U.S. SECURITIES ANDEXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-KSB

(MARK ONE)

|X| Annual ReportPursuant to Section 13 or 15(d) of Securities ExchangeAct of 1934

For the Year endedJanuary 31, 2003

|_| Transition reportunder Section 13 or 15(d) of the Securities ExchangeAct of 1934

For the transitionperiod from _______ to _______.

Commission File No.001-14883

| ARS NETWORKS,INCORPORATED--------------------------(Name of Small BusinessIssuer in Its Charter)                                                                                          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| New Hampshire--------------(State or Other Jurisdiction of        Incorporation or Organization)                                                            | 14-1805077    ----------    (I.R.S. Employer IdentificationNo.) |
|                                                                                                                                                                                           |   |
| 100 Walnut Street,Champlain, New York      ---------------------------------------     (Address of Principal Executive Offices)    | 12919     -----    (Zip Code) |

(518) 298-2042--------------(Issuer's TelephoneNumber, Including Area Code)

Checkwhether the issuer:  (1) filed all reports  required to be filed by Section13 or 15(d) of the Exchange Act during the past 12 months,  and (2) has beensubject to such filing requirements for the past 90 days. Yes |X| No |_|

There were 15,015,006 sharesof Common Stock outstanding as of May 14, 2003.

 

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**PART I**

**Item 1.  Description of Business**

***            Business Development***

            ARS Networks, Incorporated ("ARS" or the "Company")is a corporation formed in New Hampshire on May 4, 1998. 

            ARS was formed in 1998 to design and develop advancedrailway communications and data management systems and as such has a limitedoperating history.  In July 2000, ARS completed the purchase of T & TDiesel Power, Ltd. ("T & T"), a manufacturer  of custom diesel powergenerating equipment, that  had  an operating history in excess of 20 years.However, recent under performance by T&T resulted in the sale of T&T inJanuary 2003. In recognition of the Company's difficulty in securing sufficientfinancing to continue in its current structure, the Board of Directorsrecommended that the Company revisit its capital structure and also itsbusiness plan. As a result, the Company has undertaken several changes in orderto bring value to shareholders.

            At a Special Meeting of Shareholders held December 5,2002, the Company's shareholders approved an increase in the authorized sharecapital of the Company to 500,000,000 shares.

                In February 2003, the Company's Board ofDirectors recommended, and the shareholders approved, a reverse stock split onthe ratio of 1 (one) post split share for each 50 (fifty) pre split shares heldby shareholders. Following the filing and acceptance of schedule 14 C, thereverse split became effective on March 26, 2003. The Company's trading symbolwas also changed on March 26 to ARSW.

                On March 28, 2003, the Company enteredinto a Letter of Intent with Alexander and Wade Inc to acquire 100% of itswholly owned subsidiary, Majestic Refilter, Ltd. ("Majestic Refilter") On April8, 2003, the Board of ARS approved the transaction under which ARS issued 2million shares of its restricted common stock  for the acquisition. Thepurchase of Majestic Refilter closed on April 22, 2003. More detaileddiscussion of this product and its benefits to ARS are noted below.

                On April 25, ARS acquired all of theoutstanding common shares of HMM Capital Holdings Inc. ("HMM") and with thistransaction also acquired the license to distribute the ARS Fire Safety Tecfire retardant doors. The fire doors are approved by United Laboratories in theUnited States and Canada. The retrofit fire doors are protected by patent inthe US. The doors meet the current safety legislation guidelines imposed in theUS and Canada and have been sold in North America for the past several years.As consideration, ARS issued 10 million shares of its restricted common stockto the shareholders of HMM Capital Holdings, Inc. in exchange for all 10million shares of HMM outstanding.

                Given the above, the Company has refocusedits business strategy for 2003 and beyond. The fire doors are expected to bringrevenue to the Company immediately and the Company will also focus on thecontinued development of Crosslogix and the Refilter product. However, it mustbe noted that the customer acceptance of these products is not assured.

***            Business of Issuer***

            The recent acquisitions by ARS will result in a revisedfocus for the Company. While the Company had historically looked to develop aprivate wireless network for the railway industry, the Company will focusprimarily on the sales of the fire doors and development of a distributionsystem to maximize the revenue and profits. The Company will continue to investin the development of Crosslogix as well as the development of the Refilterproduct as management believes that markets and revenues exist for theseproducts. 

            ARS/Fire Safety Tec, technology is approved byUnderwriters Laboratory (UL) and is patented. The door kit been test marketedand more than 70,000 kits have been sold in the US and Canada and saves up to80% in cost when upgrading any existing non-rated door to a code compliant firerated door in commercial, institutional and multi-unit residential buildingssuch as nursing homes, apartment buildings, hotels, dormitories, hospitals,offices, government buildings and retail environments.  

            There is a well defined and current North American marketopportunity to participate in the upgrade of 50 million doors that are requiredto meet minimum standard Fire Code. Corridor-to-unit doors require a 20-minutefire protection rating. Proper doors are mandated under Fire and Building Coderegulations, given that doors are usually the weakest structural element and,when breached, offer fire an easy path to spread.

2

            National Fire Data Center of the US Fire Administrationprovides the overall fire picture in the US for the year 2000: "4,045 Americanslost their lives and another 22,350 were injured as the result of fire. Firekilled more people than all natural disasters combined. 1.7 million fires werereported. Direct property loss due to fires was estimated at $11 billion. 85%of all fire deaths and 75% of direct dollar loss occurred in residentialproperties." US Fire Administration, in the study*,* relating to citycharacteristics and residential fires statistics in the USA (August 1998),states: "Cities with older housing stock demonstrated a greater likelihood offire. The overall residential fire statistics tended to be significantly higherin cities with older housing stock and lower in cities with newer housing,because newer housing is built to higher building codes".

            ARS Fire Safety Tec offers an affordable patentedtechnology to address this issue. The timing could not be better, National FireProtection Association (NFPA)101, Life Safety®, is one of the most frequentlyused NFPA standards. As of July 1, 2002 it has been adopted by 33 of the 50 statesand is used internationally as well. Life Safety® is also the standard used bythe federal government. Thirty-three States have not only adopted the minimumstandard but are enforcing it.  Safety has become one of the most importantissues amongst elected officials and governmental agencies.  Life Safetyrequires all authorities having jurisdiction to pay additional attention toassure fire containment. (*Source NFPA Journal July/August 2002*)

            ARS/ Fire Safety Tec uses space age technology similar tothe material used by the space shuttle during re-entry into the earth'satmosphere to insulate against fire. Prior to ARS FST technology introductionthe only way to comply with Fire and Building codes was to replace an existingnon-rated door with a new installed $1,100 fire rated door and frame. TheCompany's retrofit fire door kit allows property owners an affordable andapproved technology to convert existing doors into fire rated doors for aninstalled price of $220 a savings of 80% over the alternative, doorreplacement.  ARS / FST offers full Code compliance. In addition ARS/FSTeliminates the need to dispose of old doors thus providing a significantenvironmental benefit and further disposal cost savings.

**            Refilter**

            Diesel engines are the cause of a majority of the airbornepollutants that choke most major cities worldwide. Regulators internationallyare setting stringent standards for diesel emissions that must be met atvarying milestones during the coming decade. With over fifteen million dieselengines in operation in the U.S., and in excess of 50 million worldwide, thecurrent output of harmful emissions is estimated to be well above 5 milliontons per year. According to the Environmental Protection Agency (EPA), eachyear smog and soot account for 15,000 premature deaths, one million respiratoryproblems, 400,000 asthma attacks and thousands of cases of aggravated asthma,especially in children. It is this problem that, after two years of research,has lead to the development of an exhaust filtering system called ARSREFILTER.  

            The ARS REFILTER Exhaust Filter System incorporates aremovable filter/converter system that is designed for cleaning when needed.This system does not require special fuel formulations and will work withcurrent engine management systems thus allowing for an estimated 90% reductionin emissions and therefore meeting the upcoming standards. The ARS REFILTERExhaust Filter System will reduce particle emissions from combustion enginesand has applications in transportation, mining and construction as well asother industries. 

            The Company has completed the necessary research and iscontinuing development with regard to a proto-type unit. A search of theexhaust filter industry has shown that there are no similar systems availableon the market.  A patent notice of allowance has been granted and the Companyanticipates the patent will be issued with in the next two months.

**Crosslogix:**

The focus of ARS's private wireless network (called *CrosslogixTM)*is management of railway traffic, control and public safety.  While the ARSsystem and its component parts were developed to improve safety at railcrossings, the ARS system can support numerous applications in real time datacollection, processing, monitoring and information analysis.  The system hasevolved into an integrated service information system that is the foundation ofthe ARS wireless private network.

ARS's first information service system application is theARS level grade crossing.  Unlike traditional systems, ARS can add other applicationsto the system such as hot bearing detectors and flat wheel detectors.  ARS thentransmits the information recorded over its private network to alert railwayofficials and service providers of problems related to safety or maintenance.

The Company believes that the ARS system benefits railwayoperating efficiency because it can give virtually instant feedback on thelocation of cars and freight, which includes capturing information andtime-stamping it as trains pass through a crossing.  Plus, this innovativesystem is expected to allow communication between trains and crossing signalsto provide motorists with more complete information on train movements.  TheCompany believes that improved information creates safer conditions andbenefits for the railways and their customers, as well as motorists andpedestrians. 

***Plan of operation***

The Company's prime focus will be the launch of ARS/FireSafety Tec ("FST"), which the Company feels will generate substantial revenuesfor ARS and it's investors. 

3

The Company's key corporate objectives and strategies for2003 are to secure sufficient financing to ensure sales, marketing,operational objectives and development are accomplished during FST's 2003 USlaunch and beyond. FST plans to establish it's US head quarters in the northeastern US to implement it's marketing and sales goals for FST's flagshipproduct and new product introductions. FST will seek out strategic partners tomarket, distribute and install FBT products. 

FST's marketing objectives and strategies are anessential component from the time of launch in order to effectively positionthe product's competitive benefits and establish awareness. Market evaluation,the first stage of the market strategy, has been completed during the lastthree years of test marketing and manufacturing the product in Canada. TheCompany has successfully sold over 70,000 units, mostly in Toronto Canada;notwithstanding, there is an increasing demand for the product in the US.Security, safety, cost savings, efficiencies and the adoption of NFPA-101 LifeSafety Code-2000 by 33 of the 50 states as of July 1, 2002 has presented anunprecedented opportunity for FST. FST is confident it will be the supplier ofchoice and first to address property owners needs and carry price points thatwill generate attractive returns for investors in FST. 

As part of its sales and marketing strategies, FST willappoint a Vice President Sales and Service in the FST organization Q2 2003 toco-ordinate efforts and immediately start building a full dealer sales,customer support and service network. FST will   develop live videopresentations to train agents and our dealer network. FST will negotiatemonthly volume purchase contracts with stocking dealers for delivery beginningQ2 2003. While the prime focus of all the above strategies is distribution,these efforts will be supported by publicity and advertising programs directedat the property management industry, its customers, Fire Marshals and keylevels of government.  The FST Web site, direct mail, brochures, technicalsupport material and presentations to professional associations to which theproperty management industry executives and Fire Marshals belong will all playimportant roles in the overall communication program. After-sales service andsupport are considered of critical importance in building trust andrelationships that will be important when the Company introduces new productsand will be addressed through partnering contracts with locally recognizedservice suppliers. 

The Company's principal organization strategy is tomaintain the fewest personnel and / or consultants consistent with achievingtechnical and functional superiority. The Company will focus on maintaining itslowest cost producer, most reliable supplier status and focus its efforts onbeing an outstanding sales and marketing driven organization.

            To implement these organizational strategies, FST will:
-       Build the FST organization under the guidance of our committedand experienced senior management team who are dedicated to the success of theCompany's business plan;  
-       Maintain an involved Board of Directors that will provideday-to-day support to the efforts of the small, full-time management team; 
-       Recruit an experienced and superior sales team leader to developand lead the sales and service function as a first priority; 
-       Focus on hiring a head office team with leadership and expertiseto manage the contributions of suppliers, contractors, dealers, agents andother personnel.  
-       Minimize support staff; and plan for all other functions to beperformed by consultants until there is financial justification to dootherwise. 

***Refilter***

                    The Company believes that there is anurgent need worldwide for the ARS Refilter and intends to seek out jointventure partners to commercialize product. In April 2003, President Bush'sadministration proposed reductions of greater than ninety percent in airpollution from diesel-powered farm, construction and other off-road equipmentpredicting the curbs would prevent thousands of premature deaths, respiratoryailments and heart attacks. 

                Regulatorsinternationally are setting stringent standards for diesel emissions that mustbe met at varying milestones during the coming decade. With over fifteenmillion diesel engines in operation in the U.S., and in excess of 50 millionworldwide, the current output of harmful emissions is estimated to be wellabove 5 million tons per year. According to the Environmental Protection Agency(EPA), each year smog and soot account for 15,000 premature deaths, one millionrespiratory problems, 400,000 asthma attacks and thousands of cases ofaggravated asthma, especially in children. It is this problem that, after twoyears of research, has lead to the development of an exhaust filtering systemcalled REFILTER.  

The ARS REFILTER Exhaust Filter System incorporates aremovable filter/converter system that is designed for cleaning when needed.This system does not require special fuel formulations and will work withcurrent engine management systems thus allowing for an estimated 90% reductionin emissions and therefore meeting the upcoming standards. The ARS REFILTERExhaust Filter System will reduce particle emissions from combustion enginesand has applications in transportation and construction as well as otherindustries. 

4

The Company has completed the necessary research and iscontinuing development with regard to a proto-type unit. A search of theexhaust filter industry has shown that there are no similar systems availableon the market.  A patent notice of allowance has been granted.

Throughout the world diesel engines are the power plant ofchoice for running trucks, buses, trains and heavy industrial equipment. Thisis so because a diesel engine is considered the most efficient form of internalcombustion engine available. The combination of a slow development in "low" or"zero" emissions engines and the perception that there is an adequate supply ofpetroleum products leads us to believe that diesel engines will dominate theworlds roads for some time to come and in ever increasing numbers each year. Although the diesel engine is, and will continue to be the most popular form ofindustrial drive, it comes at a very heavy cost to the environment.

Regulators internationally are setting standards fordiesel emissions that must be met at varying milestones during the comingdecade. ARS Refilter has recently been issued a notice of allowance for apatent for the most practical system allowing industry to meet these standards.Refilter's intention is to execute the initial development and license thepatents.

With over fifteen million diesel engines in operation inthe US and in excess of 50 million worldwide, the current output of harmfulemissions is estimated to be well above 5 million tons per year. Regulatorsestimate that the 24,000 school buses in California alone generate 13 tons ofsoot daily. According to the Environmental Protection Agency (EPA), each yearsmog and soot account for 15,000 premature deaths, one million respiratoryproblems, 400,000 asthma attacks and thousands of cases of aggravated asthma,especially in children.

Recently, boththe EPA & CARB (California Air Resources Board) have been stronglysuggesting that the upcoming emission standards are "tailored to force the useof diesel particulate filters on new heavy-duty engines." During ARS Refilter'sresearch phase of this project, it was apparent that both a catalytic converterand a particulate trap would be needed to meet the standards set. Furtherresearch indicated that trying to make a filter system that would last the lifeof the vehicle would be impractical, primarily due to the typical long lifespan of a diesel engine. This led ARS Refilter to the most practical solution:a removable filter/converter system that is designed for cleaning when needed.This allows for the construction of a simple and robust filter/converter, as itonly needs to work for a specified amount of time before it is cleaned and putback into service. This system does not require special fuel formulations andwill work with current engine management systems thus allowing for an estimated90% reduction in emissions and therefore meeting the upcoming standards. Asuitable service industry will be required to manage the pickup, cleaning andredistribution of the filter/converters

The ARS RefilterExhaust Filter System will reduce particle emissions from combustion enginesand has applications in any industry that utilizes diesel engines. Patentsearches for comparable concepts have been completed and nothing similar hasbeen found.  To date 15% of the development has been conducted and completiontime for the balance of development, assuming sufficient financial resourcesare available, and licensing arrangements are made, will be approximately 10months.

1.       Ultimate "sale" of intellectual property includes a license fee, aroyalty, a combination of both of these, or      an outright purchase.

