September, 2005 the Company executed a promissory note in favor of the
          Company’s
          Chief Executive Officer in the amount of $42,450 with 5% interest due and
          payable monthly in arrears, commencing on September 26, 2006 and shall
          continue
          on the first day of each calendar month thereafter that any amounts under
          this
          Debenture are due and payable. Principal shall be due and payable in 6
          equal
          installments of $7,041.74 each. The installments of principal shall be
          due and
          payable commencing on October 1, 2006 and subsequent installments shall
          be due
          and payable on the first day of each calendar month thereafter until the
          outstanding principal balance is paid in full. The loan was not paid when
          due
          and is in technical default. The balance of the note as of September 30,
          2006 is
          $15,346 consisting of principal and unpaid interest.
 
 F-16
 **ARIEL
            WAY, INC., AND SUBSIDIARIES**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2006 AND 2005**
 **NOTE
          6-** **COMMITMENTS
          AND CONTINGENCIES**
 
 **Commitments**
 
 On
          September 30, 2004, Old Ariel Way entered into a $50 million 2004 Standby
          Equity
          Distribution Agreement with Cornell Capital. This agreement was terminated
          on
          July 20, 2005 and the Company entered into a new 2005 Standby Equity
          Distribution Agreement with Cornell Capital on July 21, 2005. The 2005
          Standby
          Equity Distribution Agreement provides, generally, that Cornell will purchase
          up
          to $50 million of common stock over a two-year period, with the time and
          amount
          of such purchases, if any, at the Company’s discretion. Cornell will purchase
          the shares at a 4% discount to the prevailing market price of the common
          stock.
          There are certain conditions applicable to the Company’s ability to draw down on
          the 2005 Standby Equity Distribution Agreement including the filing and
          effectiveness of a registration statement covering the resale of all shares
          of
          common stock that may be issued to Cornell under the  2005 Standby Equity
          Distribution Agreement and the Company’s adherence with certain covenants. The
          registration statement has not yet become effective. In the year ended
          September
          30, 2005, the Company has not drawn down any funds under the 2005 Standby
          Equity
          Distribution Agreement from Cornell Capital. The 2005 Standby Equity
          Distribution Agreement was terminated on February 28, 2006 pursuant to
          an
          Investment Agreement by and between the Company and Cornell Capital and
          Montgomery Equity for the purchase of one hundred sixty (160) Series A
          Preferred
          Shares.
 
 **Operating
          Lease**
 
 The
          Company maintains an office in McLean Virginia, under a month to month
          lease
          obligation. As referenced in Note 9 Litigation/Legal proceedings, the Company
          was obligated under an operating lease for the Frederick premises for a
          period
          of 5 years. The leased premises were vacated and the entire amount of the
          obligation was recorded as the payment was accelerated under the lease
          term.
 
 Total
          rent expense during the years ended September 30, 2006 and 2005 was
          approximately $414,000 and $85,000, respectively.
 
 **Contingencies**
 
 At
          September 30, 2006, the following guarantees and indemnifications were
          issued
          and outstanding:
 
 On
          April
          21, 2005 the Company’s subsidiary completed a transaction with Loral Skynet in
          which the Company provided a $3,000,000 parental guarantee on behalf of
          dbsXmedia. The Company’s commitment was reduced on April 21, 2006 to $1,500,000
          and the guarantee will reduce to $0 on April 21, 2007. The Company is currently
          in default of this parental guarantee and is in the process of negotiating
          a
          settlement with Loral Skynet.
 
 On
          April
          21, 2006, the Company’s subsidiary dbsXmedia, Inc. received a letter with a
          Notice of Default pursuant to Teleport Service Agreement dated 21 April
          2005
          between dbsXmedia. Inc. ("dbsXmedia”) and Loral Skynet Network Services, Inc.
          ("Skynet") stating that dbsXmedia is currently in arrears with regard to
          payment
          for services rendered pursuant to the Agreement with Skynet in the amount
          of
          $540,112.50 (the "Current Outstanding Debt"). dbsXmedia’s failure to pay the
          Current Outstanding Debt constitutes a material default under Section 3(b)
          of
          the Agreement. The letter shall serve as written notice of payment past
          due and
          notice of a material default of the Agreement. Skynet demands that dbsXmedia
          effect immediate payment of the full mount of the Current Outstanding Debt.
          If
          dbsXmedia fails to pay the Current Outstanding Debt within three (3) business
          days of the date hereof, i.e., 5:00 P.M., EDT, Wednesday, 26 April, 2006,
          Skynet
          shall have the right to terminate the Agreement upon delivery of written
          notice.
          In such event, Skynet shall avail itself of all remedies to which it is
          entitled, including, but not limited to, the assessment and collection
          of
          termination charges pursuant to Section 3 (Term and Termination) of the
          Agreement. Moreover, by delivery of the notice and any action taken in
          connection herewith, Skynet does not waive its rights and remedies under
          the
          Agreement and any other agreements to which dbsXmedia and Skynet are parties,
          including without limitation the right to collect amounts owed by dbsXmedia
          to
          Skynet in addition to the amount set forth above.
  F-17
 **ARIEL
            WAY, INC., AND SUBSIDIARIES**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2006 AND 2005**
 On
          May 1,
          2006, the Company’s subsidiary dbsXmedia, Inc. received a letter from Loral
          Skynet stating: “Reference is hereby made to that certain Notice of Default
          Letter, dated 21 April 2006 (the "Notice of Default"), sent by Skynet to
          dbsXmedia declaring a material default by dbsXrnedia under Section 3.B.
          of the
          Agreement (i.e. failure to pay amounts due for services rendered pursuant
          to the
          Agreement). Be advised that dbsXmedia has not cured this material default
          within
          the prescribed period of time set forth in the Notice of Default. As a
          result,
          this letter hereby serves as a written notice of termination of the Agreement
          and that such termination shall be effective at 12 Noon, Eastern Standard
          Time,
          15 May 2006 (the "Termination Date"). Be further advised that Skynet intends
          to
          exercise any and all rights and remedies in respect of such default and
          termination available to Skynet under the Agreement, at law and/or in equity,
          all of which rights and remedies are hereby reserved by Skynet, including,
          without limitation, the right to: (a) assess and collect termination charges
          pursuant to Section 3 (Term and Termination) of the Agreement; and (b)
          collect
          amounts owed by dbsXmedia to Skynet in addition to the amount set forth
          in the
          Notice of Default.”
 
 On
          May 8,
          2006, the Company’s subsidiary dbsXmedia, Inc. received a letter from Loral
          Skynet stating: “ Debtor is in default under that certain Security Agreement,
          dated as of April 21,2005 (the "Agreement"), by and among Debtor, Secured
          Party,
          CyberStar, L.P. and CyberStar, ELC, granting a security interest in, among
          other
          things, the Collateral. The outstanding balance due from Debtor to Secured
          Party, as of the date hereof, is $2,620,842.50 (the "Balance").
 
 Secured
          Party hereby agrees to accept the Collateral in partial satisfaction of
          the
          Balance. Specifically, Secured Party shall accept the Equipment in satisfaction
          of $40,000 of the Balance and shall further reduce the Balance by $1 for
          each
          dollar that Secured Party recovers from your account debtors in connection
          with
          the AR. In addition, pursuant to Section 12 of the Agreement, Secured Party
          hereby requests that you send written notice to all account debtors and
          other
          persons obligated on any of the Customer Contracts (as defined in the Security
          Agreement) instructing that all future payments are to be made directly
          to
          Secured Party (to an account or financial institution named by Secured
          Party).
          If you fail to send such notices within thirty (30) days of the data hereof,
          the
          Secured Party shall prepare and send such notice on Debtor's behalf. If
          you have
          any objection to Secured Party's foregoing proposal, you must send Secured
          Party
          a signed, written statement of your objection within twenty (20) days of
          the
          date hereof. If Secured Party has not received a signed, written objection
          from
          you within the prescribed time period, you will be deemed to have consented
          to
          this proposal and will have no further right to object, and Secured Party
          will
          retain the Collateral in partial, satisfaction of the Balance, as described
          in
          this letter.
 
 Finally,
          by delivery of this letter and any action taken in connection therewith,
          Secured
          Party does not waive any of its rights or remedies under the Agreement
          and other
          agreements to which Debtor and Secured Party are parties, including, without
          limitation, the right to foreclose on additional collateral to satisfy
          a portion
          of the Balance.”
 
 As
          of
          January 12, 2007, the Company was not able to satisfy the funding of the
          settlement agreement to Loral Skynet. As a result, the Company is in default
          of
          the agreement and does not have the ability to fulfill the payment of $200,000
          to Loral Skynet. Loral Skynet has not advised the Company of its intentions
          regarding this default. Loral Skynet may enforce its full rights and the
          Company
          may be forced into liquidation in the event the settlement is not satisfied.
 
 F-18
 
 **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          7-** **STOCKHOLDERS’
          EQUITY (DEFICIT)**
 
 **Preferred
          Stock**
 
 The
          Company has 5,000,000 shares of preferred stock authorized, at $0.001 par
          value
          per share, of which 160 shares of Ariel Way Series A Convertible Preferred
          Stock
          (“Series A Preferred Shares”) were outstanding as of September 30, 2006.
 
 The
          Company filed on March 6, 2006 with the Florida Secretary of State a Certificate
          of Designation providing the terms and conditions of the authorization
          of 165
          shares of Ariel Way Series A Convertible Preferred Stock (“Series A Preferred
          Shares”).
 
