SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

                     Annual Report under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the fiscal year ended January 31, 2001

                           ARS NETWORKS, INCORPORATED

                                    Formerly
                    (AMERI-CAN RAILWAY SYSTEMS, INCORPORATED)
                 (Name of Small Business Issuer in its charter)

                 New Hampshire                                14-1805077
       (State or other jurisdiction of                      (I.R.S. Employer
        incorporation or organization)                     Identification No.)

    100 Walnut Street, Champlain, New York                       12919
   (Address of Principal Executive Offices)                   (Zip Code)

Issuer's telephone number:  (518) 298-2042

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

                         Common Stock, $.0001 Par Value

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of the Form  10-KSB  or any
amendment to this Form 10-KSB [_]

The Issuer's revenue for the fiscal year ended January 31, 2001 was $562,304.

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock,  as of April 20, 2001. The aggregate  market
value  of  the  voting  stock  held  by  non-affiliates  of  the  registrant  is
approximately $3,120,382 as of April 23, 2001.

State the number of shares  outstanding of each of the  registrant's  classes of
common equity as of the latest practicable date:

                       Class                 Outstanding as of April 23,2001
                    Common Stock                       13,696,692

Transitional Small Business Disclosure Format (check one):

                                Yes [ ] No [ X ]



<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         BUSINESS DEVELOPMENT

         ARS  Networks,   Incorporated   formerly   Ameri-can  Railway  Systems,
Incorporated  ("ARS" or the "COMPANY") is a corporation  formed in New Hampshire
on May 4, 1998.  In return for 50,000 shares of the common stock of the Company,
on May 11,  1998,  the  Company  acquired  from  Ameri-can  Equipment  Sales and
Leasing,  Inc., a Canadian corporation,  ("AEL") certain assets comprised of the
rights  to the  contractual  relationship  AEL  has  with  Geismar/Modern  Track
Machinery Inc.  (Geismar/MTM),  industry  relationships,  goodwill, know how and
application experience.  Although AEL and the Company had common ownership,  the
Company is not,  in  management's  opinion,  a successor  company to AEL.  AEL's
business is separate and apart from the  Company's  railway  communications  and
signaling business described below.

         BUSINESS OF ISSUER

         The focus of ARS's private wireless network (called  Crosslogix(TM)) is
management of railway traffic,  control and public safety.  While the ARS system
and its component parts were developed to improve safety at rail crossings,  the
ARS system  can  support  numerous  applications  in real time data  collection,
processing,  monitoring and information analysis. The system has evolved into an
integrated service information system that is the foundation of the ARS wireless
private network.

         Railway  signaling  and  control  systems  are used to provide  advance
warning of oncoming trains and maintain  adequate  separation  between trains on
the same track and in switching  areas where  tracks  cross or merge.  They also
facilitate  train  movements  under  centralized  dispatcher  control,  classify
freight cars, and provide warning systems for rail and highway grade crossings.

         The ARS Service Information System is composed of five modules:

         o      Web Sensors - that perform the wheel sensing functions;

         o      Rail Sensor Processors - to control and process the signals from
                the sensors and interface to the communications system;

         o      Digital  Communications  Sub-System  - that may be a data radio,
                dedicated wire lines or multi-drop system;

         o      Application  (Crossing)  Processor  - to collect  and  interpret
                sensor  data from  Remote  Sensor  Processors  and  perform  the
                specific application functions; and

         o      Optional  PC  based  Diagnostics  and  Monitoring  System  -  to
                maintain, monitor and analyze the application system.

         Two  important  advances  have  been  secured  in  the  ARS  system  by
eliminating  the  need  for  insulated  joints  used  in  conventional  systems.
Insulated joints work much the same way as a light switch,  turning the crossing
on when the train arrives in the crossing zone and off when the train leaves. In
conventional  systems, a signal is triggered when the axle of a carriage creates
a shunt across the insulated  sections of rail.  Because the ARS system does not
use  insulated  joints  it is not  prone to false  triggering  caused  by broken
insulation, foreign objects shorting the circuit, or adverse climate conditions.
Traditional competing railway crossing systems use insulated joints installed in
the tracks,  which  contribute to shifting rails caused by loose joint bars that
bolt the sections of track  together,  and battered  joints that damage rail car
wheels when they hit defective joints.