2.       A license is consummated via a License Agreement, with minimumperformance conditions.

3.       Target market for each product is a manufacturer of similar orcomplimentary products.

Prior to thedirect marketing to potential licensees the Company intends to establishstrategic alliances with several companies that would benefit from thesuccessful introduction of this product.  Having established alliances willmake the product more appealing to potential OEM licensees. The companies thisinvolves are as follows:

1)      Manufacturers of canisters.2)      Manufacturer of filter core.3)      Manufacturer of catalyst core.4)      Service / recycling.

 

5

Crosslogix:

The Crosslogixcrossing control system has been under development for the past several years.Limited funding has resulted in ARS revisiting its business plan and focusingon revenue generating ventures. As such, Crosslogix will continue to bedeveloped albeit with less focus than in the past.

ARS has helddiscussions with several potential partners with regard to continueddevelopment of Crosslogix. ARS will seek to further develop partnerships forthe joint development and marketing of the Crosslogix product.

The Company has not been able toraise sufficient funding to complete ARS's CrosslogixTM technology to date,therefore, the Company will focus it's resources on it's Fire Safety Tecretro-fit door technology to generate revenue and investor value. The Companyhas had discussions with potential partners to complete the Crosslogix technologyand will evaluate these opportunities over the coming months

***Business of T & T***

T&T Diesel Power Limited has under performed and assuch the Company sold T&T to a third party for approximately $63,000. 

***Industry***

ARS / Fire Safety Tec:

There are many competitors in the fire door industryhowever these competitors fully replace existing doors and frames at a cost ofup to five times that of the ARS / FST Retrofit Door Kits. Given the patentprotection on the process used by ARS / Fire Safety Tec, it is unlikely thatthere will be many competitors at the price point that ARS / FST offers.

ARS / Refilter:

The ARS /Refilter Exhaust Filter System will reduce particle emissions from combustionengines and has applications in any industry that utilizes diesel engines.Patent searches for comparable concepts have been completed and nothing similarhas been found. Refilter has the ability to measure whether or not the filterscomponents are functioning to specification. Moreover, Refilter's   systemcomponents can be removed and cleaned when needed if they do not function tospecification, a feature that to management's knowledge is unique in thisindustry.    

ARS / Crosslogix:

There are four major suppliers of railway crossingsystems, all of which are well connected with the railway industry andgovernment, and control collectively 80% to 90% of the market today.  However,the crossings systems offered by these competitors remain deeply rooted intraditional technology developed as far back as 1890.  Most train control andcrossing systems currently in use are based on principals developed in the lastcentury, such as insulated joints.  The competitors are:
-                      Safetran Systems Corporation, Minneapolis, MN. 
-                      General Railway Signal Corporation, Rochester, NY. 
-                      United Switch & Signal Inc., Columbia, SC. 
-                      Harmon Industries Inc., Blue Springs, MO. 

***Employees***

The Company currently has no employees but has managementand consulting agreements with 5 individuals.

***Research and Development***

In the years ended January 31, 2002 and 2003, the Companyestimates that it spent $190,000 and $135,000, respectively, on research anddevelopment.

6

***Intellectual Property***

ARS has patent protection under a license agreement forthe fire safety doors. The Patent was granted February 18, 1997.

ARS has patent protection, under a license agreement, foran Automated Railway Crossing. The patent was granted in June 2001.

A patent notice of allowance has been granted for theRefilter product and the Company anticipates the patent will be issued with inthe next two months.

ARS has patent protection, under a license agreement, foran Automated Railway Crossing. The patent was granted in June 2001.  TheCompany is in negotiations to license a second patent filed on April 6, 2001for an Automated Railway Monitoring System.

***Reports to Security Holders***

ARS is a reporting Company with the Securities andExchange Commission.  ARS's common stock is quoted on the Over-the-CounterBulletin Board under the symbol "ARSW".

The public may read and copy all materials filed with theSecurities and Exchange Commission at the Public Reference Room at 450 FifthSt., N.W., Washington, D.C., 20549 or may obtain a information on the operationof the public Reference Room by calling the SEC at 1-800-SEC-0330, and the SECmaintains an internet site that contains the reports, proxy and informationstatements, and other information regarding issuers that file electronicallywith the SEC at http://www.sec.gov. TheCompany files electronically and its internet address is arnetworks.com. 

**Item 2.  Description of Property**

 The Company leases space for its corporate offices at thefollowing address:

ARS Networks, Incorporated100 Walnut StreetChamplain, New York 12919Tel:  (518) 298- 2042Fax:  (518) 298-2813

            This property leased on a month-to-month basis.  

**Item 3.  Legal Proceedings**

None

**Item 4.  Submission of Matters to aVote of Security Holders**
Special Meeting of Stockholders on December 5, 2002.
       A special meeting of stockholders was held on December5, 2002. At this meeting, the stockholders authorized the increase in theauthorized capital of the Company's common stock from 50,000,000 to 500,000,000shares and to issue 25,000,000 newly issued convertible preferred shares toMajestic Safe-T-Products Ltd. in exchange for the common shares of MajesticRefilter, Ltd 

For the proposalto increase in the authorized capital of the Company's common stock from50,000,000 to 500,000,000 shares, 20,446,573 affirmative votes and 0 negativevotes were cast, with 15,952,255 abstentions and 0 broker non-votes.

           For the proposalto issue 25,000,000 newly issued convertible preferred shares to MajesticSafe-T-Products Ltd. in exchange for the common shares of Majestic Refilter,Ltd, 20,446,573 affirmative votes and 0 negative votes were cast, with15,952,255 abstentions and 0 broker non-votes.

In March 2003, the majorityshareholders approved a reverse split of the Company's common stock on theratio or 1:50. The Company filed a schedule 14C with the SEC and the reversewas effective March 26, 2003.
7

**PART II**

**Item 5.  Market for Common Equity andRelated Stockholders Matters**

                The Company's common stock has been quoted on the NASD'sOver-the-Counter Bulletin Board since February 1, 2000.  Since March 26, 2003,the Company's common stock has been quoted under the symbol "ARSW". Prior tothis, since April 7, 2000, the Company's common stock has been quoted under thesymbol "ARSN."  Prior to that, the Company's symbol was "ARWA."

Price Per Share

High

Low

February 1, 2000 - March 31, 2000

$5.75

$1.50

April 1, 2000 - June 30, 2000

$3.75

$0.97

July 1, 2000 - September 30, 2000

$1.34

$0.56

October 1, 2000 - December 31, 2000

$0.69

$0.22

January 1, 2001 - March 31, 2001

$1.47

$0.25

April 1, 2001 - June 30, 2001

$1.05

$0.45

July 1, 2001 - September 30, 2001

$1.10

$0.30

October 1, 2001 - December 31, 2001

$0.46

$0.09

January 1, 2002 - March 31, 2002

$0.24

$0.09
  April 1, 2002 - June 30, 2002
$0.19

$0.03
  July 1, 2002 - September 30, 2002
$0.04

$0.0065
  October 1, 2002 - December 31, 2002
$0.03

$0.004
  January 1, 2003 - March 25, 2003*
$0.0065
$.003
March 25 2003 - April 30, 2003*

$0.75

$0.12

            The above prices were obtained from Nasdaq Inc. Thequotations represent inter dealer quotations without retail markup, markdown orcommission and may not necessarily represent actual transactions. 

            Prices quoted prior to March 25, 2003 represent prereverse split prices while those from March 26, 2003 to April 30, 2003represent post reverse split quotations. As of April 30, 2003, the Companybelieves there were approximately 125 holders of record of the Company's commonstock.

            The Directors may from time to time declare, and theCompany may pay, dividends on its outstanding shares in the manner and upon theterms and conditions provided by law.  To date, no dividends have been declaredor paid by the Company.

***            RecentSales Of Unregistered Securities***

In April 2003, the Company issued 2,000,000 shares to theshareholders of Majestic Refilter, Ltd. as consideration for the merger ofMajestic Refilter and ARS Products Inc. Also in April 2003, ARS issued10,000,000 shares to the shareholders of HMM Capital Holdings Inc. asconsideration for the merger between HMM and ARS Products Inc. 

In November 2002, the Company issued 1,000,000 shares tothree officers of the Company as repayment for free trading shares loaned tothe Company.

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In August 2002, the Company issued 10,847,434 shares tomanagement in lieu of compensation valued at $108,500.

In April 2002, the Company issued 59,460 shares toconsultants as the final payment for services valued at $8,300.

In March 2002, ARS issued 107,080 shares for servicesvalued at 21,400.

In February 2002, ARS issued 150,000 shares to twoconsultants to the Company as additional compensation valued at $22,500 fortheir services. Also in February, the Company issued 25,000 shares valued at$3,250 to Betty Harland, a related party, as partial consideration for herpromissory note.  ARS also sold 92,593 shares for gross proceeds of $10,000.

In January 2002, the Company issued 1,020,000 shares forservices valued at $142,600. 

In December 2001, ARS sold 75,000 shares for grossproceeds of $7,500. Also in December, the Company issued 125,000 shares forservices valued at $12,500. 

In November 2001, ARS sold 10,000 shares for considerationof $1,710.

In October 2001, ARS sold 235,043 shares for $0.117 pershare for aggregate proceeds of $27,500.  Also in October 2001, ARS issued135,000 shares of common stock for future services, all of which are subject tovesting schedules.  In addition, ARS issued 800,600 shares of common stock toofficers and directors as a bonus.  These shares were valued at $80,060.

In August 2001, ARS issued 48,049 of common stock forservices valued at $40,000 in aggregate. 

In June 2001, ARS issued 135,000 shares of common stockfor future services.  Of the total number of shares issued for services, 65,000shares are subject to vesting schedules.  If these services are terminated,then any unvested shares will be forfeited.  The 70,000 shares of common stockthat have vested had a value of $9,500.

In May2001, ARS sold 50,000 shares of common stock for $0.77 per share or aggregateconsideration of $38,500.  Also in May 2001, ARS issued 270,740 shares ofcommon stock for future services.  Of the total number of shares issued forservices, 191,740 shares are subject to vesting schedules.  If these servicesare terminated, then any unvested shares will be forfeited.  The 79,000 sharesthat had vested have a value of $68,000.  ARS also issued 5,000 shares ofcommon stock for services valued at $4,250 in May, 2001.

In April 2001, ARS sold 200,000 shares of common stock for$0.60 per share or aggregate consideration of $120,000.  Also in April 2001,ARS issued 23,303 shares of common stock for services valued at $20,000.  ARSalso issued 12,000 shares of common stock for services valued at $4,438.

In March2001, ARS entered into the Equity Line of Credit Agreement with Cornell CapitalPartners, L.P.  To date, ARS received gross proceeds of $300,000 ($270,000 netproceeds) under the Equity Line of Credit upon the issuance of 2,780,617 commonshares. In October 2003, ARS requested and was granted a release from theEquity Line of Credit and related agreements by Cornell Capital Partners.

Also in March 2001, the Company sold 2,500 shares ofcommon stock for $1.12 per share, or aggregate consideration of $2,800.  TheCompany issued 45,000 shares of common stock for services valued at $47,813. The Company issued 140,000 shares of common stock to National FinancialCommunications Corp. for services valued at $131,250.  

In February 2001, ARSsold 22,000 shares of common stock for $1.15 per share, or aggregateconsideration of $25,300.  ARS also issued 41,300 shares of common stock to settleaccounts payable of $10,325.  Also in February 2001, ARS issued 152,700 sharesof common stock in lieu of management compensation valued at $33,400.

During the year ended January 31, 2001, the Company sold430,000 shares of common stock at prices ranging from $.25 per share to $1.50per share for aggregate consideration of $259,705.

In January 2001, the Company issued 1,000,900 shares ofcommon stock in lieu of management compensation valued at $219,000.  Also inJanuary 2001, the Company issued 40,000 shares of common stock for servicesvalued at $16,876.

In December 2000, the Company issued 1,000 shares ofcommon stock for transportation services valued at $375.

In November 2000, the Company issued 5,000 shares ofcommon stock for printing services valued at $2,656.

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In October 2000, the Company issued 50,000 shares ofcommon stock valued at $25,000 in connection with the appointment of anadvisory board member.  Also in October 2000, the Company issued 45,000 sharesof common stock for investor relations services valued at $22,500.

In September 2000, the Company issued 7,000 shares ofcommon stock to two directors in satisfaction of an outstanding loan in theamount of $4,760 owed by the Company.

In August 2000, the Company issued 50,000 shares of commonstock for services valued at $33,587.

In July 2000, the Company issued 200,000 shares of commonstock to the former shareholders of T & T in connection with the Company'sacquisition of T & T.  These shares were valued at $200,000 and wereredeemable. 

In May 2000, the Company issued 20,000 shares of commonstock for legal services valued at $52,500.

In February 2000, the Company issued 150,000 shares ofcommon stock for services valued at $225,000.

In January 2000, the Company issued 362,500 shares of commonstock in lieu of management compensation valued at $362,500.  Also in January2000, the Company issued 82,500 shares of common stock for consulting servicesvalued at $82,500.

During the year ended January 31, 1999, the Company sold187,500 shares of common stock for $1.00 per share or aggregate considerationof $187,500.  The Company also issued options to purchase 41,500 shares ofcommon stock at an exercise price of $1.25 per share and options to purchase41,500 shares of common stock at an exercise price of $1.75 per share.  Theseoptions are exercisable at any time after May 1, 1999, subject to certainconditions, and expire 60 months after that date.

In April, 1999, the Company issued 250,000 common sharesunder stock options exercised by certain consultants to the Company for $25.

With respect to the sale of unregistered securitiesreferenced above, all transactions were exempt from registration pursuant toSection 4(2) of the Securities Act of 1933 (the "1933 Act"), andRegulation D promulgated under the 1933 Act.  In each instance, the purchaserhad access to sufficient information regarding our Company so as to make aninformed investment decision.  More specifically, the Company had a reasonablebasis to believe that each purchaser was an "accredited investor" as defined inRegulation D of the 1933 Act and otherwise had the requisite sophistication tomake an investment in the Company's common stock.

**Item 6. Management's DiscussionAnd Analysis Or Plan Of Operation**

**FORWARD-LOOKING STATEMENTS**

Information included or incorporated by reference in thisfiling may contain forward-looking statements within the meaning ofSection 27A of the Securities Act and Section 21E of the ExchangeAct.  This information may involve known and unknown risks, uncertainties andother factors which may cause our actual results, performance or achievementsto be materially different from the future results, performance or achievementsexpressed or implied by any forward-looking statements.  Forward-lookingstatements, which involve assumptions and describe our future plans, strategiesand expectations, are generally identifiable by use of the words "may," "will,""should," "expect," "anticipate," "estimate," "believe," "intend" or "project"or the negative of these words or other variations on these words or comparableterminology.

This filing contains forward-looking statements, includingstatements regarding, among other things, (a*)*the Company's projectedsales and profitability, (b) the Company's growth strategies, (c) anticipatedtrends in the Company's industry, (d) the Company's future financing plansand (e) the Company's anticipated needs for working capital. Thesestatements may be found under "Management's Plan of Operation" and "Business,"as well as in this filing generally.  Actual events or results may differmaterially from those discussed in forward-looking statements as a result ofvarious factors.  In light of these risks and uncertainties, there can be noassurance that the forward-looking statements contained in this filing will infact occur.  In addition to the information expressly required to be includedin this filing, the Company will provide such further material information, ifany, as may be necessary to make the required statements, in light of thecircumstances under which they are made, not misleading.

***            Overview***

                ARS was formed in 1998 to design anddevelop advanced railway communications and data management systems and as suchhas a limited operating history.  In July 2000, ARS completed the purchase of T& T Diesel Power, Limited which has an operating history in excess of 20years. However, recent under performance by T&T resulted in the sale ofT&T in January 2003. In recognition of the Company's difficulty in securingsufficient financing to continue in its current structure, the Board ofDirectors recommended that the Company revisit its capital structure and alsoits business plan. As a result, the Company has undertaken several changes inorder to bring value to shareholders.

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At a Special Meeting of Shareholders held December 5,2002, the Company's shareholders approved an increase in the authorized sharecapital of the Company to 500,000,000 shares.

In February 2003, the Company's Board of Directorsrecommended, and the shareholders approved, a reverse stock split on the ratioof 1 (one) post split share for each 50 (fifty) pre split shares held byshareholders. Following the filing and acceptance of schedule 14 C, the reversesplit became effective on March 26, 2003. The Company's trading symbol was alsochanged on March 26 to ARSW.