 The
          Holders of Series A Preferred Shares shall be entitled to receive dividends
          or
          distributions on a pro rata basis according to their holdings of shares
          of
          Series A Preferred Shares when and if declared by the Board of Directors
          of the
          Company in the amount of five (5.0%) percent per year. Dividends shall
          be paid
          in cash. Dividends shall be cumulative. No cash dividends or distributions
          shall
          be declared or paid or set apart for payment on the Common Stock in any
          calendar
          year unless cash dividends or distributions on the Series A Preferred Stock
          for
          such calendar year are likewise declared and paid or set apart for payment.
          No
          declared and unpaid dividends shall bear or accrue interest.
 
 Upon
          any
          liquidation, dissolution, or winding up of the Company, whether voluntary
          or
          involuntary (collectively, a “Liquidation”), before any distribution or payment
          shall be made to any of the holders of Common Stock or any series of Preferred
          Shares, the holders of Series A Preferred Shares shall be entitled to receive
          out of the assets of the Company, whether such assets are capital, surplus
          or
          earnings, an amount equal to $10,031 per share of Series A Preferred Shares
          (the
“Liquidation Amount”) plus all declared and unpaid dividends thereon, for each
          share of Series A Preferred Shares held by them.
  If,
          upon
          any Liquidation, the assets of the Company shall be insufficient to pay
          the
          Liquidation Amount, together with declared and unpaid dividends thereon,
          in full
          to all holders of Series A Preferred Shares, then the entire net assets
          of the
          Corporation shall be distributed among the holders of the Series A Preferred
          Shares, ratably in proportion to the full amounts to which they would otherwise
          be respectively entitled and such distributions may be made in cash or
          in
          property taken at its fair value (as determined in good faith by the Company’s
          Board of Directors), or both, at the election of the Company’s Board of
          Directors.
  The
          Series A Preferred Shares shall have registration rights pursuant to a
          certain
          Investor’s Registration Rights Agreement dated the February 28, 2006.
 
 In
          lieu
          of payment on the Maturity Date as outlined herein the Holders of Series
          A
          Preferred Shares shall have sole right and in their discretion to elect
          conversion pursuant to the conversion rights, at any time and from time
          to time
          at their sole discretion, as follow (the "Conversion Rights"):
 
 (a)
            Each share of Series A Preferred Shares shall be convertible, at the
          option of the holder thereof, at any time after the date of issuance of
          such
          share, at the office of the Company’s transfer agent, pursuant to the
          Irrevocable Transfer Agent Instructions dated the date hereof, for the
          Series A
          Preferred Stock into such number of fully paid and non-assessable shares
          of
          Common Stock equal to the quotient of the Liquidation Amount divided by
          the
          Conversion Price. The Conversion Price shall be equal to, the lesser of
          at the
          option of the Buyers either: i) Ten Cents ($0.10) or ii) ninety five percent
          (95%) of the lowest volume weighted average price of the Common Stock for
          the
          twenty (20) trading days immediately preceding the date of conversion,
          as quoted
          Bloomberg LP.
 
 (b)
            At the Option of the Holders, if there are outstanding Series A Preferred
          Shares on February 28, 2008, each share of Series A Preferred Stock shall
          convert into shares of Common Stock at the Conversion Price then in effect
          on
          February 28, 2008.
 
 (c)
            Each share of Series A Preferred Shares automatically shall convert into
          shares of Common Stock at the Conversion Price then in effect immediately
          upon
          the consummation of the occurrence of a stock acquisition, merger, consolidation
          or reorganization of the Company into or with another entity through one
          or a
          series of related transactions, or the sale, transfer or lease (but not
          including a transfer by pledge or mortgage to a bona fide lender) of all or
          substantially all of the assets of the Company.
  F-19
 **ARIEL
            WAY, INC., AND SUBSIDIARIES**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2006 AND 2005**
 The
          Conversion Price of the Series A Preferred Shares as described above shall
          be
          adjusted from time to time pursuant to the terms and conditions of the
          Ariel Way
          Series A Convertible Preferred Stock.
 No
          holder
          of the shares of Series A Preferred Shares shall be entitled to convert
          the
          Series A Preferred Shares to the extent, but only to the extent, that such
          conversion would, upon giving effect to such conversion, cause the aggregate
          number of shares of Common Stock beneficially owned by such holder to exceed
          4.99% of the outstanding shares of Common Stock following such conversion
          (which
          provision may be waived by such Holder by written notice from such holder
          to the
          Company, which notice shall be effective sixty one (61) days after the
          date of
          such notice).
 
 On
          February 28, 2006, the Company pursuant to an Investment Agreement by and
          between Ariel Way, Inc. and Cornell Capital and Montgomery Equity (collectively
          referred to as the “Buyers”), Ariel Way sold and issued to the Buyers one
          hundred sixty (160) Series A Preferred Shares for a consideration consisting
          solely of the surrender of certain Prior Securities.
 
 On
          December 27, 2006, the Company received a conversion notice from Cornell
          Capital
          requesting the conversion of a quarter (1/4) of a Series A Convertible
          Preferred
          Share, or the sum of $2,508, representing the conversion under the terms
          of the
          Certificate of Designation dated February 28, 2006, into 1,649,842 shares
          of its
          common stock at a conversion price of $0.00152 per share.
 
 **Common
          Stock**
 
 As
          of
          September 30, 2006, the Company had 245,000,000 shares of common stock
          authorized at $0.001 par value per share, and 38,386,943 issued and outstanding.
 
 The
          following describes the common stock transactions for the fiscal year ended
          September 30, 2006:
 
 On
          October 12, 2005, the Company issued 100,000 shares of the Company’s common
          stock to MarketLink Technologies, L.L.C. pursuant to a settlement agreement
          between the Company and MarketLink Technologies, L.L.C. related to Enfotec,
          Inc.
          liabilities dated September 9, 2005. The Enfotec liabilities were accrued
          during
          year 2004 before the Company acquired Enfotec and the Company agreed, as
          part of
          the stock purchase agreement on September 30, 2004, to assume this liability.
          The value per share at the time the shares were issued was $0.03 per share
          which
          was the closing price as of October 12, 2005. As part of the settlement
          MarketLink received 100,000 shares of the Company’s common stock and to receive
          three payments at $7,500 each over three months with payments made on September
          09, 2005, and October 13, 2005. The third payment on November 13, 2005
          has been
          withheld pending additional funding to the Company, and is still owed.
          Upon
          MarketLink’s receipt of the last payment of $7,500, the Company will receive a
          full general release. The amount of liability that will be extinguished
          is
          approximately $25,500. The Company believes the issuance of the stock to
          be
          exempt from registration under Section 4(2) of the Securities Act of
          1933.
 
 F-20
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          9-** **LITIGATION/
          LEGAL PROCEEDINGS**
 
 During
          the quarter ended June 30, 2006, dbsXmedia, Inc. was notified that as a
          result
          of its vacating of the premises in its Frederick, MD office and the ceasing
          of
          operations at that site, the landlord had filed suit to collect the rent
          for
          three months under the default provisions of the lease. The lease term
          expires
          in April 2010, with a remaining balance of approximately $264,000, which
          may be
          accelerated due to the default of the lease agreement. The ultimate conclusion
          of this assessment is not determinable at this time and the entire balance
          has
          been accrued in the financial statements for the period ending September
          30,
          2006. The lease is personally guaranteed by the former President of dbsXmedia,
          Inc.
 
 **NOTE
          10-** **PROVISION
          FOR INCOME TAXES** ****
 
 Income
          taxes are provided for the tax effects of transactions reported in the
          financial
          statements and consist of taxes currently due. Deferred taxes related to
          differences between the basis of assets and liabilities for financial and
          income
          tax reporting will either be taxable or deductible when the assets or
          liabilities are recovered or settled. The difference between the basis
          of assets
          and liabilities for financial and income tax reporting are not material
          therefore, the provision for income taxes from operations consist of income
          taxes currently payable.
 
 There
          were no provisions for income taxes for the period ended September 30,
          2006.
 Due
          to
          substantial financial constraints, the Company has not completed the filing
          of
          its corporate income tax returns for the years ended September 30, 2006,
          2005
          and 2004. The Company intends to complete the filing of these returns upon
          receipt of funding. Management believes there is no tax liability due to
          the
          losses incurred for the period of non-filing.
 
 At
          September 30, 2006, deferred tax assets approximated the following:
 
 Deferred
                    tax assets
                
                $
                2,446,303Valuation
                    for deferred asset
                
                
                (2,446,303
                )Net
                    deferred tax assets
                
                $
                -
 
 At
          September 30, 2006, the Company had accumulated deficits of $6,115,759,
          available to offset future taxable income through 2026. The Company established
          valuation allowances equal to the full amount of the deferred tax assets
          due to
          the uncertainty of the utilization of the operating losses in the future
          period.
 
 **NOTE
          11-** **GOING
          CONCERN** ****
 
 The
          Company and its Subsidiaries’ consolidated financial statements have been
          prepared on the basis that it will continue as a going concern, which
          contemplates the realization of asset values and the satisfaction of liabilities
          in the normal course of business. Certain conditions indicate that the
          Company
          may be unable to continue as a going concern:
  -
            The
            Company reported net losses of $3,623,144 and $2,389,342 for the years
            ended
            September 30, 2006 and 2005, respectively.
 