         Because  the  ARS  system  eliminates  insulated  joints,  the  Company
believes it reduces  wheel damage,  premature  wheel wear,  damaged  tracks and,
ultimately,  potential  derailments.  It is estimated that each insulated  joint
costs $1,000 per year to maintain. With each crossing requiring at least one set
of joints per track savings on maintenance add up very quickly.

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

         The Company  believes that the ARS system  benefits  railway  operating
efficiency  because it can give  virtually  instant  feedback on the location of
cars and freight,  which includes capturing  information and time-stamping it as
trains pass  through a crossing.  Plus,  this  innovative  system is expected to
allow  communication  between trains and crossing  signals to provide  motorists
with more complete  information on train  movements.  The Company  believes that
improved  information creates safer conditions and benefits for the railways and
their customers, as well as motorists and pedestrians.


                                       2
<PAGE>
         ARS has completed the design,  technical  development,  and  laboratory
testing of the Advanced  Warning  System and is now in  pre-production  testing.
Canadian  Pacific  Railway  ("CPR"),  among  North  America's  largest  and most
technologically  advanced  railways,  is  participating  in  a  trial  of  ARS's
pre-productions  system. In management's opinion, if ARS successfully  completes
system testing and CPR has completed its audit of the system,  ARS's system will
be approved  for  installation  along other CPR  subsidiaries  in Canada and the
United States, as well as on CN Rail and its U.S. subsidiaries.  CPR and CN Rail
share signal  system test  results  with each other under a Joint CPR/CN  Safety
Assurance Process Audit Plan agreed to March 26, 1998 (CPRCNJSP98-A1).  However,
there is no  assurance  that even when the required  certification  is completed
that CPR, CN Rail or any of their subsidiaries will purchase and install the ARS
advanced level crossing warning system.

         "US Freight  Transportation  Forecast . . . to 2003", a study conducted
by DRI/McGraw-Hill and quoted in the U.S. Department of Transportation Quarterly
Freight  Report in 1996,  predicts  that rail  inter-modal  and air freight will
experience the largest percentage revenue gains of all transportation industries
in the coming  years.  Air  freight  revenues  will  increase  by 90% while rail
inter-modal is forecast to grow 61%. Trucking revenue,  while still 76% of total
transportation  revenue,  is  expected to decline by 2%, with the loss mainly to
rail and airfreight.

         Despite growing public  pressure,  potential civil  penalties,  and the
threat  of  government   imposed   penalties,   there  are  still  over  260,000
inadequately  protected passive and private crossings in North America.  Passive
crossings  are  those  which  typically  do not have  warning  lights  or active
mechanical  arms or other  devices  to warn of  pending  rail  traffic.  Private
crossings  are those on private  property,  often with  extremely  low vehicular
traffic,  and have at most signs warning  oncoming  traffic that a rail crossing
exists.  These  crossings  remain  unprotected as a result of the extremely high
cost of  installing  and  maintaining  available  crossing  systems.  While  the
railways would like to provide warning  systems at every  crossing,  the expense
(estimated  at $39 billion) of doing so is beyond  their means in a  competitive
transportation  industry.  Substantial  government subsidies are available,  but
they do not come  close to  covering  the cost of  installing  so many  crossing
systems.  However,  Congress  has  appropriated  an  additional  $5.8 billion in
constant  1997  dollars to be spent over the next 23 years for states to improve
safety at rail-highway crossings. (Source: Operation Lifesaver, Federal Railroad
Administration, Rail-Highway Crossing Safety Action Plan)