On March 28, 2003, the Company entered into a Letter ofIntent with Alexander and Wade Inc to acquire 100% of its wholly ownedsubsidiary, Majestic Refilter, Ltd. On April 8, 2003, the Board of ARS approvedthe transaction under which ARS issued 2 million shares for the acquisition.The purchase of Majestic Refilter closed on April 22, 2003. More detaileddiscussion of this product and its benefits to ARS are noted below.

On April 25, ARS acquired all of the outstanding commonshares of HMM Capital Holdings Inc. and with this transaction also acquired thelicense to distribute the ARS Fire Safety Tec fire retardant doors. The firedoors are approved by United Laboratories in the United States and Canada. Theretrofit fire doors are protected by patent in the US. The doors meet thecurrent safety legislation guidelines imposed in the US and Canada and havebeen sold in North America for the past several years. As consideration, ARSissued 10 million common shares to the shareholders of HMM Capital Holdings,Inc. in exchange for all 10 million shares of HMM outstanding.

Given the above, the Company has refocused its businessstrategy for 2003 and beyond. The fire doors are expected to bring revenue tothe Company immediately and the Company will also focus on the continueddevelopment of Crosslogix and the Refilter product. However, it must be notedthat the customer acceptance of these products is not assured  Since January31, 2002, ARS has raised $10,000 from the sale of securities. Other operatingfunds were provided from T&T operations or through management loansaggregating $54,117.

**Resultsof Operations**

**TwelveMonths Ended January 31, 2003 Compared To Twelve Months Ended January 31, 2002**

*Sales. *ARS had sales of $31,500 versus nil in thetwelve months ended January 31, 2003 and 2002, respectively.  These salesrelate to a license agreement to sell the ARS Automated Railway Crossing inChina.

*Total Operating Expenses. *ARS' total operatingexpenses decreased by $672,178 from $1,628,781 in the twelve months endedJanuary 31, 2002 to $956,603 in the comparable period in the current period. The decrease in operating expenses is due to reductions in compensation,professional fees, advertising and promotional and development expenses.

*Loss re discontinued operations:* In January 2003,ARS completed the sale of T&T Diesel Power Limited which was effectiveOctober 31, 2002. As such, the Company has reported T&T operating resultsas a discontinued operation. The loss for the current year is $66,423 versus$52,697 for the prior year.

*Goodwill Adjustment*: The Company wrote down thevalue of Goodwill related to the acquisition of T&T by $264,868 to reflectthe loss anticipated by the sale. 

*Net Loss. *ARS had a net loss of $1,256,394, or $2.09per share, in the twelve months ended January 31, 2003 compared to a net lossof $1,681,478, or $5.70 per share, in the comparable period in the prior year. This reduction in net loss is primarily due to the decrease in operatingexpenses as noted above.

***Plan of operation***

The Company's prime focus will be the launch of ARS/FireSafety Tec ("FST"), which the Company feels will generate substantial revenuesfor ARS and it's investors. 

The Company's key corporate objectives and strategies for2003 are to secure sufficient financing to ensure sales, marketing, operationalobjectives and development are accomplished during FST's 2003 US launch andbeyond. FST plans to establish it's US head quarters in the north eastern US toimplement it's marketing and sales goals for FST's flagship product and newproduct introductions. FST will seek out strategic partners to market,distribute and install FBT products. 

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FST's marketing objectives and strategies are an essentialcomponent from the time of launch in order to effectively position theproduct's competitive benefits and establish awareness. Market evaluation, thefirst stage of the market strategy, has been completed during the last threeyears of test marketing and manufacturing the product in Canada. The Companyhas successfully sold over 70,000 units, mostly in Toronto Canada;notwithstanding, there is an increasing demand for the product in the US.Security, safety, cost savings, efficiencies and the adoption of NFPA-101 LifeSafety Code-2000 by 33 of the 50 states as of July 1, 2002 has presented anunprecedented opportunity for FST. FST is confident it will be the supplier ofchoice and first to address property owners needs and carry price points thatwill generate attractive returns for investors in FST. 

As part of its sales and marketing strategies, FBT willappoint a Vice President Sales and Service in the FST organization Q2 2003 toco-ordinate efforts and immediately start building a full dealer sales,customer support and service network. FST will   develop live videopresentations to train agents and our dealer network. FST will negotiatemonthly volume purchase contracts with stocking dealers for delivery beginningQ2 2003. While the prime focus of all the above strategies is distribution,these efforts will be supported by publicity and advertising programs directedat the property management industry, its customers, Fire Marshals and keylevels of government.  The FST Web site, direct mail, brochures, technicalsupport material and presentations to professional associations to which theproperty management industry executives and Fire Marshals belong will all playimportant roles in the overall communication program. After-sales service andsupport are considered of critical importance in building trust andrelationships that will be important when the Company introduces new productsand will be addressed through partnering contracts with locally recognizedservice suppliers. 

The Company's principal organization strategy is tomaintain the fewest personnel and / or consultants consistent with achievingtechnical and functional superiority. The Company will focus on maintaining itslowest cost producer, most reliable supplier status and focus its efforts onbeing an outstanding sales and marketing driven organization.

To implement these organizational strategies, FST will:
-       Build the FST organization under the guidance of our committedand experienced senior management team who are dedicated to the success of theCompany's business plan;  
-       Maintain an involved Board of Directors that will provideday-to-day support to the efforts of the small, full-time management team; 
-       Recruit an experienced and superior sales team leader to developand lead the sales and service function as a first priority; 
-       Focus on hiring a head office team with leadership and expertiseto manage the contributions of suppliers, contractors, dealers, agents andother personnel.  
-       Minimize support staff; and plan for all other functions to beperformed by consultants until there is financial justification to dootherwise. 

***Refilter***

The Company believes that there is an urgent needworldwide for the ARS Refilter and intends to seek out joint venture partnersto commercialize product. In April 2003, President Bush's administrationproposed reductions of greater than ninety percent in air pollution fromdiesel-powered farm, construction and other off-road equipment predicting thecurbs would prevent thousands of premature deaths, respiratory ailments andheart attacks. 

Regulatorsinternationally are setting stringent standards for diesel emissions that mustbe met at varying milestones during the coming decade. With over fifteenmillion diesel engines in operation in the U.S., and in excess of 50 millionworldwide, the current output of harmful emissions is estimated to be wellabove 5 million tons per year. According to the Environmental Protection Agency(EPA), each year smog and soot account for 15,000 premature deaths, one millionrespiratory problems, 400,000 asthma attacks and thousands of cases ofaggravated asthma, especially in children. It is this problem that, after twoyears of research, has lead to the development of an exhaust filtering systemcalled REFILTER.  

The ARS REFILTER Exhaust Filter System incorporates aremovable filter/converter system that is designed for cleaning when needed.This system does not require special fuel formulations and will work withcurrent engine management systems thus allowing for an estimated 90% reductionin emissions and therefore meeting the upcoming standards. The ARS REFILTERExhaust Filter System will reduce particle emissions from combustion enginesand has applications in transportation and construction as well as otherindustries. 

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The Company has completed the necessary research and iscontinuing development with regard to a proto-type unit. A search of theexhaust filter industry has shown that there are no similar systems availableon the market.  A patent notice of allowance has been granted.

Throughout the world diesel engines are the power plant ofchoice for running trucks, buses, trains and heavy industrial equipment. Thisis so because a diesel engine is considered the most efficient form of internalcombustion engine available. The combination of a slow development in "low" or"zero" emissions engines and the perception that there is an adequate supply ofpetroleum products leads us to believe that diesel engines will dominate theworlds roads for some time to come and in ever increasing numbers each year.  Althoughthe diesel engine is, and will continue to be the most popular form ofindustrial drive, it comes at a very heavy cost to the environment.

Regulators internationally are setting standards fordiesel emissions that must be met at varying milestones during the comingdecade. ARS Refilter has recently been issued a notice of allowance for apatent for the most practical system allowing industry to meet these standards.Refilter's intention is to execute the initial development and license thepatents.

With over fifteen million diesel engines in operation inthe US and in excess of 50 million worldwide, the current output of harmfulemissions is estimated to be well above 5 million tons per year. Regulatorsestimate that the 24,000 school buses in California alone generate 13 tons ofsoot daily. According to the Environmental Protection Agency (EPA), each yearsmog and soot account for 15,000 premature deaths, one million respiratoryproblems, 400,000 asthma attacks and thousands of cases of aggravated asthma,especially in children.

Recently, boththe EPA & CARB (California Air Resources Board) have been stronglysuggesting that the upcoming emission standards are "tailored to force the useof diesel particulate filters on new heavy-duty engines." During ARS Refilter'sresearch phase of this project, it was apparent that both a catalytic converterand a particulate trap would be needed to meet the standards set. Furtherresearch indicated that trying to make a filter system that would last the lifeof the vehicle would be impractical, primarily due to the typical long lifespan of a diesel engine. This led ARS Refilter to the most practical solution:a removable filter/converter system that is designed for cleaning when needed.This allows for the construction of a simple and robust filter/converter, as itonly needs to work for a specified amount of time before it is cleaned and putback into service. This system does not require special fuel formulations andwill work with current engine management systems thus allowing for an estimated90% reduction in emissions and therefore meeting the upcoming standards. Asuitable service industry will be required to manage the pickup, cleaning andredistribution of the filter/converters

The ARS RefilterExhaust Filter System will reduce particle emissions from combustion enginesand has applications in any industry that utilizes diesel engines. Patentsearches for comparable concepts have been completed and nothing similar hasbeen found.  To date 15% of the development has been conducted and completiontime for the balance of development, assuming sufficient financial resourcesare available, and licensing arrangements are made, will be approximately 10months.

1.   Ultimate "sale" of intellectual property includes a license fee, aroyalty, a combination of both of these, or an outright purchase.

2.    A license is consummated via a License Agreement, with minimumperformance conditions.

3.    Target market for each product is a manufacturer of similar orcomplimentary products.

Prior to thedirect marketing to potential licensees the Company intends to establishstrategic alliances with several companies that would benefit from thesuccessful introduction of this product.  Having established alliances willmake the product more appealing to potential OEM licensees. The companies thisinvolves are as follows:

1.       Manufacturers of canisters.2.       Manufacturer of filter core.3.       Manufacturer of catalyst core.4.       Service / recycling.

Crosslogix:

The Crosslogixcrossing control system has been under development for the past several years.Limited funding has resulted in ARS revisiting its business plan and focusingon revenue generating ventures. As such, Crosslogix will continue to bedeveloped albeit with less focus than in the past.

 

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ARS has helddiscussions with several potential partners with regard to continueddevelopment of Crosslogix. ARS will seek to further develop partnerships forthe joint development and marketing of the Crosslogix product. The primaryfocus of ARS with regard to Crosslogix will be to complete the vital safetyaudit of the system.

*           **Liquidity***

        As of  January 31, 2003, we had a working capital deficit of $  675,395.As a result of our operating losses for the year ended January 31, 2003  wegenerated a cash flow deficit of $  102,311 from operating activities. Cashflows from investing activities was $ 42,357_during the year ended  January 31,2003 . We met our cash requirements during this period through the privateplacement of $10,000_of common stock,  and $ 22,117 from advances from Companyofficers and shareholders  (net of repayments). 

        While we have raised capital to meet our workingcapital and financing needs in the past, additional financing is required inorder to meet our current and projected cash flow deficits from operations anddevelopment. We are seeking financing in the form of equity in order to providethe necessary working capital. We currently have no commitments for financing.There is no guarantee that we will be successful in raising the funds required.

By adjusting its operations anddevelopment  to the level of capitalization , management believes it hassufficient capital  resources to meet  projected cash flow deficits through thenext twelve months. However, if thereafter, we are not successful ingenerating sufficient liquidity from operations or in raising sufficientcapital resources, on terms acceptable to us, this could have a materialadverse effect on our business, results of operations liquidity and financialcondition.

            The independent auditor's report on the Company's January  31, 2003 financial statements included in this Form states that theCompany's recurring losses raise substantial doubts about the Company's abilityto continue as a going concern

***            Market Development***

The primary focus of ARS will be the sale and distributionof the Fire Safety Tec fire rated retrofit doors. As such, ARS marketingdevelopment will be be concentrated in this area.

FST's marketing objectives and strategies are an essentialcomponent from the time of launch in order to effectively position theproduct's competitive benefits and establish awareness. Market evaluation, thefirst stage of the market strategy, has been completed during the last threeyears of test marketing and manufacturing the product in Canada. The Companyhas successfully sold over 70,000 units, mostly in Toronto Canada;notwithstanding, there is an increasing demand for the product in the US.Security, safety, cost savings, efficiencies and the adoption of NFPA-101 LifeSafety Code-2000 by 33 of the 50 states as of July 1, 2002 has presented anunprecedented opportunity for FST. FST is confident it will be the supplier ofchoice and first to address property owners needs and carry price points thatwill generate attractive returns for investors in FST. 

As part of its sales and marketing strategies, FBT willappoint a Vice President Sales and Service in the FST organization Q1 2003 toco-ordinate efforts and immediately start building a full dealer sales,customer support and service network. FST will   develop live videopresentations to train agents and our dealers network, which in turn will makepresentations to property owners, property management executives and FireMarshals. FST will negotiate monthly volume purchase contracts with stockingdealers for delivery beginning Q2 2003. While the prime focus of all the abovestrategies is distribution, these efforts will be supported by publicity andadvertising programs directed at the property management industry, itscustomers, Fire Marshals and key levels of government.  The FST Web site,direct mail, brochures, technical support material and presentations toprofessional associations to which the property management industry executivesand Fire Marshals belong will all play important roles in the overallcommunication program. After-sales service and support are considered ofcritical importance in building trust and relationships that will be importantwhen the Company introduces new products and will be addressed throughpartnering contracts with locally recognized service suppliers. 

While the above will be the primary market focus, ARS willcontinue to seek markets and partners for the development completion ofCrosslogix and Refilter. In this regard, the Company will seek developmentpartners while developing marketing relationships for licensees of the Refilterand customers for Crosslogix. On October 23, 2001, the Company entered into amarketing relations contract Pursuant to the contract the marketing firm willprovide marketing services in exchange for 19,000 shares of ARS common stockissued monthly through October 2002.  The contract was terminated in July 2002.

***Publicity and Advertising***

The Company intends to aggressively pursue the leadingindustry publications for editorial coverage, publicity and trade advertising. The objective will be to create awareness of the Company's products.

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***Brochures and Technical Briefs***

ARS has developed a web site(http:www.arsnetworks.com) that provides on-line information about theCompany and allows the Company to communicate with the public, governmentauthorities, end users, property managers and executives in the safety, railwayand transportation industries..  In addition, the Company intends to use theweb site in direct marketing campaigns to build customer awareness from theground up.

***Financial Consulting Services***

On January 6, 2001, the Company entered into a financialconsulting services agreement.  In exchange for such consulting services, theCompany will issue shares to a consultant on a monthly basis with value of$10,000.  The term of the agreemen/t is for twelve months.  Beginning in theseventh month of the agreement, either party can terminate the agreement bygiving 60 days written notice. This contract expired in January 2002 and hasnot been renewed.

***Manufacturing Plan***

The Company intends that to use contractors for itsmanufacturing and assembly for the foreseeable future, with care taken toensure that ISO standards are maintained. 

***Procurement***

All components required for the ARS family of productswill be specified to meet the highest standards of product quality, reliabilityand manufacturing specifications

***Product Research and Development***

ARS will continue development of its Crosslogix andRefilter product during the foreseeable future. The Company will seek partnersto assist in the final development stages. However, the prime objective at thispoint in time is the market development of the fire doors and the developmentof related products.

The Company has held discussionsregarding development relations for the Crosslogix and Refilter products

***Purchase or Sale of Plant andSignificant Equipment***

During the current fiscal year, the Company does notanticipate purchasing or selling any plant or significant equipment.

***Significant Changes in Numbers ofEmployees***

The Company currently employs 5 persons under consultingcontracts. This number will increase over 2003 as the Company grows the FireSafety Door operation

***Patents***

ARS has patent protection under a license agreement forthe fire safety doors. The patent was granted February 18, 1997.

ARS has patent protection, under a license agreement, foran Automated Railway Crossing. The patent was granted in June 2001..   