 -
            Net
            cash used by the Company's operating activities was $169,470 and $1,081,254
            for
            the years ended September 30, 2006 and 2005, respectively.
 
 -
            At
            September 30, 2006, stockholder's equity (deficit) was ($3,149,820) and
            included
            an accumulated deficit of ($6,115,759).
 -
          At
          September 30, 2006 there was working capital deficit of $3,190,782. The
          Company
          is unable to satisfy its current debt obligations and is in default on
          its notes
          payable.
  F-21
 **ARIEL
            WAY, INC., AND SUBSIDIARIES**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2006 AND 2005**
 -
          The
          Company had gross margins of $35,290 and negative $70,881 for the years
          ended
          September 30, 2006 and 2005, respectively.
 
 The
          Company will require additional funding to cover expected negative cash
          flows
          until end fiscal year 2006.
 
 The
          Company's ability to continue as a going concern is dependent upon increasing
          its revenues and gross profit margins to cover cost of services and other
          operating expenses, generating positive cash flows from operations, obtaining
          debt or equity capital to fund expected negative operating cash flows and
          returning the Company to profitable operations. In this connection, the
          Company
          has adopted the following operating and management plans to in order to
          provide
          positive cash flow from operations:
 
 -
          Raise
          additional capital.
  -
          Expand
          and develop its Business TV business with existing customer base and additional
          contract for new services.
  -
          Continue to develop and expand its digital signage business through targeted
          marketing initiatives in both the US and Europe.
  -
          Continue overall cost and expense control and adoption of efficient service
          and
          equipment roll-out approaches resulting in improved gross profits and reduced
          operating expenses.
  -
          Expand
          operation and revenue base through an aggressive acquisition program of
          profitable companies with operation and services with synergy to its current
          operation.
 
 F-22
  **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
  -
          Develop
          strategic partnerships with major companies in the area of secure wireless
          communications supporting the Company’s strategy. This strategic initiative is
          believed to provide increased revenues and result in reduced operating
          expenses.
  -
          Develop
          strategic partnerships with major companies providing content and advertising
          services for the Company’s digital signage operation roll-out.
  -
          Negotiate with creditors including Cornell Capital in order to convert
          current
          debt to equity to significantly improve the Company’s working capital deficit.
 
 Although
          the results of these actions cannot be predicted with certainty, management
          believes that if the Company can continue to increase its revenues and
          gross
          profit margins, reduce expenses, and can obtain additional debt or equity
          financing to fund the negative cash flow from operations in 2006, the Company
          has the ability ultimately to return to profitability.
 
 F-23
 
 **ARIEL
          WAY, INC., AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **NOTE
          13-****SUBSEQUENT
          EVENTS**
 
 On
          October 19 the Company filed with Florida Division of Corporations an amendment
          of its Articles of Incorporation to increase the total number of authorized
          shares of its capital stock from 250,000,000 shares, consisting of 245,000,000
          shares of its common stock and 5,000,000 shares of “blank check” preferred
          stock, to 600,000,000, consisting of 595,000,000 shares of its common stock
          and
          5,000,000 shares of “blank check” preferred stock. On October 23, 2006 the
          Company received a confirmation that the amendment of our Articles of
          Incorporation had been accepted by Florida Division of
          Corporations.
 
 On
          December 27, 2006, the Company received a conversion notice from Cornell
          Capital
          requesting the conversion of a quarter (1/4) of a Series A Convertible
          Preferred
          Share, or the sum of $2,508, representing the conversion under the terms
          of the
          Certificate of Designation dated February 28, 2006, into 1,649,842 shares
          of its
          common stock at a conversion price of $0.00152 per share.
 
 F-24
 
 **Item
          8. Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure**
 
 Not
          applicable.
 
 **Item
          8A. Controls and Procedures**
 
 Evaluation
          of Disclosure Controls and Procedures:
 
 We
          maintain disclosure controls and procedures that are designed to ensure
          that
          information required to be disclosed in our Exchange Act reports is recorded,
          processed, summarized and reported within the time periods specified in
          the
          SEC’s rules and forms, and that such information is accumulated and communicated
          to our management, including our chief executive officer and chief financial
          officer, as appropriate, to allow timely decisions regarding required
          disclosure. In designing and evaluating the disclosure controls and procedures,
          they are designed to provide reasonable assurance of achieving the objectives.
 
 Changes
          in Internal Controls:
  Subsequent
          to the evaluation as of September 30, 2006, and after subsequent additional
          evaluation during the months of November, 2006 and December, 2006, the
          Company’s
          Chief Executive Officer and Chief Financial Officer concluded that, the
          Company’s disclosure controls and procedures were effective to ensure that
          information required to be included in the Company’s periodic SEC filings is
          recorded, processed, summarized, and reported within the time periods specified
          in the SEC rules and forms.
 
 **Item
          8B. Other Information**
 
 Not
          applicable.
 30
 
 **PART
          III**
 
 **Item
          9. Directors and Executive Officers of the Registrant**
 
 **MANAGEMENT**
 
 Our
          directors and executive officers and their ages as of January 12, 2007
          are as
          follows:
 
 **Name**
                
                **Age**
                
                **Position**Arne
                    Dunhem
                
                56
                
                President,
                    Chief Executive Officer and Chairman of the BoardLeif
                    T. Carlsson
                
                64
                
                Director
 
 The
          following is a description of the background of our directors and executive
          officers.
 
 **Background
          Information**
 
 ***Arne
          Dunhem.*** Mr.
          Arne
          Dunhem, has served as our Chairman, President and Chief Executive Officer
          since
          February 2, 2005 and was the Chairman, President and Chief Executive Officer
          of
          Old Ariel Way from the founding of Old Ariel Way on February 10, 2004.
          Mr.
          Dunhem has over thirty years of executive management and engineering experience
          with large complex multinational corporations, large international organizations
          as well as early stage technology companies. He has over the years been
          instrumental in arranging more than $300 million in investor and vendor
          financing commitments and is knowledgeable in international business, finance,
          management, information systems, network operations and engineering for
          both
          publicly traded and privately held corporations. Between February 2004
          and
          February 2, 2005, Mr. Dunhem was the Chairman, President and CEO of Old
          Ariel
          Way, a company focused on the build-up of a publicly traded highly secure
          global
          communications solutions and technology company headquartered in the
          metropolitan Washington, D.C. area, USA. Between December 2003 and February
          2004, Mr. Dunhem was a consultant providing executive management and merger
          and
          acquisition support services. Between January 2002 and November 2003, Mr.
          Dunhem
          was the Chairman, President and CEO of MobilePro Corp., a publicly traded
          technology company in Rockville, MD. He was instrumental in merging the
          private
          Neoreach, Inc., a development stage company developing third generation
          wireless
          modem and semiconductor systems, with the publicly traded MobilePro Corp.
          Between July 2001 and January 2002 Mr. Dunhem was working as a strategic
          business consultant and was in January 2002 hired by Neoreach, Inc. as
          its
          President & CEO. Mr. Dunhem was between November 1998 and June 2001 the
          Chairman & CEO of erbia, Inc., a U.S. domestic long-distance communications
          company which he led from its start-up phase through the sale of the operation
          to a U.S. publicly traded company. Prior to 2000, he was working between
          January
          1998 and October 1998 as a strategic business consultant for various private
          companies. Between July 1993 and September 1997 he was the Chairman of
          Tele8
          Kontakt AB, a Swedish nationwide start-up cell-phone operator and also
          between
          January 1993 and December 1997 the Chairman of Nordiska Tele8 AB of Sweden,
          an
          international long distance and local telephone services company. He took
          the
          company from its start-up phase through full operation and eventually the
          sale
          of both companies. Between May 1991 and January 1993 Mr. Dunhem was the
          President for CruiseComm, a company developing high-speed satellite
          communications for voice and data for large passenger cruise ships sailing
          in
          the Baltic Sea, the Mediterranean and in the Caribbean. Between September
          1989
          and April 1991 Mr. Dunhem was the Executive Vice President, Engineering
&
Operations of Comvik Skyport AB, a Swedish telecommunications company providing
          satellite and data communications services, now the European Tele2
          telecommunications operator. During the period September 1978 through July
          1989
          Mr. Dunhem was with INTELSAT, Washington, D.C., an international satellite
          communications organization in a capacity growing from staff engineer to
          program
          manager where he had responsibilities for building-up some of the largest
          command, control and monitoring networks. He previously was with the Saab-Scania
          Aerospace Corporation and the Swedish Telecom. Mr. Dunhem earned his M.S.
          in
          1974 in space telecommunications from Chalmers University of Technology,
          Sweden.
          Mr. Dunhem is the Chairman of the Swedish Lutheran Church of Washington,
          D.C.,
          is active with several community organizations, is the founder of a
          Swedish-American Community Center in Washington, D.C. and has over many
          years
          been active with the Boy Scouts of America. Mr. Dunhem is a U.S. citizen
          and has
          lived in the Washington, D. C. area since 1978.
  31
 