         On the tracks  operated  by U.S.  railways  there are  220,000  passive
and/or private crossings in the United States and 40,000 in Canada.  Based on an
average cost per crossing of U.S. $30,000 per installation,  the 260,000 passive
crossings  indicate a potential market of $7.8 billion for the ARS basic system.
(Source:  Operation  Lifesaver.) This estimate excludes the approximately 80,000
public  crossings in the United States and 15,000 in Canada which have some form
of  active  warning  system  in  place,   as  well  as  the  crossings  for  the
approximately  60 transit or passenger  railways across North America.  (Source:
Operation Lifesaver)

         The  Company  believes  that  there is a strong  market  for a crossing
advance  control  system which is  substantially  cheaper (less than 50 percent)
than the presently  available systems from the four major suppliers.  This price
advantage,   combined  with  the  technical  advantages  described  earlier,  in
management's  opinion,  provides a substantial market  opportunity.  The Company
does not believe  that  traditional  customers  will  readily  abandon  existing
systems due to the high costs associated with removing already installed systems
and replacing them with new ARS systems. Therefore, the Company intends to focus
its  marketing  efforts  on  educating  the public  and  traditional  customers,
emphasizing  the benefits of ARS's  technology  and  addressing the potential of
providing level crossing  protection at the 260,000 passive,  private and public
railway crossings that do not have automated protection systems at this time.

         PURCHASE OF T & T Diesel Power, Ltd.

         On July 31, 2000, ARS purchased all of the outstanding  stock of T & T.
The acquisition was accounted for as a purchase. The purchase price was $418,266
of which $102,750 was paid in cash at closing,  with notes payable to the former
shareholders of T & T (the  "SELLERS") of $115,516,  and the issuance of 200,000
shares of ARS common stock valued at $200,000.  The notes  payable bear interest
at 8% and are due no later  than July 31,  2001.  The  acquisition  resulted  in
goodwill  of  approximately   $415,000,   including   approximately  $31,000  of
acquisition  costs which is being  amortized  on a  straight-line  basis over 15
years.

         In  conjunction  with the  acquisition  of T & T, the stock of T & T is
being held in escrow  subject to an escrow  agreement  dated July 31, 2000.  The
escrow agreement provides,  that in the event of default under the notes payable
to the Sellers, the Sellers have the right to terminate the purchase of T & T by
ARS as follows:

         o      The stock of T & T shall be returned to the Sellers;

         o      The Sellers shall return to ARS the 200,000 common shares of ARS
                issued to the Sellers upon the purchase of T & T; and

         o      The  purchase  of T & T shall be deemed to have never  occurred,
                except the Sellers may retain any payments received.

                                       3
<PAGE>

         The escrow agreement also provides that, if on July 31, 2001, the ARS
shares issued to the Sellers are not freely tradable to the public without
restriction or are trading for a price of less than $1.00 per share, the Sellers
have the right to require ARS to purchase the 200,000 ARS shares for $1.00 per
share. If such purchase is not made, the Sellers have the right to retain the
ARS shares and release the T & T shares from escrow, or terminate the purchase
of T & T by ARS as follows:

        o       The stock of T & T shall be returned to the Sellers; and

        o       The Sellers  shall return to ARS both the 200,000  common shares
                of ARS issued to the Sellers  upon the purchase of T & T and the
                notes  payable to the  Sellers (if  outstanding)  along with any
                principal payments made to the Sellers under the notes.

         BUSINESS OF T & T

         T & T was founded in 1980 and is in the business of  customizing  power
generating  systems for a variety of uses.  T & T purchases  base  systems  from
diesel  equipment  manufacturers,  modifies and houses them and then resells the
customized  units to their  customers.  The units are assembled in the Company's
facilities in Georgetown, Ontario and shipped directly to customers. The Company
sources the base units from a variety of suppliers,  including Perkins,  Yanmar,
John  Deere  and  Detroit  Diesel.  Units  manufactured  range in size up to 600
kilowatts.

         During the six month period ended January 31, 2001,  the majority (71%)
of T & T's business was with Bell Canada. Traditionally,  T & T's customers have
also included Rogers Communications,  Clearnet Communications,  EIT, Marconi, CI
Communications, Gateway Telephone and others. The principal competitors of T & T
are  Tormont,  International  Power  Systems,  Total  Power  Limited and Cummins
Ontario Inc.