A patent notice of allowance has been granted for theRefilter product and the Company anticipates the patent will be issued with inthe next two months.

*Effect of Recent Accounting Pronouncements*

In July 2001, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standards No. 141,"Business Combinations" (SFAS No. 141), and Statement of FinancialAccounting Standards No. 142, "Goodwill and Other Intangible Assets"(SFAS No. 142). The FASB also issued Statement of Financial Accounting StandardsNo. 143, "Accounting for Obligations Associated with the Retirement ofLong-Lived Assets" (SFAS No. 143), and Statement of Financial AccountingStandards No. 144, "Accounting for the Impairment or Disposal ofLong-Lived Assets" (SFAS No. 144) in August and October 2001,respectively.

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SFAS No. 141 requires the purchase method of accountingfor business combinations initiated after June 30, 2001 and eliminates thepooling-of-interest method. The adoption of SFAS No. 141 had no material impacton the Company's consolidated financial statements.

Effective January 1, 2002, the Company adopted SFAS No.142. Under the new rules, the Company will no longer amortize goodwill andother intangible assets with indefinite lives, but such assets will be subjectto periodic testing for impairment. On an annual basis, and when there isreason to suspect that their values have been diminished or impaired, theseassets must be tested for impairment, and write-downs to be included in resultsfrom operations may be necessary. SFAS No. 142 also requires the Company tocomplete a transitional goodwill impairment test six months from the date ofadoption.

Any goodwill impairment loss recognized as a result of thetransitional goodwill impairment test will be recorded as a cumulative effectof a change in accounting principle no later than the end of fiscal year 2002.The acquisition of T & T was accounted for using the purchase method. As ofJanuary 31, 2002, the net carrying amount of goodwill was $329,200. The Companyhas completed its impairment test and recorded goodwill impairment charge of $264,868 for the year ended January 31, 2003.

 SFAS No. 143 establishes accounting standards for therecognition and measurement of an asset retirement obligation and itsassociated asset retirement cost. It also provides accounting guidance forlegal obligations associated with the retirement of tangible long-lived assets.SFAS No. 143 is effective in fiscal years beginning after June 15, 2002, withearly adoption permitted. The Company expects that the provisions of SFAS No.143 will not have a material impact on its consolidated results of operationsand financial position upon adoption. The Company plans to adopt SFAS No. 143effective January 1, 2003.

SFAS No. 144 establishes a single accounting model for theimpairment or disposal of long-lived assets, including discontinued operations.SFAS No. 144 superseded Statement of Financial Accounting Standards No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of" (SFAS No. 121), and APB Opinion No. 30,"Reporting the Results of Operations - Reporting the Effects of Disposalof a Segment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions". The Company adopted SFAS No. 144effective January 1, 2002. The adoption of SFAS No. 144 had no material impacton Company's consolidated financial statements.

In April 2002, the FASB issued Statement No. 145,"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASBStatement No. 13, and Technical Corrections." This Statement rescinds FASBStatement No. 4, "Reporting Gains and Losses from Extinguishment ofDebt", and an amendment of that Statement, FASB Statement No. 64,"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements"and FASB Statement No. 44, "Accounting for Intangible Assets of MotorCarriers". This Statement amends FASB Statement No. 13, "Accountingfor Leases", to eliminate an inconsistency between the required accountingfor sale-leaseback transactions and the required accounting for certain leasemodifications that have economic effects that a similar to sale-leasebacktransactions. The Company does not expect the adoption to have a materialimpact to the Company's financial position or results of operations.

In June 2002, the FASB issued Statement No. 146,"Accounting for Costs Associated with Exit or Disposal Activities."This Statement addresses financial accounting and reporting for costsassociated with exit or disposal activities and nullifies Emerging Issues TaskForce (EITF) Issue No. 94-3, "Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring)." The provisions of this Statement areeffective for exit or disposal activities that are initiated after December 31,2002, with early application encouraged. The Company does not expect theadoption to have a material impact to the Company's financial position orresults of operations.

In October 2002, the FASB issued Statement No. 147,"Acquisitions of Certain Financial Institutions-an amendment of FASBStatements No. 72 and 144 and FASB Interpretation No. 9", which removesacquisitions of financial institutions from the scope of both Statement 72 andInterpretation 9 and requires that those transactions be accounted for inaccordance with Statements No. 141, Business Combinations, and No. 142,Goodwill and Other Intangible Assets. In addition, this Statement amends SFASNo. 144, 

Accounting for the Impairment or Disposal of Long-LivedAssets, to include in its scope long-term customer relationship intangibleassets of financial institutions such as depositor- and borrower-relationshipintangible assets and credit cardholder intangible assets. The requirementsrelating to acquisitions of financial institutions are effective foracquisitions for which the date of acquisition is on or after October 1, 2002.The provisions related to accounting for the impairment or disposal of certainlong-term customer-relationship intangible assets are effective on October 1,2002. The adoption of this Statement did not have a material impact to theCompany's financial position or results of operations as the Company has notengaged in either of these activities.

In December 2002, the FASB issued Statement No. 148,"Accounting for Stock-Based Compensation-Transition and Disclosure",which amends FASB Statement No. 123, Accounting for Stock-Based Compensation,to provide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation. Inaddition, this Statement amends the disclosure requirements of Statement 123 torequire prominent disclosures in both annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used on reported results. The transition guidance andannual disclosure provisions of Statement 148 are effective for fiscal yearsending after December 15, 2002, with earlier application permitted in certaincircumstances. The interim disclosure provisions are effective for financialreports containing financial statements for interim periods beginning afterDecember 15, 2002. The adoption of this statement did not have a materialimpact on the Company's financial position or results of operations as theCompany has not elected to change to the fair value based method of accountingfor stock-based employee compensation.

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            In January 2003, the FASB issued Interpretation No. 46,"Consolidation of Variable Interest Entities." Interpretation 46changes the criteria by which one Company includes another entity in itsconsolidated financial statements. Previously, the criteria were based oncontrol through voting interest. Interpretation 46 requires a variable interestentity to be consolidated by a Company if that Company is subject to a majorityof the risk of loss from the variable interest entity's activities or entitledto receive a majority of the entity's residual returns or both. A Company thatconsolidates a variable interest entity is called the primary beneficiary ofthat entity. The consolidation requirements of Interpretation 46 applyimmediately to variable interest entities created after January 31, 2003. Theconsolidation requirements apply to older entities in the first fiscal year orinterim period beginning after June 15, 2003. Certain of the disclosurerequirements apply in all financial statements issued after January 31, 2003,regardless of when the variable interest entity was established. The Companydoes not expect the adoption to have a material impact to the Company'sfinancial position or results of operations.

Trends, Risks and Uncertainties

          Wehave sought to identify what we believe to be the most significant risks to ourbusiness, but we cannot predict whether, or to what extent, any of such risksmay be realized nor can we guarantee that we have identified all possible risksthat might arise. Investors should carefully consider all of such risk factorsbefore making an investment decision with respect to our Common Stock.  

Cautionary Factors that may Affect Future Results

         We providethe following cautionary discussion of risks, uncertainties and possibleinaccurate assumptions relevant to our business and our products. These arefactors that we think could cause our actual results to differ materially fromexpected results. Other factors besides those listed here could adverselyaffect us.

Limited Operating History Anticipated Losses; Uncertaintyof Future Results -

          Wewere incorporated in  1998  and therefore  have a limited operatinghistory upon which an evaluation of our Company and our prospects can be based.Our prospects must be evaluated with a view to the risks encountered by acompany in an early stage of development, particularly in light of theuncertainties relating to the new and evolving products and  methods whichwe intend to develop and market, and the acceptance of our business model. Wewill be incurring costs to: (i) design, develop, manufacture  andmarket  our products; (ii) to establish distribution relationships; and (iii) to build an organization. To the extent that such expenses are notsubsequently followed by commensurate revenues, our business, results ofoperations and financial condition will be materially adversely affected. We,therefore, cannot insure that we will be able to immediately generatesufficient revenues. We expect negative cash flow from operations to continuefor the next 12 months as we continue to develop and market our business. Ifcash generated by operations is insufficient to satisfy our liquidity, we maybe required to sell additional equity or debt securities. The sale ofadditional equity or convertible debt securities would result in additionaldilution to our stockholders. Our initial operations may not be profitable,since time will be required to build our business to the point that ourrevenues will be sufficient to cover our total operating costs and expenses.Our reaching a sufficient level of sales revenues will depend upon a largenumber of factors, including availability of sufficient working capital, thenumber of  customer  we are able to attract,  and the costs ofmanufacturing and distributing our products.

Liquidity and Working Capital Risks; Need for AdditionalCapital to Finance Growth and Capital Requirements

          Wehave had limited working capital and we are relying upon the private placementof our common stock and advances from Company officers and shareholders tooperate. We may seek to raise capital from public or private equity or debtsources to provide working capital to meet our general and administrative costsuntil net revenues make the business self-sustaining.  We cannot guaranteethat we will be able to raise any such capital on terms acceptable to us or atall. Such financing may be upon terms that are dilutive or potentially dilutiveto our stockholders. If alternative sources of financing are required, but areinsufficient or unavailable, we will be required to modify our growth andoperating plans in accordance with the extent of available funding.

Potential fluctuations in quarterly operating results -

          Ourquarterly operating results may fluctuate significantly in the future as aresult of a variety of factors, most of which are outside our control,including: the demand for our products; seasonal trends in purchasing, theamount and timing of capital expenditures and other costs relating to thedevelopment of our products; price competition or pricing changes in theindustry; technical difficulties or system downtime; general economicconditions, and economic conditions specific to the fire saftey industry. Ourquarterly results may also be significantly impacted by the impact of theaccounting treatment of acquisitions, financing transactions or other matters.Particularly at our early stage of development, such accounting treatment canhave a material impact on the results for any quarter. Due to the foregoingfactors, among others, it is likely that our operating results will fall belowour expectations or those of investors in some future quarter.

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Dependence Upon Management

         Our future performance and success are dependant upon the efforts andabilities of our Management. If we lost the services of  key employees beforewe could get a qualified replacement, that loss could materially adverselyaffect our business.  We do not maintain key man life insurance on any ofour Management.

Lack of Independent Directors

           We cannot guarantee that our Board of Directors will have a majority ofindependent directors in the future. In the absence of a majority ofindependent directors, our executive officers, who are also principalstockholders and directors, could establish policies and enter intotransactions without independent review and approval thereof. This couldpresent the potential for a conflict of interest between the Company and itsstockholders generally and the controlling officers, stockholders or directors.

Limitation of Liability and Indemnification of Officersand Directors

          Ourofficers and directors are required to exercise good faith and high integrityin our Management affairs. Our Articles of Incorporation provide, however, thatour officers and directors shall have no liability to our shareholders forlosses sustained or liabilities incurred which arise from any transaction intheir respective managerial capacities unless they violated their duty ofloyalty, did not act in good faith, engaged in intentional misconduct orknowingly violated the law, approved an improper dividend or stock repurchase,or derived an improper benefit from the transaction. Our Articles and By-Lawsalso provide for the indemnification by us of the officers and directorsagainst any losses or liabilities they may incur as a result of the manner inwhich they operate our business or conduct the internal affairs, provided thatin connection with these activities they act in good faith and in a manner thatthey reasonably believe to be in, or not opposed to, the best interests of theCompany, and their conduct does not constitute gross negligence, misconduct orbreach of fiduciary obligations. To further implement the permittedindemnification, we have entered into Indemnity Agreements with our officersand directors.  

Auditor'sOpinion Expresses Doubt About The Company's Ability To Continue As a"Going Concern" 

            Theindependent auditor's report issued in connection with the audited financialstatements of the Company for the period ended January 31, 2003, expresses"substantial doubt about its ability to continue as a going concern,"due to the Company's continuing losses from operations. If the Company isunable to operate profitably, the Company may have to cease to exist, whichwould be detrimental to the value of the Company's common stock. The Companycan make no assurances that its business operations will develop and providethe Company with significant cash to continue operations.

**Item 7.  Financial Statements**

            The  financialstatements and supplementary financial information which are required to befiled under this item are presented under Item 13. Exhibits, FinancialStatement Schedules and Reports on Form 10-KSB in this document, and areincorporated herein by reference.  

**Item 8.  Changes In and DisagreementsWith Accountants on Accounting and Financial Disclosure**

         On  December  2, 2002,   Lougen Valenti Bookbinder & Weintraub LLP("Lougen Valenti") , resigned as the Company's certifying accountant. LougenValenti's  reports on the Company's financial statements for the years endedJanuary 31, 2002 and 2001  did not contain an adverse opinion or disclaimer ofopinion; however, the audit report for the years ended January 31, 2002 and 2001contained an explanatory paragraph regarding the substantial doubt about theCompany's ability to continue as a going concern. The decision to change itscertifying accountant was approved by the Company's Board of Directors. Duringthe years ended January 31, 2002  and  2001 , and the subsequent interim periodthrough  December  2, 2002 the Company has not had any disagreements with Lougen Valenti on any matter of accounting principles or practices, financialstatement disclosure or auditing scope or procedure.

18

          TheCompany has engaged Russell Bedford Stefanou Mirchandani LLP ( Russell BedfordStefanou Mirchandani) as its certifying accountant as of  December  2, 2002 forthe Company's fiscal year ending January 31, 2003 . The Company had not consulted with Russell Bedford Stefanou Mirchandani prior to Russell Bedford StefanouMirchandani's retention on either the application of accounting principles orthe type of opinion Russell Bedford Stefanou Mirchandani might render on theCompany's financial statements.

 
19

**PART III**

**Item 9.  Directors, ExecutiveOfficers, Promoters and Control Persons; Compliance with Section 16(a) of theExchange Act**

The Company's present directors and executive officers areas follows:

**Name**

**Age**

**Position**

Sydney A. Harland

52

Chief Executive Officer, President and  Director

Mark P. Miziolek

46

Chief Financial Officer and Director

Ronald A. Moodie

66

Corporate Secretary and Director

Warrick Tranter

52

Director

Richard Mangiarelli

60

Director

Andrew Mercer

55

Director 

In September 2002, Miachael Kirbyand Dale Sisel resigned from the Board to pursue other interests. The Boardappointed Daniel Murphy and Mark Miziolek as interim directors.

On January 15, 2003, Peter Hoult, Robert Esecson, DonaldHathaway and Daniel Murphy resigned from the Board as agreed in a stockexchange agreement that the Company had approved. Subsequently, the other partyterminated the transaction. As a result, the majority shareholders appointedRonald Moodie, Warwick Tranter, Richard Mangiarelli and Andrew Mercer to theBoard as interim directors. Sydney Harland and Mark Miziolek were terminated asofficers of the Company as well under the agreement. They were reappointed tothe Board and as officers as a result of the termination of the stock exchangetransaction.  

The following is a brief description of the background ofthe directors and executive officers of the Company.

***Sydney A. Harland*** has been Chief ExecutiveOfficer and President and a director of the Company since inception.  He is aco-founder of the Company.  From 1987 to 2002, Mr. Harland was President,founder and sole shareholder of Ameri-can Equipment Sales and Leasing Inc., aproduct development and sales Company.  From 1995 to December 2000, he was aconsultant to Ontario Hydro Technologies.  He has over 20 years of businessexperience, primarily in sales and marketing, in the railway,telecommunications, nuclear utility and mining industries.  He received afour-year Electrical Diploma from C.P Tech., Montreal, Quebec, Canada andstudied Business Administration and Marketing at Dawson College Montreal,Quebec, Canada.  He has been elected a member of the Canadian Institute ofMarketing, and the American Railway Engineering and Maintenance-of-WayAssociation.  

***Mark P. Miziolek*** has been the Vice PresidentFinance, Chief Financial Officer and Treasurer of the Company since May 20,1998 and was appointed a director in September 2002.  From 1994 to 1998, Mr.Miziolek became the Treasurer and Chief Financial Officer and later thePresident, Treasurer & CFO of Thornmark Holdings Inc./ThornmarkCorporation, a privately held investment holding Company with interests inindustrial and residential real estate development and Great Lakes and oceanshipping.  From 1981 to 1994, Mr. Miziolek was first the Assistant Controllerand then the Controller of Upper Lakes Group Inc., one of Canada's largest drybulk shipping companies with 21 vessels operating on the Great Lakes and in 4vessels in ocean trades.  Mr. Miziolek received a B. Com. from the Universityof Toronto in 1983 and became a Certified General Accountant in 1989.