 ***Leif
          T. Carlsson***.
          Mr. Carlsson, who since February 2, 2005 has served as an independent
          Director of our Board and has served on Old Ariel Way’s Board since October 11,
          2004, is a senior European executive who since 2003 has been working with
          Arrow
          Capital, a European Venture Capital firm based in Stockholm, Sweden. Mr.
          Carlsson has over the years been a President & CEO of a number of European
          corporations including during 2001 through 2002 with Scanfood AB, currently
          part
          of Swedish Meats AB. Prior to 2000, Mr. Carlsson worked during 1992 through
          2000
          with Scandic Hotels Europe AB, currently part of the global Hilton Hotel-Group;
          during 1990 through 1992 with FFV Aerotech AB and FFV Aerotech Ltd, currently
          part of the Saab Group and FL Schmidt; during 1988 through 1990 with the
          Kinnevik AB Group establishing Comvik Skyport/TELE2; and during 1974 through
          1988 with the Nobel Industries AB, now AkzoNobel for several of their
          corporations. Comvik Skyport/TELE2 became in 1990 the second only private
          telecommunications company in Europe while telecommunications services
          in Europe
          were still dominated by government monopolies. Mr. Carlsson has been the
          executive****for
          a
          number of companies in several different countries including the U.S.,
          the U.K.,
          Sweden and in Asia and has also been on several different Board of Directors
          including IAHI, International Association of Holiday Inns, Inc., and Tele8,
          an
          American telecommunications operator active in Europe. Mr. Carlsson has
          through
          his corporate career been active on a global basis and has experience in
          the
          European corporate world. With his base out of Europe and with his European
          experience, Mr. Carlsson will assist us if we proceed with the corporate
          strategy to establish European and other overseas operations. Mr. Carlsson
          earned his M.S. degree in 1969 in Civil Engineering from Chalmers University
          of
          Technology, Sweden and has completed several graduate studies in corporate
          finance, national economy and legal studies from the University of Uppsala,
          Sweden. Mr. Carlsson is a Swedish citizen and lives in Stockholm, Sweden.
 
 **Committees
          of the Board**
 
 The
          Board
          has four (4) standing committees: the Audit & Finance Committee, the
          Compensation Committee, the Governance Committee, and the Financing and
          M&A
          Committee. The functions of each of these committees and their members
          are
          specified below. The Board has determined that each director who serves
          on these
          committees, except for the Financing and M&A Committee, is “independent” as
          defined in Nasdaq Rule 4200(a)(15). All Committees of the Board have current
          vacancies and it is the intent of the Board to recruit at earliest opportunity
          additional directors of the Board.
 
 The
          members of the committees are identified in the following table.
 
 **Director**
                
                **Audit
                    and Finance**
                  **Committee**
                
                **Compensation**
                  **Committee**
                
                **Governance**
                  **Committee**
                
                **Financing
                    and M&A Committee**Leif
                    T. Carlsson
                
                Chair
                
                Chair
                
                Chair
                
                YesArne
                    Dunhem
                
                No
                
                No
                
                No
                
                Chair
 
 The
          Audit
          and Finance Committee is currently comprised of Mr. Carlsson and has vacancies.
          The Board has determined that one or more other members of the Audit and
          Finance
          Committee need to meet the definition of “audit committee financial expert” as
          defined by SEC regulations. The Audit and Finance Committee assists the
          Board in
          its oversight of our financial accounting, reporting and controls by meeting
          with members of management and our independent auditors. The committee
          has the
          responsibility to review our annual audited financial statements, and meets
          with
          management and the independent auditors at the end of each quarter to review
          the
          quarterly financial results. In addition, the committee considers and approves
          the employment of, and approves the fee arrangements with, independent
          auditors
          for audit and other functions. The Audit and Finance Committee reviews
          our
          accounting policies and internal controls. The Audit and Finance Committee
          has a
          written charter which was adopted on February 2, 2005.
 
 The
          Compensation Committee is currently comprised of Mr. Carlsson and has vacancies.
          The Compensation Committee recommends cash-based and stock compensation
          for
          executive officers of Ariel Way, administers the company’s stock option and
          makes recommendations to the Board regarding such matters. The Compensation
          Committee has a written charter which was adopted on February 2, 2005.
  The
          Governance Committee is currently comprised of Mr. Carlsson and has vacancies.
          The Governance Committee is entrusted with responsibility for consideration
          and
          review of corporate governance matters in addition to its responsibilities
          for
          nominating candidates for membership to the Board. The Nominating and Governance
          Committee has a written charter which was adopted on February 2, 2005.
 
 The
          Financing and M&A Committee is currently comprised of Messrs. Carlsson and
          Dunhem and has vacancies. The Financing and M&A Committee is entrusted with
          responsibility to assist the Board in carrying out its oversight
          responsibilities relating to certain financial matters affecting the Company.
          The Committee will have the authority to take all actions on behalf of
          the Board
          as the Committee or its Chairperson may from time to time determine to
          be
          consistent with its purpose and the Charter for the Committee. The Financing
          and
          M&A Committee has a written charter which was adopted on February 2,
          2005.
 
 32
 
 **Item
          10. Executive Compensation**
 
 **Executive
          Compensation**
 
 ***Summary
          Compensation Table*** .
          The
          following table sets forth the annual and long-term compensation for services
          in
          all capacities for the fiscal years ended September 30, 2006, 2005 and
          2004,
          paid to our most highly compensated executive officers. No officer earned
          over
          $100,000 in such fiscal year. We had no written employment contract with
          Mr.
          Elliot Krasnow who was the Chief Executive Officer from the inception of
          the
          Company until February 2, 2005. Mr. Arne Dunhem became the Chief Executive
          Officer, President and Chairman on February 2, 2005. We had no written
          employment agreement with Mr. Dunhem during the fiscal year ended September
          30,
          2006.
 
 **Summary
          Compensation Table**
 **Annual
                    Compensation**
                
                **Long
                    Term Compensation****Awards**
                
                **Payouts****Securities****Underlying****Other**
                
                
                
                **Options****Annual**
                
                **Warrant**
                
                **LTIP**
                
                **All
                    Other****Year**
                
                **Salary**
                
                **Bonus**
                
                **Compensation**
                
                **Award(s)**
                
                **Payouts
                    ($)**
                
                **Compensation**Elliot
                    Krasnow
                
                
                2006
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                $
                -(Until
                    February 2, 2005) Chief Executive Officer
                
                
                2005
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                $
                -2004
                
                $
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                $
                -Arne
                    Dunhem
                
                
                2006
                
                $
                -
                
                
                -
                
                $
                55,000
                
                $
                190,349
                
                
                -
                
                $
                -(After
                    February 2, 2005) Chief Executive Officer,
                
                
                2005
                
                $
                -
                
                
                -
                
                $
                15,000
                
                
                -
                
                
                -
                
                $
                -President
                    and Chairman
                
                
                2004
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                
                -
                
                $
                -Anand
                    Kumar
                
                
                2006
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                
                -
                
                $
                -(From
                    February 2, 2005 through November, 2005) Executive Vice President
                
                
                2005
                
                $
                -
                
                
                -
                
                $
                14,490
                
                
                -
                
                
                -
                
                $
                -(Director
                    from February 2, 2005 through June 6, 2005)
                
                
                2004
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                
                -
                
                $
                -Voula
                    Kanellias
                
                
                2006
                
                $
                -
                
                
                -
                
                $
                30,000
                
                
                -
                
                
                -
                
                $
                -(From
                    February 2, 2005 through April, 2006) Chief Financial Officer
                
                
                2005
                
                $
                -
                
                
                -
                
                $
                29,980
                
                
                -
                
                
                -
                
                $
                -2004
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                
                -
                
                $
                -
  
 (1)
                Mr.
                    Dunhem, Mr. Kumar, and Ms. Kanellias each joined Ariel Way during
                    the
                    Fiscal Year ended September 30, 2005. No formal employment agreements
                    have
                    yet been provided besides a right to be granted warrants as described
                    below. As of January 12, 2007 Mr. Kumar, and Ms. Kanellias are
                    no longer
                    with the Company.(2)
                The
                    amounts listed represent the fair market value of the stock on
                    the date of
                    grant.(3)
                As
                    a result of the Netfran Stock Exchange Agreement dated February
                    2, 2005,
                    all issued and outstanding warrants to purchase shares of Old
                    Ariel Way
                    Stock were exchanged for warrants to purchase shares of our common
                    stock,
                    at a ratio of 1.6762 shares of our common stock for each share
                    of Ariel
                    Way Stock, and the exercise price of each such warrant was adjusted
                    to
                    equal the existing exercise price divided by 1.6762.(4)
                Mr.
                    Dunhem, Mr. Kumar, and Ms. Kanellias each received during 2004
                    Old Ariel
                    Way Warrant Agreements to receive a right to warrants of Old
                    Ariel Way
                    common stock. As a result of the Netfran Stock Exchange Agreement
                    consummated February 2, 2005, warrants to acquire Old Ariel Way
                    common
                    stock were exchanged to warrants of our common stock. Mr. Dunhem,
                    Mr.
                    Kumar, and Ms. Kanellias each after an amendment dated March
                    21, 2005 to
                    their respective year 2004 Old Ariel Way Warrant Agreements and
                    after the
                    warrant exchange received warrants to purchase 1,150,000 shares
                    of our
                    common stock at an exercise price of $0.010 per share (the “Warrant
                    Shares”) to vest as follows: (i) 60,000 Warrant Shares shall vest
                    monthly each month after February 2, 2005 during the term of
                    an agreement
                    or immediately if their involvement with our Company is terminated
                    without
                    cause or for good reason or due to a change in control, sale
                    of a majority
                    of our common stock or substantially all of the assets of the
                    Company or
                    merger of the Company into or with another company (unless such
                    company is
                    less than fifty percent (50%) of the size (measured by market
                    value) of
                    the Company) or reverse merger with another company; and (ii)
                    430,000
                    Warrant Shares will vest immediately upon the Company achieving
                    a $20
                    million market cap for ten (10) consecutive trading days and a price
                    per share of not less than $0.50. As of January 12, 2007 Mr.
                    Kumar, and
                    Ms. Kanellias are no longer with the Company.
 