         INDUSTRY

         There are four major  suppliers  of railway  crossing  systems,  all of
which are well connected with the railway  industry and government,  and control
collectively  80% to 90% of the market today.  However,  the  crossings  systems
offered by these  competitors  remain  deeply rooted in  traditional  technology
developed as far back as 1890. Most train control and crossing systems currently
in use are based on principals developed in the last century,  such as insulated
joints. The railways have continued to use traditional  approaches  because,  in
the  Company's  opinion,  there has never  been a  reliable  and cost  effective
alternative.  ARS believes its approach  will be  successful  because  railways,
their  employees and the population in general are more educated and comfortable
with the use of today's modern computer  technology.  ARS uses modern day secure
wireless  communications  and  computer  technology  as the  basis for its level
crossing  system and the growth of its system  approach to support the railways'
need to  develop a safer,  more  efficient  railway  safety  and  communications
system. The competitors are:

         o      Safetran Systems Corporation, Minneapolis, MN.

         o      General Railway Signal Corporation, Rochester, NY.

         o      United Switch & Signal Inc., Columbia, SC.

         o      Harmon Industries Inc., Blue Springs, MO.

         EMPLOYEES

         The Company currently  has seven employees, two of which are full-time.
The Company expects to hire one additional employee in the current fiscal year.

         RESEARCH AND DEVELOPMENT

         In the years ended  January 31,  2001 and 2000,  the Company  estimates
that it spent $120,000 and $130,000, respectively, on research and development.

         INTELLECTUAL PROPERTY

         ARS applied for patent  protection,  under a license  agreement  for an
Automated  Railway  Crossing  filed on January  23, 1998 in the USA. A Notice of
Allowance was issued by the U.S.  Patent Office on January 10, 2001. The Company
anticipates  that the patent will be issued by the end of June 2001. The Company
is in  negotiations  to  license a second  patent  filed on April 6, 2001 for an
Automated Railway Monitoring System.

                                       4
<PAGE>


         GOVERNMENT APPROVAL

         The federal  government  regulated  private  crossings  in the past and
there  were no  specifications  for  passive  crossings.  In 1994,  the  Federal
Railroad  Administration  ("FRA") held an informal  safety inquiry to review the
concept of defining  minimum  safety  standards  for private  crossings,  or for
certain  categories  of private  crossings,  up to and  including  standards for
closure and consolidation  under certain  conditions.  The inquiry addressed the
allocation of  responsibilities  and costs associated with private crossings and
the need for dispute resolution  mechanisms  regarding that allocation.  The FRA
has authority in all matters  concerning  railroad safety, and can set standards
for private  crossings.  States and local highway  agencies  frequently  have no
involvement in, or responsibility  for, private crossings.  In January 1995, the
FRA issued regulations requiring periodic  maintenance,  testing, and inspection
of automatic  warning devices at all highway  crossings over tracks of railroads
which are part of the United States' general railroad system,  including private
crossings.

         Every year accidents at railway  crossings claim the lives of more than
600  people  in  North  America.   Railways  are  facing  significant  potential
liabilities  from these  accidents.  In  addition,  mounting  pressure  from the
public, as well as municipalities,  states, provinces and the federal government
in  the  United   States  and  Canada  is  beginning  to  demand  that  the  all
passive/private crossings have adequate advance warning systems.

         REPORTS TO SECURITY HOLDERS

         ARS is a reporting company with the Securities and Exchange Commission.
ARS's common stock is quoted on the  Over-the-Counter  Bulletin  Board under the
symbol "ARSN."