20

***             Ronald Moodie*****was an Advisor to theCompany since June 5, 1998 and was appointed Controller in June 2000.  InFebruary 2003, Mr. Moodie was appointed to the Board and also serves asCorporate Secretary/ From 1989 to present, Mr. Moodie has been President ofMoodie Consulting, providing management and investment services to commercialreal estate developers and heavy equipment suppliers to the railway andconstruction industries.  From 1953 to 1989, Mr. Moodie was in the precious andnon-precious metals and the ferrous and non-ferrous metals manufacturingindustries and the ferrous metals distribution industry mostly with what arenow Johnson Matthey, Jannock and Russel Metals.  Mr. Moodie finished his careerat Vincent Steel, a division of the present Russel Metals, as Vice President, aposition he held for 15 years.  Mr. Moodie studied Registered IndustrialAccounting at the University of Toronto, and received a real estate license tosell commercial real estate from Ryerson Polytech University.  

*Warwick A. Tranter*, 52, has been a Director of the Company since February 2003. From 1996to present, Warwick has held the position of President, and sole shareholder ofInfinite Solutions, Inc., a consulting and sales Company that specializes inthe development of wholesale dealer network marketing of safety and securityproducts. Whereby, ISI confers with consulting engineering firms to specify newproducts for implementation in the commercial building industry. From 1993 tothe 1996 Warwick was General Manager of Terval Inc. where he was responsiblefor building wholesale dealer networks and introducing new products toconsulting engineering firms. Warwick has more than 20 years of businessexperience, primarily in management of private Company's, in the commercialbuilding industry. Warwick holds a first class electricians certification,granted by the Alberta licensing bureau.

*Richard Mangiarelli* wasappointed to the Board of Directors of ARS Networks in February 2003. He hasserved as President, CEO and Director of Cybertel Communications Corporation, apublic Company, since 1996. Prior, thereto, he served as President and Directorof United States Alternate Energy Corporation, a public Company and asPresident and Director of Dynasty Resources, a public Company. Mr. Mangiarellireceived a Bachelors Degree from the University on Connecticut and a Mastersdegree in Business Administration from Pepperdine University. Prior to enteringbusiness Mr. Mangiarelli served in the United States Marine Corps. While in theMarine Corps he attended and graduated from the Amphibious Warfare Course,Staff and Command College and the Naval War College. Mr. Mangiarelli served asPlatoon Commander, Company Commander, Battalion Commander, Regimental Commanderand retired from the Marine Corps at the rank of Colonel.

*Andrew E. Mercer* wasappointed to the Board of Directors of ARS in February 2003. He has served aschairman, chief executive officer and president of The Mercer Group, Inc. since1997. The Mercer Group is a privately held corporation offering businessmanagement and consulting services to companies which have not filedregistration statements covering the initial public offerings of theirsecurities. The Mercer Group specializes in offering consulting for corporatestructuring, business plan development, corporate document preparation, mergersand acquisitions, and, direct equity investment and other financial services.Mr. Mercer is also Chairman, President, and Chief Executive Officer of CommerceDevelopment Corporation, Ltd.

21

**DirectorshipsHeld In Reporting Companies**

Mr. Mangiarelli is a director of United States AlternateEnergy Corporation.

***Other Key Employees***

In addition to the personsidentified above, the Company has the following key employees:

**Name**

**Age**

**Position**

Shabir Gova

37

Vice  President, Technology

            The following is a brief description of the background ofthese key employees who occupy their positions on a part time basis.

***            Shabir Gova***has been Vice President,Technology of the Company since inception.  From 1990 to 1998, Mr. Gova workedfor Shlumberger Systems & Services Canada Limited, and has held thefollowing positions:  Design engineer, Senior Design Engineer, Manager, SystemsServices & Development, Manager, Technology and Development - Canada,Director, Information Technology - Canada.  Mr. Gova has progressive experiencein Software/ Firmware systems design and development, Interactive DOS andWindows based software applications (employing an object-oriented framework)used to remotely program, read and provide a graphical analysis of datagathered by monitoring devices, real time multitasking embedded systems usedfor high-speed data acquisition and storage, Graphical User Interfaces used asa front-end for various existing software applications and C++ Class Librariesused as the core technology for software under development.  From 1989 to 1990,Mr. Gova was Software Development & Systems Support Analyst, for IBM CanadaLimited.  Mr. Gova was responsible for automation of the SIMM prototypefabrication laboratory.  Mr. Gova received an Honours Bachelor of AppliedScience in Systems Design Engineering, Options in Management Science andComputer Engineering, from the University of Waterloo, Ontario, Canada.  Mr.Gova is a member of the IEEE.

**Item 10.  Executive Compensation**

            The following table shows all the cash compensation paidby the Company, as well as certain other compensation paid or accrued, duringthe fiscal years ended January 31, 2003, 2002 and 2001 to the Company's twohighest paid executive officers.  No restricted stock awards, long-termincentive plan payouts or other types of compensation, other than thecompensation identified in the chart below, were paid to these executiveofficers during these fiscal years.  No other executive officer earned a totalannual salary and bonus for the year ended January 31, 2003 in excess of$100,000.  

** **

**Annual Compensation**

**Long-Term Compensation**

** **

** **

** **

**Awards**

**Payouts**

** **

**Name and Principal Position**

**Year**

**Salary  ($)**

**Bonus  ($)**

**Other  AnnualCompensation  ($)**

**Restricted  StockAward(s)  ($)**

**Options/SARs  (#)**

**LTIP  Payouts  ($)**

**All Other  Compensation  ($)**

** **

** **

** **

** **

** **

** **

** **

** **

Sydney A. Harland,  

2003

$165,000

-0-

-0-

-0-

-0-

-0-

$106,726

President and Chief

2002

$180,000

$90,000

-0-

-0-

2,226,923

-0-

-0-

Executive Officer

2001

$107,000

-0-

-0-

-0-

1,236,860

-0-

-0-

Mark P. Miziolek, Vice  

2003

$77,000

-0-

-0-

-0-

-0-

-0-

$49,805

President Finance and

2002

$84,000

$42,000

-0-

-0-

969,231

-0-

-0-

Chief Financial Officer

2001

$51,000

-0-

-0-

-0-

35,500

-0-

$113,000(1)

___________________

      (1)          These amounts relateto the extension of stock options granted in 1999 that were due to expire inApril 2000. 

22

                The following table contains information regardingoptions exercised in the year ended January 31, 2003, and the number of sharesof common stock underlying options held as of January 31, 2003, by theCompany's two highest paid executive officers.  

**AGGREGATEDOPTIONS/SAR EXERCISES IN LASTFISCAL YEAR AND FISCAL YEAREND OPTIONS/SAR VALUES**(1)

 

**Name**

**Shares  Acquired onExercise**

**ValueRealized ($)**

**Number of Securities Underlying  Unexercised Options/SAR's at Fiscal Year End(1)**

**Value of Unexercised   In-the-Money Options/SAR's at Fiscal Year End(2)**

Sydney A.  Harland, President and Chief Executive Officer

-700,000-

-5,000-

Exercisable:  77,877  Unexercisable :           0

$ 0

Mark P. Miziolek, Vice  President Finance and Chief Financial Officer 

-200,000-

-2,500-

Exercisable:   17,510  Unexercisable :           0

$ 0

_________________________________(1)           These grants representoptions to purchase common stock.  No SAR's have been granted.

(2)          The value of the unexercised in-the-money options were calculated by determiningthe difference between the fair market value of the common stock underlying theoptions and the exercise price of the options as of January 31, 2003.

***            Equity Incentive Plan***

            In May 2002, the Company adopted the Stock BasedCompensation Plan to replace the previous Equity Incentive Plan. The Companyinitially set aside 5 million shares under the plan for compensation fordirectors, officers, employees and external consultants. The Board modified theplan in December 2002 increasing the amount of stock available to 100 millionshares. 

Thepurpose of the Stock Based Incentive Compensation Plan (the "Plan") is toprovide directors, officers, key employees and certain external consultantswith additional incentives by increasing their proprietary interest in theCompany. Awards under the Plan will be in the form of stock or stock options asdetermined by the Board of Directors. 

Certainspecific guidelines for each of management, the Board of Directors and externalconsultants are included in the Plan as outlined below:

Managementand Key Employees:

1.   Annual compensationthat has not been received by management will be paid in the form of stock orstock options in the first quarter following the end of the calendar year. Theunderlying stock to be paid to management will be valued at the unpaid cashamount and the average stock price over the year for which the compensationamount relates.

2.   Annual SpecificIncentive Compensation will be established at the beginning of each year foreach member of management and approved by the Board of Directors. 

3.   IncentiveCompensation will be awarded based on approval of the Board of Directors asfollows:

a.   Successfulachievement of the objective results in 100% payout of the bonus amount relatedto the objective.

b.   90% or lessachievement of the objective results in no bonus award related to thatobjective.

c.   Greater than 100%achievement of the objective will results in additional bonus awards asdetermined by the Board of Directors.

23

d.      The underlying cashamount related to the bonus determined may be paid in stock or stock options.    The number of shares or options granted will be determined by the cash valuedue and the average     price of the Company's stock over the year to which theaward is related.

e.       The Board may in itsfull discretion award additional bonus awards for performance over and     abovethe achievement of personal and corporate objectives.

Board ofDirectors

EachBoard member will have a contract as approved at the annual general meeting ofthe Company. Additionally, Board members receive stock based compensation foradditional duties such as serving as the Chair, serving on a committee of theBoard or for performing additional duties. 

Inthe first quarter of each year, the Board will review overall corporate performancefor the prior year and additional compensation may be awarded to the entireBoard or certain individual members based on performance. 

Allcompensation for the Board of Directors will be in the form of stock or stockoptions and are considered awards under the Plan.

ExternalConsultants:

TheCompany currently utilizes the services of various external consultants. As ameans of incentive to certain consultants for their services and longer termcommitment to achievement of corporate goals and objectives, certainconsultants will be paid partially or in full by the issuance of Company stockfor their services. This incentive for these consultants will be paid under thePlan.

Inorder to qualify for stock awards under the plan, each consultant will enterinto a contractual arrangement with the Company that will include payment inthe form of stock. Management will have discretion on these contracts in theordinary course of business. 

Valuationof the underlying stock award will be based on the individual contract enteredinto.

Other:

TheBoard in its full discretion may make stock awards under the Plan tomanagement, key employees or consultants based on individual achievement.

This Plan will only modified with the approval of the ARSNetworks Board of Directors.

During the year ended January 31, 2003, there were nostock option grants made to management or the Board of Directors.  Shares wereissued to management, directors, consultants and other key personnel ascompensation and as settlement of contracts for services provided to theCompany.

***Compensation of Directors***

Directors of the Company are appointed by the shareholdersat the annual meeting with the exception of interim directors who have beenappointed by the Board. In the past, the Board has not been compensated withthe exception of stock option awards. In 2001, the Board of Directorsrecommended that the Chairman and committee chairs receive modest compensationfor their services in these capacities. Other Board members would be compensatedbased on Company performance or their individual performance of specific, preauthorized tasks on behalf of the Company. 

24

***            Management Agreements***

On January 1, 2001, the Company entered into a ManagementAgreement with Ameri-can Equipment Sales and Leasing.  Under the terms of theAgreement, Mr. Harland, President of Ameri-can Equipment Sales and Leasing,will provide employment services as the Company's President and Chief ExecutiveOfficer.  The Agreement has a three year term and pays Mr. Harland $180,000 peryear, subject to an annual review by the Company's Board of Directors.  Mr.Harland is also entitled to a bonus of up to 50% of his base compensation basedon annual performance criteria established annually by the Board of Directors. In addition, Mr. Harland will receive a monthly automobile allowance of$1,000.  The Company can terminate this Agreement at any time upon the paymentof two times Mr. Harland's then-existing compensation, plus $1,000,000. 

On January 1, 2001, the Company entered into a ManagementAgreement with Mark Miziolek.  Under the terms of the Agreement, Mr. Miziolekwill serve as the Company's Vice President Finance and Chief FinancialOfficer.  The Agreement has a three year term and pays Mr. Miziolek $84,000 peryear, subject to an annual review by the Company's Board of Directors.  Mr.Miziolek is also entitled to a bonus of up to 50% of his base compensationbased on annual performance criteria established annually by the Board ofDirectors.  The Company can terminate this Agreement at any time upon thepayment of two times Mr. Miziolek's then-existing compensation.

In January 2003, the Company settled all obligations underthese contracts with the issuance of stock. The Company had approved atransaction that would have changed control of the Company. As such, the Boardand management were terminated and their contracts paid out. Subsequent tothese actions, the other party terminated the transaction. As a result, theCompany's former management and majority shareholders have assumedresponsibility for the day to day activities of the Company and appointed fournew interim directors effective February 1, 2003. 

**Item 11.  Security Ownership ofCertain Beneficial Owners and Management**

***            Voting Securities and PrincipalHolders Thereof***

            The following table sets forth, as of April 25, 2003,information with respect to the beneficial ownership of our common stock by(i) persons known by us to beneficially own more than five percent of theoutstanding shares, (ii) each director, (iii) each executive officerand (iv) all directors and executive officers as a group.

**Common Stock   Beneficially Owned**

**Name/Address**

**Number**

**Percent(1)**

Sydney A. Harland ..................................................   2155 Winchester Court  Burlington, Ontario, Canada  L7P 3M7

1,545,925(2)

10.3%

Mark P. Miziolek ......................................................   1384 Clearwater Crescent  Oakville, Ontario, Canada  L6H 7J7

1,421,710(3)

9.5%

Ron Moodie  30 Cudmore Road  Oakville, Ontario

1,486,128 (4)

9.9%
       
Warwick Tranter.......................................................  

1,441,000

9.6%%
       
George Perlin

4,150,000

27.6%

All Directors, Officers and greater than 10% shareholders as a group

66.9
 
25

 

(1) Applicablepercentage of ownership is based on 15,015,006 shares of common stockoutstanding as of April 25, 2003, together with applicable options for eachshareholder.  Beneficial ownership is determined in accordance with the rulesof the Commission and generally includes voting or investment power withrespect to securities.  Shares of common stock subject to options that arecurrently exercisable or exercisable within 60 days of April 25, 2003 are deemedto be beneficially owned by the person holding such options for the purpose ofcomputing the percentage of ownership of such person, but are not treated asoutstanding for the purpose of computing the percentage ownership of any otherperson.  The common stock is the only outstanding class of equity securities ofour Company.

(2)  Includes options to purchase 77,877shares of common stock that can be acquired within sixty days of April 30,2003.

(3)  Includes options to purchase 17,150 shares of commonstock that can be acquired within sixty days of April 24, 2002.

(4)  Includes options to purchase 10,596 shares of commonstock that can be acquired within sixty days of April 24, 2002.

 

Mr. Harland and the Company's other executive officers ,directors and greater than 10% shareholders hold approximately 66.9% of theCompany's outstanding common stock.  As such, these people have the ability toapprove any action required by the shareholders, including the election of thedirectors.

**Item 12.  Certain Relationships andRelated Transactions**

The Company has entered into management agreements withMessrs. Harland and Miziolek.  See "Management Agreements."

On July 31, 2000, Mr. Harland's wife loaned the Company atotal of $100,000 Canadian dollars.  This loan was due in July 2001 and bearsinterest at 8.5% per year. The Company repaid $50,000 of the loan in January2003 from the proceeds on the sale of T&T and has also assigned the notereceivable in the amount of $47,000 (cdn) to Mrs. Harland.

During the fiscal year ended January 31, 2003, threeofficers of the Company advanced funds totaling 54,117 to the Company in orderto meet certain obligations of the Company. The Company will repay these loansas cash is raised or funds are generated from operations.

The Company entered into a License Agreement dated as ofMay 20, 1998 with Mr. Sydney A. Harland, the Company's President and ChiefExecutive Officer.  Under the terms of this agreement, Mr. Harland has grantedthe Company a non-exclusive license to certain intellectual property, a tradename and patents owned and developed by Mr. Harland.  In exchange for thislicense, the Company issued Mr. Harland a total of 4,520,239 shares of commonstock.