 33
 
 **Option/SAR
          Grants in Last Fiscal Year**
 **(Individual
          Grants)**
 
 **Name**
                
                **Number
                    of Securities Underlying Options/SARs Granted**
                
                **Percent
                    of Total Options/SARs Granted to Employees In Fiscal
                    Year**
                
                **Exercise
                    of Base Price ($/Sh)**
                
                **Expiration
                    Date**Arne
                    Dunhem (1)
                
                
                1,150,000
                    and 2,000,000
                
                
                N/A
                
                $
                0.01
                    and $0.025
                
                
                3/20/2015
                    and 9/25/2015Anand
                    Kumar (1)
                
                
                600,000
                
                
                N/A
                
                $
                0.01
                
                
                3/20/2015Voula
                    Kanellias (1)
                
                
                720,000
                
                
                N/A
                
                $
                0.01
                
                
                3/20/2015
  (1)
            The vesting provisions of each of the above listed options or warrants
            are
            provided above.
 
 **Aggregated
          Option Exercises In Last Fiscal Year And Fiscal**
 **Year-End
          Option Values**
 
 The
          following table sets forth certain information concerning the number and
          value
          of securities underlying exercisable and unexercisable stock options and
          warrants as of the fiscal year ended September 30, 2006 by our executive
          officers listed in the Summary Compensation Table above.
 
 **Name**
                
                **Number
                    of**
                  **Shares**
                  **Acquired
                    on**
                  **Exercise**
                
                **Value**
                  **Realized**
                
                **Number
                    of Securities**
                  **Underlying
                    Unexercised**
                  **Options
                    at**
                  **September
                    30, 2006****(1)**
                  **Exercisable/Unexercisable**
                
                **Value
                    of Unexercised**
                  **In-the-Money
                    Options at**
                  **September
                    30, 2006****(1)**
                  **Exercisable/Unexercisable**Arne
                    Dunhem
                
                
                -
                
                $
                -
                
                
                1,720,000
                    /1,430,000
                
                $
                0
                    / $0Anand
                    Kumar
                
                
                -
                
                $
                -
                
                
                600,000
                    /0
                
                $
                0
                    / $0Voula
                    Kanellias
                
                
                -
                
                $
                -
                
                
                720,000
                    /0
                
                $
                0
                    / $0
 
 (1)
                The
                    value of unexercised in-the-money options at fiscal year end
                    is calculated
                    using the last sale price of $0.006 per share as of September
                    30, 2006,
                    the last trading day of fiscal year 2006 as reported on the OTC
                    Bulletin
                    Board, less the applicable exercise price.
 
 34
  **Compensation
          of Directors**
 
 We
          have
          an arrangement pursuant to which our independent Directors are compensated
          for
          services provided as Directors. In addition to an individual grant of warrants
          to purchase shares of our common stock in connection with the Director’s
          agreement to serve on our Board of Directors, we also compensate the independent
          Directors for each Board meeting attended with $500 in cash. The Board
          will
          review compensation arrangements for subsequent years.
 
 On
          August
          22, 2005, in connection with his agreement to serve on our Board of Directors,
          we granted Mr. Leif T. Carlsson a warrant to purchase 1,600,000 shares
          of our
          common stock, at an exercise price of $0.025 per share. This Warrant shall
          vest
          as follows: (i)  533,333 Warrant Shares shall vest immediately on August
          22, 2005; and (ii) 44,444 Warrant Shares shall vest monthly each of the
          first Twenty Four (24) months during Mr. Carlsson’s engagement as a Director on
          the Company’s Board of Directors or immediately if Mr. Carlsson’s engagement as
          a Director is terminated without cause or for good reason or due to a change
          in
          control, sale of a majority of the common stock or substantially all of
          the
          assets of the Company or merger of the Company into or with another company
          (unless such company is less than fifty percent (50%) of the size (measured
          by
          market value) of the Company) or reverse merger with another company. When
          Mr.
          Carlsson in September, 2004, joined the Board of Directors of Old Ariel
          Way, he
          was granted 180,000 options to purchase shares of Old Ariel Way common
          stock,
          which vested on October 11, 2004 and had an exercise price of $0.125 per
          share.
          These options were on February 2, 2005 converted to an aggregate of 310,097
          options to purchase shares of our common stock at an exercise price of
          $0.073.
 
 On
          September 26, 2005, in connection with his agreement to serve on our Board
          of
          Directors, we granted Mr. Victor Halpert a warrant to purchase 1,000,000
          shares
          of our common stock, at an exercise price of $0.03 per share. This Warrant
          shall
          vest as follows: (i)  333,333 Warrant Shares shall vest on October 26, 2005
          ; and (ii) 27,778 Warrant Shares shall vest monthly each of the first
          Twenty Four (24) months during Mr. Halpert’s engagement as a Director on the
          Company’s Board of Directors. In
          connection with his resignation from his appointment to the Board in April
          2006,
          the total number of shares issuable upon the exercise of his warrants was
          reduced to 472,223. The warrants are exercisable at $0.03 per
          share.
 
 **2003
          Stock Incentive Plan**
 
 On
          February 11, 2003, the Board of Directors approved the Netfran Development
          Corp.
          2003 Stock Incentive Plan under which employees, officers, non-employee
          directors and consultants are eligible to receive grants of stock options,
          thereby creating a means to raise the level of stock ownership by such
          individuals in order to attract, retain, and reward such individuals. We
          have
          authorized a total of 600,000 shares of common stock under the 2003 Stock
          Incentive Plan with a total of 275,000 shares of common stock remaining
          under
          the plan for future issuance. The Board of Directors administers the 2003
          Stock
          Incentive Plan. Subject to the provisions of the 2003 Stock Incentive Plan,
          the
          Board of Directors has full and final authority to select the individuals
          to
          whom options will be granted, to grant the options and to determine the
          terms
          and conditions and the number of shares issued pursuant thereto. However,
          no
          option shall be exercisable more than ten years after the date of grant.
          Options
          shall be exercisable at such time and subject to such terms and conditions
          as
          shall be determined by the Committee at grant.
 
 We
          did
          not grant any options under the 2003 Stock Incentive Plan during the year
          ended
          September 30, 2006.
 
 **Indemnification**
 
 As
          permitted by the provisions of the General Corporation Law of the State
          of
          Florida, we have the power to indemnify any person who was or is a party
          or is
          threatened to be made a party to any threatened, pending or completed action,
          suit or proceeding, whether civil, criminal, administrative or investigative,
          by
          reason of the fact that the person is or was a director, officer, employee
          or
          agent of us, if such officer or director acted in good faith and in a manner
          reasonably believed to be in or not opposed to our best interests. Any
          such
          person may be indemnified against expenses, including attorneys’ fees,
          judgments, fines and settlements to the extent they have been on the merits
          or
          otherwise in defense of any action, suit or proceeding. Further, we maintain
          liability insurance on behalf of our officers, directors, employees and
          agents.
          Insofar as indemnification for liabilities arising under the Securities
          Act of
          1933 may be permitted to directors, officers and controlling persons pursuant
          to
          the foregoing provisions, or otherwise, we have been advised that in the
          opinion
          of the Securities and Exchange Commission such indemnification is against
          public
          policy as expressed in the Securities Act of 1933 and is, therefore,
          unenforceable.
  35
  **Employment
          Agreements**
 
 Our
          corporate company Ariel Way does not currently have employment agreements
          with
          any of our executive officers .
 
 **Item
          11. Security Ownership of Certain Beneficial Owners and Management and
          Related
          Stockholder Matters.**
 
 **Beneficial
          Owners**
  As
          of
          January 12, 2007, other than the directors and executive officers and Market
          Central, Inc., as identified in the table below, to our knowledge no person
          owned beneficially more than five percent (5%) of our common stock.
 
 **Directors
          and Executive Officers**
 
 The
          following table shows the amount of our capital stock beneficially owned
          by our
          directors, the executive officers named in the Summary Compensation Table
          above,
          beneficial owners of 5% or more of our common stock and by all directors
          and
          executive officers as a group as of  January 12, 2007. Unless otherwise
          indicated, beneficial ownership is direct and the person indicated has
          sole
          voting and investment power. As of January 12, 2007 we had 40,036,785
          shares of common stock outstanding.
 