         The public may read and copy all  materials  filed with the  Securities
and Exchange  Commission at the Public  Reference  Room at 450 Fifth St.,  N.W.,
Washington, D.C., 20549 or may obtain information on the operation of the public
Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company maintains its corporate offices at the following address:

         ARS Networks, Incorporated
         100 Walnut Street
         Champlain, New York 12919
         Tel:  (518) 298- 2042
         Fax:  (518) 298-2813

         The Company also uses small warehousing, offices and meeting rooms when
required at the following address:

         ARS Networks, Incorporated
         300 International Drive, Suite 100
         Williamsville, New York 14211
         Tel:  (716) 626-6039
         Fax:  (716) 626-3001

         The  Company's  wholly-owned  subsidiary,  T & T,  is  located  at  the
following address:

         T & T Diesel Power, Ltd.
         23 Armstrong Avenue
         Georgetown, Ontario, Canada
         L7G 4SI
         Tel:  (905) 877-8900
         Fax:  (905) 877-3995

         These  properties are leased on a  month-to-month  basis.  The property
used by T & T consists of 7,200 square feet. T & T is currently  negotiating the
terms of a  three-year  lease at a monthly  rate  expected  to be  approximately
$1,600.  All  properties  are in good  condition  and the Company  believes such
properties  should be adequate for the  foreseeable  future.  The Company has no
investments in any plant or property.

ITEM 3.  LEGAL PROCEEDINGS

         ARS  has  commenced   litigation   against  certain   individuals  (the
"RESPONDENTS").  The case  involves a claim by ARS for shares issued in error to


                                       5
<PAGE>

the  Respondents.  The shares were to be issued upon the  completion  of certain
consulting  work to be  performed  by the  Respondents.  ARS claims  that by not
completing  the work, the  Respondents  breached the contract.  The  Respondents
claim that there is no breach of contract  and that the shares have been earned.
ARS has  obtained a  preliminary  injunction  preventing  the  Respondents  from
transferring the shares. The Respondents claim damages of an unknown amount. ARS
intends to  vigorously  pursue  its  position  in this  matter,  and  management
believes  that it will be resolved  without a material  effect on the  Company's
financial position or results of operations.

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

         No matters  were  submitted to a vote of  security-holders  through the
solicitation  of proxies or otherwise  during the three months ended January 31,
2001.



                                       6
<PAGE>


                           FORWARD-LOOKING STATEMENTS

         Information  included or  incorporated  by reference in this filing may
contain  forward-looking  statements  within the  meaning of Section  27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown  risks,  uncertainties  and other  factors which may cause our
actual results,  performance or achievements to be materially different from the
future  results,  performance  or  achievements  expressed  or  implied  by  any
forward-looking   statements.    Forward-looking   statements,   which   involve
assumptions  and describe our future plans,  strategies  and  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 comparable terminology.

         This filing contains forward-looking  statements,  including statements
regarding,   among  other  things,   (a)  the  Company's   projected  sales  and
profitability,  (b) the Company's growth  strategies,  (c) anticipated trends in
the Company's  industry,  (d) the Company's  future  financing plans and (e) the
Company's  anticipated needs for working capital.  These statements may be found
under "Management's Plan of Operation" and "Business," as well as in this filing
generally.  Actual events or results may differ  materially from those discussed
in forward-looking  statements as a result of various factors. In light of these
risks and  uncertainties,  there can be no  assurance  that the  forward-looking
statements  contained  in this  filing  will in fact  occur.  In addition to the
information  expressly  required to be included in this filing, the Company will
provide such further material  information,  if any, as may be necessary to make
the  required  statements,  in light of the  circumstances  under which they are
made, not misleading.






                                       7
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

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

         The following table sets forth the range of high and low bid quotations
for each calendar  quarter for the  Company's common stock since its stock began
quotation on February 1, 2000.

                                                      Bid 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

         The above  prices  were  obtained  from  Nasdaq,  Inc.  The  quotations
represent  inter-dealer   quotations,   without  retail  mark-up,   markdown  or
commission, and may not necessarily represent actual transactions.

         As of April 23, 2001,  the Company  believes it had  approximately  115
holders of record of the Company's common stock.

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

         RECENT SALES OF UNREGISTERED SECURITIES

         In April 2001,  the Company  sold  200,000  shares of common  stock for
$0.60 per share or aggregate  consideration of $120,000. Also in April 2001, the
Company issued 13,973 shares of common stock for services valued at $10,044. The
Company also issued 12,000 shares of common stock for services valued at $8,626.