**Item 13.  Exhibits, Lists and Reportson Form 8-K.**

(a)           The following exhibits are filed as part ofthis registration statement:

 

26

** Exhibit No.**

**Description**

**Location**

2.1

Share Purchase Agreement dated as of  July 31, 2000 among the former shareholders of T & T Diesel Power, Ltd.  and the Company

Incorporated by reference  in  Registration Statement on Form SB-2 filed with the Commission on  September 19, 2001, as amended,

2.2

Escrow Agreement dated as of July 31,  2000 among the Pallet Valo, the former shareholders of T & T Diesel  Power, Ltd. and the Company

Incorporated by reference  in Registration  Statement on Form SB-2 filed with the Commission on September 19, 2001,  as amended,.

2.3

Promissory Note dated as of July 31,  2000 given by the Company to the former shareholders of T & T Diesel  Power, Ltd.

Incorporated by reference  in  Registration Statement on Form SB-2 filed with the Commission on  September 19, 2001, as amended,

3.1

Certificate of Incorporation

Incorporated by reference to  Amendment No. 5 to the Company's Registration Statement on Form 10-SB filed  with the Securities and Exchange Commission on September 7, 1999.

3.2

Articles of Amendment to the Articles  of Incorporation

Incorporated by reference in  Registration Statement on Form SB-2 filed with the Commission on  September 19, 2001, as amended,.

3.3

Bylaws

Incorporated by reference to Amendment No. 5 to the  Company's Registration Statement on Form 10-SB filed with the Securities and  Exchange Commission on September 7, 1999.

4.1

Lockup Agreement with Sydney Harland

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,

4.2

Lockup Agreement with Donald Hathaway

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,

4.3

Lockup Agreement with Robert Esecson

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,.

4.4

Lockup Agreement with Peter Hoult

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,

4.5

Lockup Agreement with Mark Miziolek

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,.

27

4.6

Lockup Agreement with Patrick Shea

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended,.

10.1

Consulting Agreement dated as of February 9, 2001 between  National Financial Communications Corp. and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.2

Equity Line of Credit Agreement dated as of March 22, 2001  between Cornell Capital Partners, L.P. and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.3

Escrow Agreement dated as of March 22, 2001 among Butler  Gonzalez LLP, First Union National Bank and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.4

Registration Rights Agreement dated as of March 22, 2001  between Cornell Capital Partners LP and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.5

Consulting Services Agreement dated as of March 22, 2001  between Yorkville Advisors Management, LLC and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.6

Management Agreement for Vice President Finance and Chief  Financial Officer dated as of January 1, 2001 between Mark P. Miziolek and the  Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.7

Management Agreement for President and Chief Executive  Officer dated as of January 1, 2001 between Sydney Harland and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.8

License Agreement dated as of May 20, 1998 between Sydney  Harland and the Company

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

10.9

Promissory Note dated as of July 31, 2001 in the original  principal amount of $100,000 Canadian Dollars given by the Company to Betty  Harland

 

Incorporated by reference in Registration Statement on  Form SB-2 filed with the Commission on September 19, 2001, as amended.

 

10.10

   Consulting services contract with Inc. Financial Group LLC dated January 29,  2002  Incorporated by reference in form 10KSB filed May 14, 2002
28

11.1

Statement re: Computation of Per Share Earnings

Provided herewith.

13

Financial Statements 

Form  S-8 registration Statement

Incorporated by reference in registration statement filed on  form S-8 February 28, 2002

Form  S-8 registration Statement

Incorporated by reference in registration statement filed on  Form S-8 June 25, 2002

Form  S-8 registration Statement

Incorporated by reference in registration statement filed on  Form S-8 December 8, 2002

Share  Purchase Agreement regarding the sale of T&T Diesel Power Limited

Provided Herewith

Plan  and Agreement of Reverse Triangular Merger

Incorporated by Reference on Form 8K filed April 25, 2003

Plan  and Agreement of Reverse Triangular Merger

Incorporated by Reference on Form 8K filed April 28, 2003

99.1

Certification  of CEO pursuant to Section 906 of the Sarbanes-Oxley  Act

Provided Herewith

99.2

Certification  of CFO pursuant to Section 906 of the Sarbanes-Oxley  Act

Provided Herewith

                 

(b)             On December 9, 2002, the Company filed a Current Report onForm 8-K dated December 2, 2002, reporting under Item 4 the resignation ofLougen Valenti Bookbinder & Weintraub LLP as the Company's certifyingaccountant and the appointment of Russell Bedford Stefanou & Mirchandini asthe new certifying accountant effective December 5, 2002. There were nodisagreements with the former auditors. The Company filed an amended 8-K withregard to this report on Dec 20, 2002

                OnDecember 20, 2002, the Company filed a Current Report on Form 8-K datedDecember 5, 2002, reporting under Item 5 that the shareholders of the Companyhad approved the increase in authorized common share capital to 500 millionshares from the previous level of 50 million shares. 

                OnJanuary 16, 2003, the Company filed a Current Report on Form 8-K dated January15, 2003, reporting under Item 2 that the Company had completed the sale of itssubsidiary, T&T Diesel Power Limited on January 10, 2003 for gross proceedsof $63,500 (CDN 100,000).

                On April 25, 2003, the Company filed a Current Report onForm 8K, dated April 22, under Item 2 that the Company had completed theReverse Triangular Merger with Majestic Refilter, Ltd, and ARS Products Inc. onApril 22, 2003

    On April 28, 2003, the Company filed aCurrent Report on Form 8K, dated April 24, under Item 2 that the Company hadcompleted the Reverse Triangular Merger with HMM Capital Holdings, Inc. and ARSProducts Inc. on April 24, 2003

      

29

**Item14.  Controls and Procedures.**

** **                (a)           Evaluationof Disclosure Controls and Procedures.

                The registrant's Chief Executive Officer andChief Financial Officer have evaluated the registrant's disclosure controls andprocedures as of April 30, 2003, and they have concluded that these controlsand procedures are effective.

                (b)           Changesin Internal Controls.

                There are no significant changes in internalcontrols or in other factors that could significantly affect these controlssubsequent to April 30, 2003.

**SIGNATURES**

                In accordance with the Section 13 or 15(d) of the ExchangeAct, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

Date:       June 20, 2003

**ARS Networks,  Incorporated**

By:          /s/ Sydney A. Harland                        

                Sydney A. Harland 

                Chief Executive Officer and President

                In accordance with the Exchange Act, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

**Name**

**Title**

**Date**

/s/ Sydney A. Harland         Sydney A. Harland 

Chief Executive Officer,  President and Director

June 20, 2003
  /s/ Ronald A. Moodie  Ronald A. Moodie   Corporate Secretary and  Director  June 20, 2003
/s/ Warwick Tranter  Warwick Tranter 

Director

June 20, 2003
  /s/ Richard Mangiarelli  Richard Mangiarelli   Director  June 20, 2003  /s/ Mark Miziolek  Mark Miziolek  Chief Financial Officer and  Director  June 20, 2003
 

30

 

**CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Sydney A. Harland, certify that:

1.   I have reviewed this annual reporton Form 10-KSB of ARS Networks, Incorporated;

2.   Based on my knowledge, this annualreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

3.   Based on my knowledge, thefinancial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition,results of operations, and cash flows of the registrant as of, and for, theperiods presented in this annual report;

4.   The registrant's other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have:

a.  designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

b.   evaluated the effectiveness of theregistrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the "Evaluation Date"); and

c.   presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

5.   The registrant's other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalent functions):

a.   all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant's ability to record, process, summarize, and report financial dataand have identified for the registrant's auditors any material weaknesses ininternal controls; and

b.   any fraud, whether or not material, that involves managementor other employees who have a significant role in the registrant's internalcontrols; and

6.   The registrant's other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Dated: June 20, 2003.

/s/ Sydney A. Harland                                                     Sydney A. Harland, Chief Executive Officer

 

 

 **CERTIFICATION PURSUANTTO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Mark P. Miziolek, certify that:

1.   I have reviewed this annual reporton Form 10-KSB of ARS Networks, Incorporated;

2.   Based on my knowledge, this annualreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

3.   Based on my knowledge, thefinancial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition,results of operations, and cash flows of the registrant as of, and for, theperiods presented in this annual report;

4.   The registrant's other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have:

a.  designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

b.   evaluated the effectiveness of theregistrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the "Evaluation Date"); and

c.   presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

5.   The registrant's other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalent functions):

a.   all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant's ability to record, process, summarize, and report financial dataand have identified for the registrant's auditors any material weaknesses ininternal controls; and

b.   any fraud, whether or not material, that involves managementor other employees who have a significant role in the registrant's internalcontrols; and

6.   The registrant's other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Dated: June 20, 2003.

/s/ Mark P. Miziolek                                               Mark P. Miziolek, Chief Financial Officer
****SECURITIES AND EXCHANGE COMMISSION**

** WASHINGTON, D.C. 20549**

**  **

**CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES**

** **

**JANUARY 31, 2003 AND 2002**

** **

**  **

**FORMING A PART OF ANNUAL REPORT**

**PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934**

** ARS NETWORKS, INCORPORATED.**

** **

**  **

** **

F-1

** **
**** ARS NETWORKS, INCORPORATED.INDEX TO FINANCIAL STATEMENTS**

 

Page No.

Reports of Independent  Certified Public Accountants

F-3, F4
        
Consolidated Balance sheet  at January 31, 2003

F-5
        
Consolidated Statement of  Losses for the years ended January 31, 2003 and 2002

F-6
        
Consolidated Statement of  Deficiency in Stockholders' Equity for the years ended January 31, 2003 and  2002 

F-7 
        
Consolidated Statement of  Cash Flows for the  years ended January 31, 2003 and 2002

F-8
        
Notes to Consolidated  Financial Statements

F-10 to F-22

** **

** **

** **

** **

F-2

** **

** **

**RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP CERTIFIED PUBLIC ACCOUNTANTS**
REPORT OF INDEPENDENTCERTIFIED PUBLIC ACCOUNTANTS
** **

Tothe Board of Directors ARSNetworks, Incorporated Champlain,New York

             We have audited the accompanying consolidated balance sheet of ARSNetworks, Incorporated ("Company") as of January 31, 2003 and the relatedconsolidated statements of losses, deficiency in stockholders' equity and cashflows for the year then ended.  Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements basedupon our audit.

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall consolidatedfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion. 

           In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of ARS Networks,Incorporated at January 31, 2003, and the results of their operations and theircash flows for the year then ended in conformity with accounting principlesgenerally accepted in the United States of America. 

         The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern. As shownin the financial statements, the Company has incurred net losses since itsinception. This raises substantial doubt about the Company's ability tocontinue as a going concern. Management's plans in regard to this matter aredescribed in Note H. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

                                                         /s/ RUSSELL BEDFORD STEFANOU MIRCHANDANILLP                                                                           Russell Bedford Stefanou Mirchandani LLP                                                              Certified PublicAccountants

NewYork, New YorkApril25, 2003

F-3

 
**Report of Independent Certified Public Accountants**

To the Board of Directorsand Stockholders of ARS Networks,IncorporatedChamplain, New York

We have audited the accompanyingconsolidated statements of loss, deficiency in stockholders' equity and cashflows of ARS Networks, Incorporated for the year ended January 31, 2002.  Thesefinancial statements are the responsibility of the Company's management.  Ourresponsibility is to express an opinion on these financial statements based onour audit.

We conducted our audit inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements.  An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe that our audit provides a reasonable basisfor our opinion.

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the results of operations and cash flows of ARS Networks,Incorporated for the year ended January 31, 2002 in conformity with accountingprinciples generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming thatARS Networks Incorporated will continue as a going concern.  ARS Networks,Incorporated has incurred losses since inception.  This raises substantialdoubt about the Company's ability to continue as a going concern.  Management'splans in regard to this matter are described in Note H.  The financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty.

/s/ Lougen, Valenti,Bookbinder & Weintraub, LLPLougen, Valenti,Bookbinder & Weintraub, LLP 

Amherst, New YorkApril 30, 2002

F-4

**ARS NETWORKS, INCORPORATEDCONSOLIDATED BALANCE SHEET**

JANUARY 31, 2003
  
**ASSETS**

Current Assets:

Cash  

$      5,612

Note receivable (Note B)

29,610

 

    Total current assets

35,222

Other Assets

       646

$      35,868

**LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY**

Current Liabilities:

Accounts payable

$    161,000

Accrued management  compensation (Note E)

456,800

Accrued expenses

6,900

Related Party Advances   (Note E)

    85,917

    Total Current  Liabilities

710,617

**DEFICIENCY IN  STOCKHOLDERS' EQUITY:**

Preferred Stock, par  value, $0.0001 per share; authorized 25,000,000 shares; None issued and  outstanding 

-

Common Stock, par value,  $0.0001 per share; authorized 500,000,000 shares; 125,000,294 issued and  outstanding split into 1 post consolidation  share for 50 pre consolidation   shares 2,500,006

250

Additional Paid in Capital 

4,853,150

Accumulated Deficit

(5,528,149)

Total deficiency in  stockholders' equity

  (674,749)

$      35,868

 

F-5

(Seeaccompanying notes to consolidated financial statements)

  ARS NETWORKS, INCORPORATEDCONSOLIDATED STATEMENT OF LOSSES  

For the Years Ended January 31,

 

2003

2002
     
REVENUES:

$31,500   

$                -

EXPENSES: 

General and Administrative  expenses

       956,603

   1,628,781

Loss from continued  operations, before income  taxes and discontinued operations

(925,103)

(1,628,781)

Loss from discontinued  operations

 (66,423)

(52,697)  

Gain (loss) on disposition of discontinued segment

----------------

--------------

 

Net loss 

$      (991,526)

$    (1,681,478)

Cumulative effect of  accounting change( Note C)

(264,868)

------------

Net loss applicable to  common shares

$  (1,256,394)

$   (1,681,478)

Loss per common share  (basic and assuming dilution), as restated for reverse stock split 

$           (2.09)

$           (5.70)

Continued Operations

(1.54)

(5.52)

Discontinued Operations

(0.11)

(0.18)

Cumulative effect  accounting changes

(0.44)

Weighted average shares  outstanding (Basic and Diluted), as restated for reverse stock split

601,040

294,817

F-6

(Seeaccompanying notes to consolidated financial statements)

 

ARS NETWORKS, INCORPORATED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY  FOR THE TWO YEARS ENDED JANUARY 31,  2003 
   
Common stock   
 
Number of   Shares

 

Amount

Additional Paid In Capital

Accumulated   Deficit

Stockholders' Equity (Deficit)

Balance,  January 31, 2001, as restated

252,158

$ 25

$2,448,285

    $(2,590,277)

$ (141,967)
Net loss for the year
-

-

-

(1,681,478)

(1,681,478)

Issuance of  common stock

67,503

5

493,305

-

493,310

Reclass of  redeemable common stock into equity

-

1

199,999

-

200,000

Common stock  issued for services

8,307

1

291,034

-

291,035

Common stock  issued for directors' compensation

16,012

2

80,058

-

80,060

Common stock  issued for prepaid consulting services

20,000

2

139,998

-

140,000

Common stock issued to settle accounts payable

6,920

1

93,040

-

93,041

Common stock  issued to investment manager and recorded at par

9,000

1

(1)

-

-

Common stock  options and warrants issued in connection with financing activities

               -

             -

     144,530

                     -

     144,530

Balance,  January 31, 2002

379,900

 38

3,890,247

(4,271,755)

 (381,470)

Net loss for  the year

-

-

-

(1,256,394)

(1256,394)

Issuance of  common stock

1,852

0

10,000

-

10,000

 
Common stock  issued for services

328,089

33

143,186

-

143,219

 
Common stock  issued for directors' and officers' compensation

1,700,978

170

757,962

-

758,131

 
Common stock  issued to settle accounts payable

96,687

10

76,524

-

76,534

 
Common Stock  issued in connection with financing activities

500

0

3,250

-

3,250

 
Common Stock  cancelled

     (8,000)

      (1)

(28,019)

         -

       (28,020)

 
Balance,  January 31, 2003

2,500,006

$   250

$ 4,853,150

$(5,528,149)

$ (674,749)

F-7

(Seeaccompanying notes to consolidated financial statements)

 
ARS NETWORKS, INCORPORATED  CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended January 31,

2003

2002

Cash Flows  From Operating Activities:

             Net  loss for the year from continuing operations

$  (925,103)

$ (1,628,781)

               Loss from discontinued operations

(66,423)

(52,697)

               Disposal of business segment, net

      -   -

      -   -

             Cumulative  effect of accounting change (Note C)

(264,868)

      -   -

Adjustments to  reconcile net loss to net cash                          provided  by (used in) operating activities:

            Professional  fees settled in stock

143,219

291,035

            Common  stock issued to settle accounts payables

 76,534

       

            Commons  stock issued in connection with financing expenses

 3,250

       

            Common  stock canceled

(28,020)

       

            Interest  imputed on note payable - investor

136,530

            Officers'  and directors' compensation settled in stock

758,131

80,060

            Depreciation  and amortization

2,198

62,555

            Finance  expense recognized for issuance of stock options

8,000

            Other

(4,700)

            Changes  in assets and liabilities: 

            Decrease  in accounts receivable

80,809

156,903

            Decrease  in inventories

45,628

87,320

            Decrease  i n prepaid expenses

143,818

5,887

            Decrease  (Increase) in due from officer

6499

(4,179)

                (Increase) in Note Receivable

(29,610)

               (Decrease )Increase in accounts payable and accrued expenses

  (48,373)

   399,031

            Total Adjustments

 1,154,083

1,218,442

Net Cash (Used  In) Operating Activities

 (102,311)

 (463,036)

Cash Flows  From Investing Activities:

                Proceeds from sale of T&T

33,390

            Proceeds  from sale of property and equipment, net

      8,967

               -

Net Cash  Provided by Investing Activities

   42,357

         -

Cash Flows  From Financing Activities:

            Proceeds  from the sale of common stock, net

10,000

493,310

            Proceeds  from note payable - investor

-

150,000

            Payments  of note payable - investor

-

(150,000)

            Payments  of note payable - former shareholders of T & T Diesel Power, Ltd.