 36
  **Shares
                    to be****Beneficially**
                
                **Percent****Name
                    and Address**
                
                **Title
                    of Class**
                
                **Owned****(1)**
                
                **of
                    Class****(1)**Elliot
                    Krasnow**(2)**
                  c/o
                    Netvertise, Inc.
                  2801
                    N.E. 208th Terrace, 2nd Floor
                  Miami,
                    FL 33180
                
                
                Common
                
                
                1,270,340
                
                
                3.1
                %Arne
                    Dunhem**(3)**
                  8000
                    Towers Crescent Drive
                  Suite
                    1220
                  Vienna,
                    VA 22182
                
                
                Common
                    (Shares
                  and
                    warrants)
                
                
                14,459,159
                
                
                26.5
                %Anand
                    Kumar**(4)**
                  8000
                    Towers Crescent Drive
                  Suite
                    1220
                  Vienna,
                    VA 22182
                
                
                Common
                    (Shares
                  and
                    Warrants)
                
                
                5,293,374
                
                
                11.7
                %Voula
                    Kanellias
                  8000
                    Towers Crescent Drive
                  Suite
                    1220
                  Vienna,
                    VA 22182
                
                
                Common
                    (Shares
                  and
                    Warrants)
                
                
                2,228,585
                
                
                5.3
                %Leif
                    T. Carlsson**(5)**
                  8000
                    Towers Crescent Drive
                  Suite 1220
                  Vienna,
                    VA 22182
                
                
                Common
                    (Options
                  and
                    Warrants)
                
                
                1,421,202
                
                
                3.4
                %Magdy
                    Battikha
                  8000
                    Towers Crescent Drive
                  Suite 1220
                  Vienna,
                    VA 22182
                
                
                Common
                  (Shares
                    and Warrants)
                
                
                3,563,826
                
                
                8.2
                %Aziz
                    Bennani
                  8000
                    Towers Crescent Drive
                  Suite 1220
                  Vienna,
                    VA 22182
                
                
                Common
                  (Shares
                    and Warrants)
                
                
                2,228,585
                
                
                5.3
                %Market
                    Central, Inc.**(7)**
                  1650A
                    Gum Branch Road
                  Jacksonville,
                    NC 28540
                
                
                Common
                  (Shares)
                
                
                3,352,400
                
                
                7.7
                %Loral
                    Skynet Network Services, Inc.**(8)**
                  500
                    Hills Drive
                  P.O.
                    Box 701*8*
                  Bedminster,
                    NJ 07921
                
                
                Common
                  (Shares
                    and Warrants)
                
                
                3,300,000
                
                
                7.6
                %Officers
                    and Directors as a Group
                  (2
                    Persons)
                
                
                
                
                
                15,880,361
                
                
                28.4
                %
  
 (1)
                Applicable
                    percentage of ownership is based on 40,036,785 shares of common
                    stock
                    outstanding as of  January 12, 2007, together with applicable
                    options, warrants and convertible securities for each shareholder.
                    Beneficial ownership is determined in accordance with the rules
                    of the
                    Securities and Exchange Commission and generally includes voting
                    or
                    investment power with respect to securities. Shares of common
                    stock
                    subject to securities exercisable or convertible into shares
                    of common
                    stock that are currently exercisable or exercisable within 60 days
                    from January 12, 2007 are deemed to be beneficially owned by
                    the person
                    holding such options for the purpose of computing the percentage
                    of
                    ownership of such person, but are not treated as outstanding
                    for the
                    purpose of computing the percentage ownership of any other person.(2)
                Elliot
                    Krasnow was our Chief Executive Officer until February 2, 2005.
                    From and
                    after this date he is no longer with us.(3)
                Represents
                    6,369,580 shares held directly by Arne Dunhem, our Chairman and
                    CEO and
                    1,720,000 warrants that are vested and immediately exercisable,
                    issued to
                    Mr. Dunhem through January 12, 2007, and 6,369,579 shares held
                    by the
                    Dunhem Family Partnership, of which Mr. Dunhem, our Chairman
                    and CEO is a
                    General Partner and who with his wife Eva Dunhem jointly and
                    equally make
                    all investment decisions of The Dunhem Family Partnership. This
                    information does not include any shares that may be issued to
                    Mr. Dunhem
                    as compensation for his providing a personal guarantee of the
                    financing
                    necessary to effect the stock exchange transaction on February
                    2, 2005
                    since the nature and amount of such compensation has not been
                    determined.
                    We expect any such compensation will be non-cash consideration.
  37
  (4)
                Anand
                    Kumar was until November 2005 our Executive Vice
                    President.(5)
                Leif
                    T. Carlsson is an independent Director of our Board. The shares
                    beneficially owned are 310,097 options that have vested and are
                    immediately exercisable and a total of 1,111,105 warrants that
                    are
                    exercisable within 60 days from January 12, 2007.(6)
                Victor
                    Halpert was until April 24, 2006, an independent Director of
                    our Board.
                    The shares beneficially owned are a total of 472,223 warrants
                    that are
                    exercisable within 60 days from January 12, 2007.(7)
                Doyal
                    Bryant, the President and CEO of Market Central, Inc. makes all
                    investment
                    decisions on behalf of Market Central, Inc.(8)
                Pat
                    Brant, the President of Loral Skynet Network Services, Inc. makes
                    all
                    investment decisions on behalf of Loral Skynet Network Services,
                    Inc.
 
 **Item
          12. Certain Relationships and Related Transactions.**
 
 During
          the period from year 2000 though February 1, 2005, we derived our revenue
          primarily from the sale of the Netspace franchises and from royalties paid
          by
          the franchise holders. The Netspace franchise system was developed by
          Netvertise, Inc. Netvertise was, during the period from year 2000 though
          February 1, 2005, owned by substantially the same shareholders as the Company.
          Netvertise expected to profit from the sale of products and services to
          the
          franchise owners who used the Netspace system and consumers who used Netspace
          products and services. We did not compensate Netvertise for the right to
          sell
          the Netspace franchise, and prior to October 20, 2001 there was no written
          agreement between the two companies. Effective October 20, 2001, we and
          Netvertise entered into a written agreement whereas Netvertise provided
          products
          and services to our franchisees. The services consisted of website development,
          website hosting, maintenance support and upgrading, graphic design, copy
          writing, training, e-publishing and on-line file back up, sharing and storage.
          The agreement also stipulated that Netvertise provided its personnel, office
          space, facilities, and support services as requested by us. The cost of
          these
          services was to be reimbursed to Netvertise on a monthly basis. This agreement
          was terminated on February 2, 2005.
 
 During
          the period from year 2000 though February 1, 2005, we reimbursed Netvertise
          for
          the costs it incurred in providing services and facilities to us pursuant
          to the
          agreement. For personnel which were shared between us and Netvertise, a
          reasonable allocation was made by management of us and Netvertise, to include
          Messrs. Krasnow and Steinberg, president and chief financial officer,
          respectively of both firms, based upon the relative time spent by such
          shared
          employees working on Netvertise matters or our matters. We paid Netvertise
          $2,800 per month for use of office facilities, including rent, utilities,
          office
          furnishings and supplies and the expense of a shared receptionist and office
          manager which we believed was a fair allocation of such expenses.
          Messrs. Krasnow and Steinberg also allocated other shared expenses incurred
          by Netvertise on our behalf, such as insurance by estimating the cost of
          such
          items used by us. We paid directly and not through Netvertise its direct
          non-shared expenses such as advertising, travel, training and non-shared
          personnel.
 
 Under
          the
          terms of the Share Exchange Agreement dated January 20, 2005 for our acquisition
          of Old Ariel Way, on February 2, 2005, each share of Old Ariel Way common
          stock
          outstanding immediately prior to February 2, 2005 was converted into 1.6762
          shares of our common stock. Our outstanding common stock was not affected
          by the
          acquisition. As a result of the acquisition, we issued 33,289,434 shares
          of
          common stock to the former stockholders of Old Ariel Way. In addition to
          the
          common stock issued to the former stockholders of Old Ariel Way, under
          the Share
          Exchange Agreement, each outstanding option or warrant to purchase Old
          Ariel Way
          common stock was converted into an option to purchase the number of shares
          of
          our common shares equal to the number of Old Ariel Way common shares underlying
          the option or warrant immediately prior to February 2, 2005 multiplied
          by 1.6762
          and the exercise price of each option or warrant we issued will equal the
          exercise price of the corresponding Old Ariel Way option or warrant in
          effect
          immediately prior to February 2, 2005 divided by 1.6762.
  38
 
 In
          connection with our acquisition of Old Ariel Way, on February 2, 2005,
          Old Ariel
          Way and Elliot Krasnow, who was our Chief Executive Officer until the February
          2, 2005, entered into a Stock Purchase and Sale Agreement pursuant to which
          Mr.
          Krasnow sold 300,000 shares of our common stock to Old Ariel Way for $300,000.
          Old Ariel Way intends to retire the shares it acquired from Mr. Krasnow.
          In
          order to finance the $300,000 payment to Mr. Krasnow and to fund the expenses
          related to the acquisition, Old Ariel Way borrowed $400,000 from Cornell
          Capital, one of the stockholders of Old Ariel Way (and now a stockholder
          of us).
          The loan bears interest at the rate of 12% per annum and was due and payable
          on
          May 31, 2005 and was extended to February 28, 2006. Cornell Capital is
          not a
          controlling stockholder of us, and we believe the terms of the loan are
          at least
          as favorable to us as could be obtained from an unrelated third party.
          In order
          to induce Cornell Capital to make the loan to Old Ariel Way, Arne Dunhem,
          the
          Chairman and Chief Executive Officer, provided a personal guarantee of
          payment
          to Cornell Capital. We expect to compensate Mr. Dunhem for undertaking
          the
          personal guarantee and pledge on our behalf, but the terms of any such
          compensation have not yet been agreed to. Our Compensation Committee of
          the
          Board of Directors will determine the amount and nature of compensation
          to Mr.
          Dunhem, but we do not expect that any compensation to him will be paid
          in cash.
          The $400,000 loan was on February 28, 2006 converted pursuant to an Investment
          Agreement by and between the Company and Cornell Capital and Montgomery
          Equity
          to part of one hundred sixty (160) Series A Preferred Shares.
  On
          April
          21, 2005, Old Ariel Way sold and issued to Cornell Capital, 2,000,000 shares
          of
          the Series A Redeemable Preferred Stock of Old Ariel Way, for a purchase
          price
          of $1.00 per share and an aggregate purchase price of $2,000,000 on the
          terms
          and conditions set forth in a Stock Purchase Agreement by and between Ariel
          Way,
          Inc. and Cornell Capital Partners, LP, dated April 19, 2005. These shares
          were
          redeemed by Old Ariel Way on August 10, 2005 for a redemption price of
          $2,074,301 including dividend and the preferred stock was returned to Old
          Ariel
          Way’s treasury.
 