-

(115,516)

            Payments  of long-term debt

(1,258)

(5,417)

            Payment  of note payable - related party

(32,000)

-

                Proceeds from advances - related parties

54,117

-

            Advances  (to) directors

              -

               -

Net Cash  Provided By Financing Activities

    30,859

  372,377

Net (Decrease)  In Cash

(29,095)

(90,659)

Cash,  beginning of year

     34,707

   125,366

Cash, end of  year

$    5,612

$    34,707

F-8

(See  accompanying notes to consolidated financial statements)

 

ARS NETWORKS, INCORPORATED

**SUPPLEMENTAL  DISCLOSURE OF NON-CASH TRANSACTIONS**

** **

 

 

Cash paid for  Interest 

$   10,000

Cash paid for  income taxes 

$     1,500

Common stock  issued for services 

$  143,219

$ 291,035

Common stock  issued for compensation

        $  758,131

$   80,060   

Common Stock  cancelled 

$ (28,020)

-

Common Stock  issued in connection with financing activities 

      $      3,250

-

Redeemable  stock converted to common for former shareholders of T & T 

                           -

$ 200,000

Common stock  issued for prepaid consulting services (1,000,000 common shares)

                           -

$ 140,000

Common stock  issued  in exchange for previously incurred debt 

$     76,534    

    $    93,041

 

F-9

(Seeaccompanying notes to consolidated financial statements)

**NOTE A - SUMMARY OF ACCOUNTING POLICIES**

A summary of the significant accounting policies applied in thepreparation of the accompanying financial statements follows. These accountingpolicies conform to accounting principles generally accepted in the Unitedstates of America and have been consistently applied in the preparation of thefinancial statements.

**BUSINESS AND BASIS OF PREPARATION**

ARSNetworks, Incorporated ("Company"), was formed on May 4, 1998 under the laws ofthe state of New Hampshire to design and develop advanced railwaycommunications and data management systems.  

On January 10, 2003, the Company sold its wholly-owned subsidiary, T & T Diesel Power, Ltd ("T & T") to the former managers of T&T, (the " Purchasers") through an Agreement of Purchase and Sale ("Agreement").  The T & T business segment is accounted for as a discontinued operation, and accordingly, amounts in the financial statements, and related notes for all periods shown have been restated to reflect discontinued operations accounting.  Summarized results of the discontinued business are further described in Note B.

Liquidity

Asshown in the accompanying financial statements, the Company incurred a net lossof $1,256,394 and $1,681,478 from operations during the years ended January 31,2003 and 2002, respectively.  The Company's current liabilities exceed itscurrent assets by $ 675,395 at January 31, 2003.

StockBased Compensation

InDecember 2002, the FASB issued SFAS No. 148, "Accounting for Stock-BasedCompensation-Transition and Disclosure-an amendment of SFAS 123." Thisstatement amends SFAS No. 123, "Accounting for Stock-BasedCompensation," to provide alternative methods of transition for avoluntary change to the fair value based method of accounting for stock-basedemployee compensation. In addition, this statement amends the disclosurerequirements of SFAS No. 123 to require prominent disclosures in both annualand interim financial statements about the method of accounting for stock-basedemployee compensation and the effect of the method used on reported results.The Company has chosen to continue to account for stock-based compensationusing the intrinsic value method prescribed in APB Opinion No. 25 and relatedinterpretations. Accordingly, compensation expense for stock options ismeasured as the excess, if any, of the fair market value of the Company's stockat the date of the grant over the exercise price of the related option. TheCompany has adopted the annual disclosure provisions of SFAS No. 148 in itsfinancial reports for the year ended January 31, 2003.

Hadcompensation costs for the Company's stock options been determined based on thefair value at the grant dates for the awards, the Company's net loss and lossesper share would have been as follows (transactions involving stock optionsissued to employees and Black-Scholes model assumptions are presented in Note G):

 

F-10

 
**NOTE A -SUMMARY OF ACCOUNTING POLICIES (continued)**

2003

2002

Net loss,  as reported

$  (1,256,394)

$  (1,681,478)

Add: Total  stock based employee compensation expense as reported under intrinsic value  method (APB. No. 25)

-

-

Deduct:  Total stock based employee compensation expense as reported under fair value  based method (SFAS No. 123)

-

$606,000

Net loss -  Pro Forma

(1,256,394)

(2,287,478)

Basic (and  assuming dilution) loss per share - as reported

$         (0.04)

$        (0.11)

** **

Basic (and  assuming dilution) loss per share - Pro forma 

(0.04)

(0.16)

After  giving effect to the 1:50 reverse split

Basic (and  assuming dilution) loss per share - as reported

(2.09)

(5.70)

Basic (and  assuming dilution) loss per share - Pro forma

(2.09)

(7.76)

Cash and cash equivalents

Forpurposes of reporting cash flows, the Company considers all highly liquidinstruments purchased with and initial maturity of three months or less to becash equivalents. The Company maintains, at financial institutions, cash andcash equivalents, which, at times exceed federally insured amounts. 

Property and Equipment

Property and equipment is stated at cost.Depreciation is calculated using the straight-line method over the estimateduseful lives of the assets.

Long-Lived Assets

TheCompany has adopted Statement of Financial Accounting Standards No. 144 (SFAS144). The Statement requires that long-lived assets and certain identifiableintangibles held and used by the Company be reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Events relating to recoverability may includesignificant unfavorable changes in business conditions, recurring losses, or aforecasted inability to achieve break-even operating results over an extendedperiod.  The Company evaluates the recoverability of long-lived assets basedupon forecasted undiscounted cash flows. Should an impairment in value beindicated, the carrying value of intangible assets will be adjusted, based onestimates of future discounted cash flows resulting from the use and ultimatedisposition of the asset.  SFAS No. 144 also requires assets to be disposed ofbe reported at the lower of the carrying amount or the fair value less costs tosell. 

Revenue Recognition

Revenue from the sale of products is recorded at the timethe goods are shipped. Revenue under License Agreements is recorded whenpayment for services is due under such contract. 

Foreign Currency Translation

TheCompany translates the foreign currency financial statements in accordance withthe requirements of Statement of Financial Accounting Standards No. 52,"Foreign Currency Translation."  Assets and liabilities are translated at currentexchange rates in effect during the 

F-11

**NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)**

period. Resulting translation adjustments, if any, are recorded as a separate componentin stockholder's equity. Foreign currency transaction gains and losses areincluded in the statement of operations.

Income Taxes

The Company has implemented the provisions onStatement of Financial Accounting Standards No. 109, "Accounting forIncome Taxes" (SFAS 109).  SFAS 109 requires that income tax accounts becomputed using the liability method. Deferred taxes are determined based uponthe estimated future tax effects of differences between the financial reportingand tax reporting bases of assets and liabilities given the provisions ofcurrently enacted tax laws.

Net Loss Per Common Share

The Company computes earnings per share underFinancial Accounting Standard No. 128, "Earnings Per Share" (SFAS128). Net loss per common share is computed by dividing net loss by theweighted average number of shares of common stock and dilutive common stockequivalents outstanding during the year. Dilutive common stock equivalentsconsist of shares issuable upon conversion of convertible preferred shares andthe exercise of the Company's stock options and warrants (calculated using thetreasury stock method). During the year ended 2003 and 2002, common stockequivalents are not considered in the calculation of the weighted averagenumber of common shares outstanding because they would be anti-dilutive,thereby decreasing the net loss per common share.

** **Use of Estimates

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect certain reported amounts anddisclosures.  Accordingly, actual results could differ from those estimates.

Concentrationsof Credit Risk

Financialinstruments and related items, which potentially subject the Company toconcentrations of credit risk, consist primarily of cash, cash equivalents andrelated party receivables.  The Company places its cash and temporary cashinvestments with credit quality institutions.  At times, such investments maybe in excess of the FDIC insurance limit. The Company periodically reviews itstrade receivables in determining its allowance for doubtful accounts. Theallowance for doubtful accounts was $0 at January 31, 2003 and 2002.

Comprehensive Income

Statement of Financial Accounting Standards No. 130("SFAS 130"), "Reporting Comprehensive Income," establishes standards forreporting and displaying of comprehensive income, its components andaccumulated balances.  Comprehensive income is defined to include all changesin equity except those resulting from investments by owners and distributionsto owners.  Among other disclosures, SFAS 130 requires that all items that arerequired to be recognized under current accounting standards as components ofcomprehensive income be reported in a financial statement that is displayedwith the same prominence as other financial statements.  

The Companydoes not have any items of comprehensive income in any of the periodspresented.

F-12

 

**NOTE A - SUMMARY OF ACCOUNTING POLICIES(continued)**

Segment Information

Statement of Financial Accounting Standards No. 131,"Disclosures about Segments of an Enterprise and Related Information" ("SFAS131") establishes standards for reporting information regarding operatingsegments in annual financial statements and requires selected information forthose segments to be presented in interim financial reports issued tostockholders.  SFAS 131 also establishes standards for related disclosuresabout products and services and geographic areas. Operating segments areidentified as components of an enterprise about which separate discretefinancial information is available for evaluation by the chief operatingdecision maker, or decision-making group, in making decisions how to allocateresources and assess performance.  The information disclosed herein materiallyrepresents all of the financial information related to the Company's principaloperating segments.

Reclassifications

Certain reclassifications have been made in prioryear's financial statements to conform to classifications used in the currentyear.

**EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS**

InJuly 2001, the Financial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards No. 141, "Business Combinations" (SFASNo. 141), and Statement of Financial Accounting Standards No. 142,"Goodwill and Other Intangible Assets" (SFAS No. 142). The FASB alsoissued Statement of Financial Accounting Standards No. 143, "Accountingfor Obligations Associated with the Retirement of Long-Lived Assets" (SFASNo. 143), and Statement of Financial Accounting Standards No. 144, "Accountingfor the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) inAugust and October 2001, respectively.

SFASNo. 141 requires the purchase method of accounting for business combinationsinitiated after June 30, 2001 and eliminates the pooling-of-interest method.The adoption of SFAS No. 141 had no material impact on the Company'sconsolidated financial statements.

EffectiveJanuary 1, 2002, the Company adopted SFAS No. 142. Under the new rules, theCompany will no longer amortize goodwill and other intangible assets withindefinite lives, but such assets will be subject to periodic testing forimpairment. On an annual basis, and when there is reason to suspect that theirvalues have been diminished or impaired, these assets must be tested for impairment,and write-downs to be included in results from operations may be necessary.SFAS No. 142 also requires the Company to complete a transitional goodwillimpairment test six months from the date of adoption.

Anygoodwill impairment loss recognized as a result of the transitional goodwillimpairment test will be recorded as a cumulative effect of a change inaccounting principle no later than the end of fiscal year 2002. The acquisition of T & T wasaccounted for using the purchase method. As of January 31, 2002, the netcarrying amount of goodwill was $329,200. TheCompany has completed its impairment test and recorded goodwill impairmentcharge of $ 264,868 for the year ended January 31, 2003.

SFASNo. 143 establishes accounting standards for the recognition and measurement ofan asset retirement obligation and its associated asset retirement cost. Italso provides accounting guidance for legal obligations associated with theretirement of tangible long-lived assets. SFAS 

F-13

** **

**NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)**

**EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS (continued)**

No.143 is effective in fiscal years beginning after June 15, 2002, with earlyadoption permitted. The Company expects that the provisions of SFAS No. 143will not have a material impact on its consolidated results of operations andfinancial position upon adoption. The Company plans to adopt SFAS No. 143effective January 1, 2003.

SFASNo. 144 establishes a single accounting model for the impairment or disposal oflong-lived assets, including discontinued operations. SFAS No. 144 supersededStatement of Financial Accounting Standards No. 121, "Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be DisposedOf" (SFAS No. 121), and APB Opinion No. 30, "Reporting the Results ofOperations - Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events andTransactions". The Company adopted SFAS No. 144 effective January 1, 2002.The adoption of SFAS No. 144 had no material impact on Company's consolidatedfinancial statements.

InApril 2002, the FASB issued Statement No. 145, "Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections." This Statement rescinds FASB Statement No. 4,"Reporting Gains and Losses from Extinguishment of Debt", and anamendment of that Statement, FASB Statement No. 64, "Extinguishments ofDebt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No. 44,"Accounting for Intangible Assets of Motor Carriers". This Statementamends FASB Statement No. 13, "Accounting for Leases", to eliminatean inconsistency between the required accounting for sale-leasebacktransactions and the required accounting for certain lease modifications thathave economic effects that a similar to sale-leaseback transactions. TheCompany does not expect the adoption to have a material impact to the Company'sfinancial position or results of operations.

InJune 2002, the FASB issued Statement No. 146, "Accounting for CostsAssociated with Exit or Disposal Activities." This Statement addressesfinancial accounting and reporting for costs associated with exit or disposalactivities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,"Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring)." The provisions of this Statement are effective for exitor disposal activities that are initiated after December 31, 2002, with earlyapplication encouraged. The Company does not expect the adoption to have amaterial impact to the Company's financial position or results of operations.

InOctober 2002, the FASB issued Statement No. 147, "Acquisitions of CertainFinancial Institutions-an amendment of FASB Statements No. 72 and 144 and FASBInterpretation No. 9", which removes acquisitions of financialinstitutions from the scope of both Statement 72 and Interpretation 9 and requiresthat those transactions be accounted for in accordance with Statements No. 141,Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Inaddition, this Statement amends SFAS No. 144, Accounting for the Impairment orDisposal of Long-Lived Assets, to include in its scope long-term customerrelationship intangible assets of financial institutions such as depositor- andborrower-relationship intangible assets and credit cardholder intangibleassets. The requirements relating to acquisitions of financial institutions areeffective for acquisitions for which the date of acquisition is on or afterOctober 1, 2002. The provisions related to accounting for the impairment ordisposal of certain long-term customer-relationship intangible assets are effectiveon October 1, 2002. The adoption of this Statement did not have a materialimpact to the Company's financial position or results of operations as theCompany has not engaged in either of these activities.

F-14

** **

**NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)**

**EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS (continued)**

InDecember 2002, the FASB issued Statement No. 148, "Accounting forStock-Based Compensation-Transition and Disclosure", which amends FASBStatement No. 123, Accounting for Stock-Based Compensation, to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,this Statement amends the disclosure requirements of Statement 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results. The transition guidance and annualdisclosure provisions of Statement 148 are effective for fiscal years endingafter December 15, 2002, with earlier application permitted in certaincircumstances. The interim disclosure provisions are effective for financialreports containing financial statements for interim periods beginning afterDecember 15, 2002. The adoption of this statement did not have a materialimpact on the Company's financial position or results of operations as theCompany has not elected to change to the fair value based method of accountingfor stock-based employee compensation.