 On
          July
          28, 2005, we borrowed $600,000 from Montgomery Equity. We received $240,000
          of
          this amount on July 28, 2005 and we received the remaining $360,000 on
          August
          10, 2005. The loan bears interest at the rate of 12% per annum and was
          due and
          payable on February 28, 2006. On July 28, 2005 we issued to Montgomery
          Equity a
          warrant to purchase 1,000,000 shares of our common stock that is
          exercisable for a period of three (3) years at an exercise price per share
          of
          $0.025. The warrant shares shall have “piggy-back” and demand registration
          rights. Montgomery Equity is not a controlling stockholder of Ariel Way,
          and we
          believe the terms of the loan are at least as favorable to us as could
          be
          obtained from an unrelated third party. The $600,000 loan was on February
          28,
          2006 converted pursuant to an Investment Agreement by and between the Company
          and Cornell Capital and Montgomery Equity to part of one hundred sixty
          (160)
          Series A Preferred Shares.
 
 Arne
          Dunhem, our Chairman and Chief Executive Officer, advanced during the period
          January 1, 2005 through August 3, 2005 an aggregate of $42,250 to cover
          the
          payment of certain expenses for us. On September 26, 2005, we issued to
          Mr.
          Dunhem a convertible debenture in the principal sum of $42,250 with interest
          at
          the annual rate of 5% on the unpaid principal of the debenture which is
          due on
          September 25, 2006. Interest on the outstanding principal balance shall
          be due
          and payable monthly, in arrears, commencing on September 25, 2006 and shall
          continue on the first day of each calendar month thereafter that any amounts
          under the debenture are due and payable. Principal shall be due and payable
          in 6
          equal installments of $7,041.74 each. The installments of principal shall
          be due
          and payable commencing on October 1, 2006 and subsequent installments shall
          be
          due and payable on the first day of each calendar month thereafter until
          the
          outstanding principal balance is paid in full. The debenture shall be
          convertible into shares of our Common Stock at the option of Mr. Dunhem,
          in
          whole or in part at any time and from time to time, after the Original
          Issue
          Date. The conversion price in effect on any conversion date shall be equal
          to
          $0.30, which may be adjusted pursuant to the other terms of the debenture. The
          balance of the note as of September 30, 2006 is $15,346 consisting of principal
          and unpaid interest.
 
 On
          May
          17, 2005 Mrs. Eva Dunhem, the wife of Arne Dunhem, our Chairman and Chief
          Executive Officer, advanced as a short-term loan an aggregate of $70,000
          to us.
          On September 26, 2005, we issued to Mrs. Dunhem a promissory note in the
          principal sum of $70,000 together with interest at the annual rate of 12%
          on the
          unpaid principal of the note on or before the 12th month anniversary of
          the
          funding date which will be May 17, 2006. The loan was not paid when due
          and is
          in technical default. The Company has received a waiver from Mrs. Dunhem
          regarding the interest rate of the loan in default. The balance of the
          note as
          of September 30, 2006 is $59,312 consisting of principal and unpaid interest.
          In
          addition, we also issued to Mrs. Dunhem a warrant to purchase 200,000 shares
          of
          our common stock for a period of 3 years at an exercise price of $0.03
          which was
          the price as of the issuance of the warrant. The warrant shares shall have
          “piggy-back” and demand registration rights.
  39
 
 We
          granted warrants to purchase our common stock to certain of our directors
          prior
          to their appointment to our Board of Directors in connection with their
          service
          as members of our advisory board. We subsequently provided additional grants
          to
          our directors in connection with their service as members of our Board
          of
          Directors. The terms of those grants are described in this Annual Report
          in our
          discussion of the compensation provided to our directors.
 
 We
          believe that each of the above referenced transactions was made on terms
          no less
          favorable to us than could have been obtained from an unaffiliated third
          party.
          Furthermore, any future transactions or loans between us and our officers,
          directors, principal stockholders or affiliates, and any forgiveness of
          such
          loans, will be on terms no less favorable to us than could be obtained
          from an
          unaffiliated third party, and will be approved by a majority of our directors.
 
 **Item
          13. Exhibits.**
 
 **Exhibit****No.**
                
                **Description**
                
                **Location**2.1
                
                Share
                    Exchange Agreement, by and among Netfran Development Corp., Ariel
                    Way,
                    Inc., and the shareholders of Ariel Way common stock, dated as
                    of December
                    29, 2004.****
                
                Incorporated
                    by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                    filed on February 8, 2005 (File No. 0-50051)2.2
                
                Amendment
                    to Share Exchange Agreement, by and among Netfran Development
                    Corp., Ariel
                    Way, Inc., and the shareholders of Ariel Way common stock, dated
                    as of
                    January 20, 2005.****
                
                Incorporated
                    by reference to Exhibit 2.2 to the Registrant’s Current Report on
                    Form 8-K filed on February 8, 2005 (File No. 0-50051)****2.3
                
                Stock
                    Purchase Agreement among Ariel Way, Inc. and dbsXmedia, Inc.,
                    dated
                    February 15, 2005.****
                
                Incorporated
                    by reference to Exhibit 99.3 to the Registrant’s Current Report on
                    Form 8-K filed on February 28, 2005 (File No. 0-50051)2.4
                
                Asset
                    Purchase Agreement by and among dbsXmedia Inc., Loral Skynet
                    Network
                    Services, Inc., CyberStar L.P., CyberStar, LLC and Netfran Development
                    Corp. dated February 18, 2005.
                
                Incorporated
                    by reference to Exhibit 99.1 to the Registrant’s Current Report on
                    Form 8-K filed on April 28, 2005 (File No. 0-50051)
 
 40
 
 **Exhibit****No.**
                
                **Description**
                
                **Location**2.5
                
                Amendment
                    No. One to Asset Purchase Agreement by and among dbsXmedia Inc.,
                    Loral
                    Skynet Network Services, Inc., CyberStar L.P., CyberStar, LLC
                    and Netfran
                    Development Corp., dated April 13, 2005
                
                Incorporated
                    by reference to Exhibit 99.2 to the Registrant’s Current Report on
                    Form 8-K filed on April 28, 2005 (File No. 0-50051)2.6
                
                Security
                    Agreement between dbsXmedia Inc., Loral Skynet Network Services,
                    Inc.,
                    CyberStar L.P., and CyberStar, LLC dated February 18, 2005
                
                Incorporated
                    by reference to Exhibit 99.3 to the Registrant’s Current Report on
                    Form 8-K filed on April 28, 2005 (File No. 0-50051)2.7
                
                Teleport
                    Service Agreement by and between dbsXmedia, Inc., and Loral Skynet
                    Network
                    Services, Inc. , dated February 18, 2005
                
                Incorporated
                    by reference to Exhibit 99.4 to the Registrant’s Current Report on
                    Form 8-K filed on April 28, 2005 (File No. 0-50051)2.8
                
                Guaranty
                    Agreement by Netfran Development Corp. in favor of Loral Skynet
                    Network
                    Services, Inc., CyberStar, L.P., CyberStar, LLC, and Loral Skynet,
                    a
                    division of Loral SpaceCom Corporation, dated February 18, 2005
                
                Incorporated
                    by reference to Exhibit 99.5 to the Registrant’s Current Report on
                    Form 8-K filed on April 28, 2005 (File No. 0-50051)2.9
                
                Stockholders
                    Agreement by and among dbsXmedia, Inc., Netfran Development Corp.,
                    and
                    Zygot, LLC, dated February 21, 2005****
                
                Incorporated
                    by reference to Exhibit 99.4 to the Registrant’s Current Report on
                    Form 8-K filed on February 28, 2005 (File No. 0-50051)2.10
                
                Stock
                    Purchase Agreement between Ariel Way, Inc. and Market Central,
                    Inc., dated
                    September 24, 2004
                
                Incorporated
                    by reference to Exhibit 2.10 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)2.11
                
                Agreement
                    and Plan of Merger between Ariel Way, Inc. and Enfotec, Inc.,
                    dated
                    September 30, 2004
                
                Incorporated
                    by reference to Exhibit 2.5 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)3.1
                
                Articles
                    of Incorporation, dated January 24**,**2000,
                    of Registrant
                
                Incorporated
                    by reference to Exhibit 3.1 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-102894) filed on July 26, 2001 (File
                    No. 0-50051)3.2
                
                By-laws
                    of Registrant, dated January 24**,**2000.
                
                Incorporated
                    by reference to Exhibit 3.2 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-102894) filed on July 26, 2001.****(File
                    No. 0-50051)3.3
                
                Articles
                    of Amendments to Articles of Incorporation, dated April 28, 2005,
                    of the
                    Registrant
                
                Incorporated
                    by reference to Exhibit A to the Company's Schedule 14C Information
                    Statement filed on April 28, 2005.
 