InJanuary 2003, the FASB issued Interpretation No. 46, "Consolidation ofVariable Interest Entities." Interpretation 46 changes the criteria bywhich one company includes another entity in its consolidated financial statements.Previously, the criteria were based on control through voting interest.Interpretation 46 requires a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity's activities or entitled to receive a majority of theentity's residual returns or both. A company that consolidates a variableinterest entity is called the primary beneficiary of that entity. Theconsolidation requirements of Interpretation 46 apply immediately to variableinterest entities created after January 31, 2003. The consolidationrequirements apply to older entities in the first fiscal year or interim periodbeginning after June 15, 2003. Certain of the disclosure requirements apply inall financial statements issued after January 31, 2003, regardless of when thevariable interest entity was established. The Company does not expect theadoption to have a material impact to the Company's financial position orresults of operations.

**NOTE B - DISCONTINUED OPERATIONS**

OnJanuary 10, 2003, the Company sold its wholly-owned subsidiary, T & TDiesel Power, Ltd ("T & T") to the former management of T&T, ("ThePurchasers") through an Agreement of Purchase and Sale("Agreement").  The T & T business segment is accounted for as adiscontinued operation, and accordingly, amounts in the financial statements,and related notes for all periods shown have been restated to reflectdiscontinued operations accounting

Inconnection with the disposition of T & T, the Purchasers acquired 100% ofthe outstanding common stock of T&T and assumed all T & T liabilitiesfor a total purchase price of $63,000.   ARS receivedgross proceeds of $63,000 US from the sale, comprised of $33,390 in cash and anon interest bearing note receivable in the amount of $29,610 due in July 2003.

The note receivable has been assigned to a related party in orderpartially repay the note payable due to this related party. See Note  
As a result of the sale of the T & T business segment, the Company accounted for the segment as a discontinued operation, and accordingly, the amounts in the financial statements and related notes for all periods shown have been restated to reflect discontinued operations accounting.
** **

F-15

**NOTE B - DISCONTINUED OPERATIONS (continued)**

The financial statements reflect the operating results and balancesheet items of the discontinued operations separately from continuingoperations.  Prior years have been restated. Operating results for thediscontinued operations for the year ended January 31, 2003 and 2002 were:

2003
   
2002

Revenues

 $   228,092
   
$     971,572 

Expenses

  (294,515)
   
(1,024,269)

Net (loss) 

$   (66,423)
   
$     (52,697)  

** **

**The following summarizes the loss on the disposition of the T& T business segment:**

** **

Cash

$       33,390

Note  receivable

29,610

Gain (loss) on  disposition

0-

Net assets  disposed of

63,000

**NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS 142**

In July 2001, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 141 "Business Combinations" ("SFAS 141") and Statement of FinancialAccounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS142"). SFAS 142 addresseshow intangible assets that are acquired individually or with a group of otherassets should be accounted for in financial statements upon their acquisition.This statement requires goodwill amortization to cease and for goodwill to beperiodically reviewed for impairment for fiscal years beginning after December31, 2001. SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets." TheCompany has adopted the provisions of this standard as of February 1, 2002.

The Company recorded a one-time, non-cash charge of $264,868to reduce the carrying value of its goodwill. Such charge is non-operational innature and is reflected as a cumulative effect of an accounting change in theaccompanying consolidated statement of losses. In calculating the impairmentcharge, the fair value of the impaired reporting unit was estimated at the fairvalue of assets underlying the business, thereby eliminating the goodwillelement entirely.

The following table presents the impact of SFAS 142 onnet income (loss) and net income (loss) per share had SFAS 142 been in effectfor the years ended January 31, 2003 and 2002:

2003
   
2002
   
Net Loss

 $ (1,256,394)
   
 $ (1,681,478)
   
Adjustments:
      
Amortization of goodwill

-
   
            -  
   
Impairment of goodwill

  264,868  
   
            -
   
Adjusted net (loss)

 $ (991,526)
   
 $ (1,681,478)
   
Shares used to compute basic and diluted  net loss per common share

 601,040   
   
294,817  
   
Adjusted basic and diluted net loss per  common share

 $             (1.65)
   
 $           (5.70)
   
Reported basic and diluted net loss per  common share

 $             (2.09)
   
 $           (5.70)
   
 

F-16

**NOTE D -  EQUITY LINE OF CREDIT**

In March 2001, the Company entered into an equity line of creditagreement "the equity line" with Cornell Capital Partners, L.P. ("theinvestor").  Under the equity line, the investor is committed to purchase up to$5,000,000 of the Company's common stock over the course of 24 monthscommencing on the earlier of (i) effective registration of the shares, or (ii)as mutually agreed in writing.  Under the equity line, the Company may requestan advance by the investor.  The number of shares of common stock that theinvestor shall receive for each advance shall be determined by dividing theamount of the advance by the purchase price.  The purchase price is 90% of themarket price.  The maximum advance amount shall be equal to 150% of the averagedaily volume of the Company's common stock multiplied by the purchase price. The average daily volume shall be computed by using the forty (40) trading daysprior to the advance notice date.  The advance notice date is the date theinvestor receives a written notice from the Company requesting an advanceamount under the equity line.  The market price is the average of the lowestclosing bid prices of the common stock over the ten (10) trading day periodbeginning on the first trading day after an advance notice date and ending onthe trading day prior to the relevant advance date.

Upon each advance date, the Company shall pay to the investor'sbusiness manager, Yorkville Advisors Management, LLC ("the investment manager")an amount equal to 8.4% of the amount of the advance.  Upon the execution ofthe equity line, the Company issued 450,000 restricted shares of the Company'scommon stock to the investment manager which were reflected as a cost ofraising capital and recorded at par in the accompanying financial statements.Such restricted shares have demand and "piggyback" registration rights.

In connection with the equity line of credit, the Company obtainedfrom certain officers and directors, a lock-up agreement, which limits theability of the officers and directors to sell securities of the Company.

Additionally, under the covenants of the equity line, the Companyshall not effect any merger or consolidation, or transfer substantially all ofthe assets of the Company into another entity, unless  the resulting successor or acquiring entity (if not the Company)assumes the obligation to deliver to the investor such shares as the investoris entitled to pursuant to the equity line.

On July 20, 2001, ARS borrowed $150,000 from the investor. Duringthe year ended January 31, 2002, ARS sold a total of 2,780,617 shares of commonstock to the investor under the equity line of credit for net proceeds of$270,000, a portion of which was used to repay the loan from the investor infull prior to January 31, 2002. The loan accrued interest at an annual rate of12%.  In connection with the loan, ARS issued warrants to purchase 333,000shares of ARS' common stock at an exercise price of $0.50 per share. Thewarrants were assigned a value of $136,530 which was recorded as a discount onthe related note payable to the investor. The discount was amortized over theterm of the note payable (90 days) to interest expense. Such amortizationincluded in interest expense amounted to $136,530 for the year ended January31, 2002. The president of the Company had personally guaranteed the loan fromthe investor and had pledged 3,000,000 shares of common stock to the lender assecurity for the loan.

In October 2002, the Company requested and obtained a release fromthe Equity Line of Credit and related agreements.

 F-17

** **

**NOTE E.  RELATED PARTY TRANSACTIONS**

The note payable - related party was for $63,800.  The note wasdue July 31, 2001 and bears interest at 8.5% per annum.  The Company repaid  $32,000 of this note in January 2003 and has assigned the proceeds of the notereceivable from the sale of T&T to the related party.  In January 2002, theCompany issued options to purchase 100,000 shares and in February 2002 issued25,000 common shares to the related party in connection with the note payable.At January 31, 2003, balance note payable outstanding was $31,800.

During the twelve months ended January 31, 2003, officers of theCompany advanced an aggregate of $54,117 to the Company. These advances will berepaid as the Company raises additional capital.

During the period ended January 31, 2003, management exercisedstock options for 1,100,000 shares at a price of $0.13 per share for a total of$143,000 which was recorded as a reduction in accrued management compensation.

In January 2003, the Board of Directors authorized the issuance of58,715,177 shares to management in lieu of foregone compensation and settlementof management contracts. Management contracts were bought out due to anagreement to sell the Company. Subsequent to the approval of the settlements,the purchaser withdrew from the sale.

In January 2003, the Company issued 1,236,289 shares to the Boardof Directors as compensation under pre approved contracts.

In August 2002, the Board of Directors authorized the issuance of13,847,484 common shares to three officers of the Company in lieu ofcompensation due in the amount of $138,500.

On April 10, 2001, the Board of Directors authorized the issuanceof stock options for 750,000 shares to members of the Board of Directors. Theexercise price is $0.50 based on the closing price of the Company's stock onthe date of issuance of the options.

F-18

 
**NOTE F.  INCOME TAXES**

The Company has adopted FinancialAccounting Standards No. 109, which requires the recognition of deferred taxliabilities and assets for the expected future tax consequences of events thathave been included in the financial statement or tax returns.  

Under this method,deferred tax liabilities and assets are determined based on the differencebetween financial statements and tax bases of assets and liabilities usingenacted tax rates in effect for the year in which the differences are expectedto reverse.  Temporary differences between taxable income reported forfinancial reporting purposes and income tax purposes are insignificant. At January 31, 2003, the Company has available for federal income tax purposesa net operating loss carry forward of approximately $5,500,000, expiring in theyear 2020, that may be used to offset future taxable income.  Due tosignificant changes in the Company's ownership, the Company's future use of itsexisting net operating losses may be limited.

Components of deferred taxassets as of January 31, 2003 are as follows:

Non current:

Net operating loss carry  forward

   $   1,870,000 

Valuation allowance

$ (1,870,000)

Net deferred tax asset

$              -    

** **

The realization of this netoperating loss carry forwards is dependent upon generating taxable income priorto the related year of expiration. The amount of carry forward that may beutilized in any future tax year may also be subject to certain limitations, includinglimitations as a result of certain stockholder ownership changes in which maybe beyond the control of the Company.

**NOTE G**.  **NONQUALIFIED STOCK COMPENSATION PLAN**

In May 2002, the Board of Directors authorized the 2002 Non-Qualified Stock Compensation Plan which reserves 5,000,000 shares foremployees, directors, officers, consultants, advisors and other personsassociated with the Company and is intended to advance the best interests ofthe Company by providing those persons who have a substantial responsibilityfor its management and growth with additional incentive by increasing theirproprietary interest in the success of the Company. In December 2002, the Boardof Directors modified the plan and increased the number of shares reservedunder the plan to 100,000,000.

A summary of the status of the Company's stock option plans foroptions held by officers and directors as of January 31, 2002 and 2003 andchanges during the years ending on those dates, after giving effect to thereverse stock split subsequent to the year end (see Note J) is presented below:

F-19

**NOTE G.**  **NON QUALIFIED STOCK COMPENSATION PLAN (continued)**

***January 31, 2003***

* *

*January 31, 2002*

* *

*** ***

*** ***

* *

* *

* *

* *

***  ***

***Shares***

***Weighted  AverageExercise Price***

* *

*  *

*Shares*

*Weighted  AverageExercise Price*

* *

*** ***

*** ***

* *

* *

* *

Outstanding,  beginning of year

**153,486**

**$  22.50**

64,219

$   40.50

 Granted

**-**

** **

89,769

9.50

Exercised

**(22,000)**

**6.50**

-

                

Cancelled

**                  -**

** **

 

          (503)

50.00

 Outstanding  at end of year

**131,486**

** **

153,486

22.50

Options  exercisable at year-end

**131,486**

 

     153,486

22.50
                 
Weighted  average fair value of options granted during the year

 

** **

9.50

The following table summarizes information about stock options  held by officers and directors which are outstanding at January 31, 2003 , after  giving effect to the reverse stock split subsequent to the year end (see Note  J)):

 

*ExercisePrices*

* Number  Outstanding atJanuary 31, 2003*

*Weighted  Average  Remaining  ContractualLife*

* Weighted  Average  ExercisePrice*

* Number  Exercisable atJanuary 31, 2003*

* Weighted  AverageExercise Price*

* *

* *

* *

* *

* *

* *

$0.005

$     2,455

27 months

                 $ 0.0001

2,455

                    $ 0.0001

$6.50

52,769

48 months

6.50

52,769

$    6.50

$25.00

15,000

39 months

25.00

15,000

25.00

$34.38

32,365

31 months

34.38

32,365

34.38

$50.00 to $50.50

       28,897

13 months

50.50

       28,897

50.50

 131,486

 131,486

 

On July 1, 1998, options to purchase 500,000 shares of theCompany's common stock were granted to certain consultants of the Company.  Theoptions have a term of five years and are vested upon the date of the grant. In April, 1999, options for 250,000 shares of the Company's common stock wereexercised by the consultants.  The remaining options for 250,000 shares of theCompany's common stock are still outstanding at January 31, 2003.

During the year ended January 31, 2000, the Company sold 41,500shares of common stock which included an option to purchase one share of commonstock at a price of $1.25 and one option for one share at a price of $1.75. These options are exercisable at any time after May 1, 1999, subject to certainconditions and expire 60 months from that date.  These options for a total of83,000 shares of the Company's common stock are still outstanding at January31, 2003.

** **

F-20

** **

** **

**NOTE G**.  **NONQUALIFIED STOCK COMPENSATION PLAN (continued)**

During the year ended January 31, 2002, the Company issuedwarrants to purchase 333,000 shares in connection with its equity line ofcredit as more fully described in Note D.  The Company also issued options topurchase 100,000 shares to a related party in connection with the Company'snote payable to the related party (Note E). The options have a term of fiveyears and are vested upon the date of the grant.

**NOTE H.  GOING CONCERN MATTERS**

The accompanying consolidated financial statements have beenprepared on a going concern basis, which contemplates the realization of assetsand the satisfaction of liabilities in the normal course of business. As shownin the accompanying financial statements during the years ended January 31,2003 and 2002, the Company incurred net losses of $1,256,394 and $1,681,478respectively. These factors among others may indicate that the Company will beunable to continue as a going concern for a reasonable period of time.

TheCompany's continuation as a going concern is dependent upon its ability toraise funds from external sources. As such, subsequent to the year end, theCompany reorganized its share structure and its operations focus. With theacquisition of HMM Capital Holdings Inc. on April 25, 2003, the Company willfocus primarily on the sales and distribution of the Fire Safety Tec product.This product is patented and approved by Underwriters Laboratories and has beensold successfully in the United States and Canada for several years. TheCompany believes that there is a substantial market for this product and assuch will focus on its sales in order to generate revenue for the Company andto secure the financing required for continued operations and development ofits other products. With regard to Crosslogix and Refilter, the Company isseeking development partnerships.

**NOTE I    LICENSE AGREEMENT**

In November 2002, theCompany entered into a License Agreement with Edify Capital under which Edifywould have the right to sell the ARS Automated Railway Crossing in China. Theagreement was for an initial term of three months under which Edify paid, andARS received  $31,500. 

**NOTE J.  SUBSEQUENT EVENTS**

In February 2003, the Board of Directors recommended andshareholders approved a reverse split of the Company's common stock at theratio of one (1) post consolidation share for each fifty (50) pre consolidationshares held by each shareholder. The reverse split was effective on March

26, 2003. As a result the Company's trading symbol was changed toARSW. The resulting number of outstanding shares as at March 26, 2003 was2,500,006.

Accordingly,all historical weighted average share and per share amounts have been restatedto reflect the reverse stock split.

On April 22, 2003, ARS Products Inc, a wholly owned subsidiary ofARS Networks Incorporated merged with Majestic Refilter Ltd., a development stage entity with no significantoperations or assets The Stockholders of MajesticRefilter Ltd received 2 million shares of common stock of ARS Networks parvalue $ 0.0001 per share in exchange of their common stock par value $ 0.001per share. This stock had a value of $204,000 at the time of the transaction.

F-21

 

 

**NOTEJ.  SUBSEQUENT EVENTS (continued)**

On April 25, 2003 ARS Products Inc, a wholly owned subsidiary ofARS Networks Incorporated merged with HMM Capital Holdings, Inc, a NevadaCorporation, a development stage entitywith no significant operations or assets. Thestockholders of HMM Capital Holdings, Inc received 10 million shares of commonstock of ARS Networks with par value of $ 0.0001 per share. The stock had avalue of $1,020,000 at the time of the transaction.

 

 

F-22****