 41
  **Exhibit****No.**
                
                **Description**
                
                **Location**3.4
                
                Certificate
                    of Conversion of Ariel Way, LLC, dated September 23, 2004.
                
                Incorporated
                    by reference to Exhibit 3.4 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)3.5
                
                Certificate
                    of Incorporation of Ariel Way, Inc. (DE), dated September 23,
                    2004.
                
                Incorporated
                    by reference to Exhibit 3.5 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)3.6
                
                Certificate
                    of Designations of Series A Redeemable Preferred Stock, dated
                    April 19,
                    2005
                
                Incorporated
                    by reference to Exhibit 3.6 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)3.7
                
                By-Laws
                    of Ariel Way, Inc. (DE), dated September 23, 2004
                
                Incorporated
                    by reference to Exhibit 3.7 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.1
                
                Standby
                    Equity Distribution Agreement, dated July 21, 2005 between Ariel
                    Way, Inc.
                    and Cornell Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.1 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.2
                
                Registration
                    Rights Agreement, dated July 21, 2005, between Ariel Way, Inc.
                    and Cornell
                    Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.2 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.3
                
                Placement
                    Agent Agreement, dated July 21, 2005, between Ariel Way, Inc.,
                    Newbridge
                    Securities Corporation and Cornell Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.3 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.4
                
                Escrow
                    Agreement, dated July 21, 2005, between Ariel Way, Inc., Cornell
                    Capital
                    Partners, LP and David Gonzalez, Esq.
                
                Incorporated
                    by reference to Exhibit 10.4 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.5
                
                Termination
                    Agreement, dated July 20, 2005, between Ariel Way, Inc. and Cornell
                    Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.5 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)
 
 42
  **Exhibit****No.**
                
                **Description**
                
                **Location**10.6
                
                Securities
                    Purchase Agreement dated September 30, 2004, between Ariel Way,
                    Inc. and
                    Cornell Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.6 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.7
                
                Investor
                    Registration Rights Agreement dated September 30, 2004, between
                    Ariel Way,
                    Inc. and Cornell Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.7 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.8
                
                Security
                    Agreement dated September 30, 2004, between Ariel Way, Inc. and
                    Cornell
                    Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.8 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.9
                
                Irrevocable
                    Transfer Agent Instructions dated September 30, 2004, between
                    Ariel Way,
                    Inc. and Interwest Transfer Co., Inc.
                
                Incorporated
                    by reference to Exhibit 10.9 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.10
                
                Secured
                    Convertible Debenture issued by Ariel Way, Inc. on July 21, 2005
                    to
                    Cornell Capital Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.10 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.11
                
                Promissory
                    Note by Ariel Way, Inc. and Cornell Capital Partners, LP, dated
                    February
                    1, 2005
                
                Incorporated
                    by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.12
                
                Guaranty
                    given by Arne Dunhem in Favor of Cornell Capital Partners, LP,
                    dated
                    February 1, 2005
                
                Incorporated
                    by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.13
                
                Pledge
                    and Escrow Agreement by and among Cornell Capital Partners, LP,
                    dated
                    February 1, 2005, Ariel Way, Inc., Arne Dunhem and David Gonzalez,
                    Esq.,
                    dated February 1, 2005
                
                Incorporated
                    by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.14
                
                Independent
                    Contractor Consulting Agreement between Securities Counseling
                    and
                    Management, Inc. and Ariel Way, Inc. dated August 16, 2004
                
                Incorporated
                    by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.15
                
                Warrant
                    Agreement between Ariel Way, Inc. and Arne Dunhem dated August
                    1, 2004 and
                    Amendment No. 1 to Warrant Agreement between Arne Dunhem and
                    Netfran
                    Development Corp., dated March 21, 2005.
                
                Incorporated
                    by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)
 
 43
 
 **Exhibit****No.**
                
                **Description**
                
                **Location**10.16
                
                Warrant
                    Agreement between Ariel Way, Inc. and Anand Kumar dated August
                    10, 2004
                    and Amendment No. 1 to Warrant Agreement between Anand Kumar
                    and Netfran
                    Development Corp., dated March 21, 2005.
                
                Incorporated
                    by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.17
                
                Warrant
                    Agreement between Ariel Way, Inc. and Voula Kanellias dated August
                    10,
                    2004 and Amendment No. 1 to Warrant Agreement between Voula Kanellias
                    and
                    Netfran Development Corp., dated March 21, 2005.
                
                Incorporated
                    by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.18
                
                Warrant
                    Agreement between Ariel Way, Inc. and Magdy Battikha dated November
                    1,
                    2004 and Amendment No. 1 to Warrant Agreement between Magdy Battikha
                    and
                    Netfran Development Corp., dated March 21, 2005.
                
                Incorporated
                    by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.19
                
                Warrant
                    Agreement between Ariel Way, Inc. and Aziz Bennani dated November
                    1, 2004
                    and Amendment No. 1 to Warrant Agreement between Aziz Bennani
                    and Netfran
                    Development Corp., dated March 21, 2005.
                
                Incorporated
                    by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form
                    10-KSB filed on April 15, 2005 (File No. 0-50051)10.20
                
                Independent
                    Contractor Services Fee Agreement between Michael Jordan and
                    Netfran
                    Development Corp., dated December 28, 2004
                
                Incorporated
                    by reference to Exhibit 99.5 to the Registrant’s Current Report on
                    Form 8-K filed on February 28, 2004 (File No. 0-50051)10.21
                
                Legal
                    Services Fee Agreement between Joel Bernstein, Esq. and Netfran
                    Development Corp., dated December 28, 2004
                
                Incorporated
                    by reference to Exhibit 99.6 to the Registrant’s Current Report on
                    Form 8-K filed on February 28, 2004 (File No. 0-50051)10.22
                
                Warrant
                    Agreement between Ariel Way, Inc. and Oberon Securities, LLC
                    dated May 28,
                    2005.
                
                Incorporated
                    by reference to Exhibit 10.22 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.23
                
                Promissory
                    Note issued by Ariel Way, Inc. on July 28, 2005 to Cornell Capital
                    Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.23 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.24
                
                Warrant
                    issued by Ariel Way, Inc. on July 28, 2005 to Cornell Capital
                    Partners, LP
                
                Incorporated
                    by reference to Exhibit 10.24 to the Company's registration statement
                    on
                    Form SB-2 (file no. 333-127363) filed on August 9, 2005.****(File
                    No. 0-50051)10.25
                
                Promissory
                    Note issued by Ariel Way, Inc. on September 26, 2005 to Mrs.
                    Eva Dunhem
                
                Incorporated
                    by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form
                    10-KSB filed on January 17, 2006 (File No. 0-50051)10.26
                
                Warrant
                    issued by Ariel Way, Inc. on September 26, 2005 to Mrs. Eva Dunhem
                
                Incorporated
                    by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form
                    10-KSB filed on January 17, 2006 (File No. 0-50051)10.27
                
                Convertible
                    Debenture issued by Ariel Way, Inc. on September 26, 2005 to
                    Mr. Arne
                    Dunhem
                
                Incorporated
                    by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form
                    10-KSB filed on January 17, 2006 (File No. 0-50051)
 
 44
 
 **Exhibit****No.**
                
                **Description**
                
                **Location**21.1
                
                List
                    of Subsidiaries
                
                Provided
                    herewith31.1
                
                Certification
                    by Arne Dunhem, Chief Executive Officer, pursuant to Rule 13a-14(a)
                
                Provided
                    herewith31.2
                
                Certification
                    by Arne Dunhem, Acting Chief Financial Officer, pursuant to Rule
                    13a-14(a)
                
                Provided
                    herewith32.1
                
                Certification
                    by Arne Dunhem, Chief Executive Officer, and Arne Dunhem, Acting
                    Chief
                    Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant
                    to Section 906 of the Sarbanes-Oxley Act of 2002*
                
                Provided
                    herewith
  45
  *
          These
          certifications are not deemed filed by the SEC and are not to be incorporated
          by
          reference in any filing of the Registrant under the Securities Act of 1933
          or
          the Securities Exchange Act of 1934, irrespective of any general incorporation
          language in any filings.
 
 **Item
          14. Principal Accountant Fees and Services.**
 
 During
          the fiscal years ended September 30, 2006 and September 30, 2005, the aggregate
          fees billed by Bagell, Josephs & Company, L.L.C. for principal accountant
          fees and services were $40,000 per year.
 
 46
   **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.
 **Ariel
                    Way, Inc.**By
                /s/
                    Arne DunhemName:
                    Arne Dunhem
                    Title:
                      President and Chief Executive Officer,Date:
                    January 14, 2007
  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.
 
 **SIGNATURE**
                
                **TITLE**
                
                **DATE**/s/
                    Arne Dunhem
                
                President,
                    Chief Executive Officer,
                
                January
                    14, 2007Arne
                    Dunhem
                
                Principal
                    Executive Officer and Director/s/
                    Arne Dunhem
                
                Acting
                    Chief Financial Officer, Acting Principal Financial
                
                January
                    14, 2007Arne
                    Dunhem
                
                and
                    Acting Principal Accounting Officer/s/
                    Leif T. Carlsson
                
                Director
                
                January
                    14, 2007Leif
                    T. Carlsson