         In March 2001,  the Company sold 2,500 shares of common stock for $1.12
per share, or aggregate consideration of $2,800. Also in March 2001, the Company
issued 45,000 shares of common stock for services valued at $47,813. The Company
issued 140,000 shares of common stock to National Financial Communications Corp.
for services  valued at  $131,250.  The Company  also issued  450,000  shares of
common  stock  to  Yorkville  Advisors  Management,  LLC for  services  value at
$365,625 in connection with the equity line of credit.

         In February  2001,  the Company sold 41,300 and 22,000 shares of common
stock for $0.25 and $1.15 per share, respectively, or aggregate consideration of
$35,625.  Also in February  2001,  the Company  issued  152,700 shares of common
stock in lieu of management compensation valued at $33,400.

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

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

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

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


                                       8
<PAGE>
         In September  2000,  the Company issued 7,000 shares of common stock to
two directors in  satisfaction  of an  outstanding  loan in the amount of $4,760
owed by the Company.

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

         In July 2000,  the Company issued 200,000 shares of common stock to the
former shareholders of T & T in connection with the Company's acquisition of T &
T. These shares were valued at $200,000 and are redeemable. See "Purchase of T &
T Diesel Power, Ltd."

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

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

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

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

         In November 1998, the Company sold 1,000,000 shares of common stock for
$0.10 per share or aggregate consideration of $100,000.

         In June 1998,  the Company  sold  3,898,500  shares of common stock for
aggregate consideration of $390.

         In May 1998,  the Company  issued  4,520,239  shares of common stock to
Sydney A. Harland,  the  Company's  President and Chief  Executive  Officer,  in
connection  with a License  Agreement.  Under the terms of this  agreement,  Mr.
Harland has granted the Company a non-exclusive  license to certain intellection
property,  trademarks and  patents  owned  and  developed  by Mr.  Harland.  Mr.
Harland  received  these  shares in exchange  for the license  agreement.  These
shares were valued at $0.

         With respect to the sale of unregistered  securities  referenced above,
all transactions were exempt from  registration  pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated  under the
1933 Act. In each instance,  the purchaser had access to sufficient  information
regarding  our  company  so as to make an  informed  investment  decision.  More
specifically,  the Company had a reasonable basis to believe that each purchaser
was an  "accredited  investor"  as defined in  Regulation  D of the 1933 Act and
otherwise  had  the  requisite  sophistication  to  make  an  investment  in the
Company's common stock.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The Company was formed in 1998 to design and develop  advanced  railway
communications  and data management  systems and as such has a limited operating
history. However, in July 2000, the Company completed the purchase of T&T Diesel
Power,  Ltd.,  which  has  been in  business  for 20  years.  In  spite  of this
acquisition,  the Company faces  significant  obstacles  with regard to customer
acceptance of the Company's products.

         The  Company  has been  successful  in raising  approximately  $588,000
through  April 2001 and  subsequent  to the  year-end  entered  into a financing
agreement with Cornell Capital Partners,  L.P. under which the Company will have
access to a $5 million equity line of credit over the next  twenty-four  months.
The  Company  expects  to  use  these  funds  for  marketing,  working  capital,
operations and, potentially, to acquire small, technically viable companies that
will contribute to revenue, cash flow and future growth of the Company.

         The prime  focus of  ARS'  Crosslogix(TM) private  wireless  network is
management of railway  traffic and public  safety.  While the ARS system and its
component  parts were  developed to improve  safety at rail  crossings,  the ARS
system  supports many  applications  in real time data  collection,  processing,
monitoring and information analysis. The system has evolved into Crosslogix(TM),
an integrated  service  information  system,  the foundation of the ARS wireless
private network.



                                       9
<PAGE>

         The  Company's  objective  is to  build  and  design  state  of the art
communications  systems that meet customer  demands,  that are cost competitive,
and that are capable of standing up to the tough conditions of continuous use in
the railway industry.

         The Advance  Warning  System for railway  level  crossings is the first
commercial   application  to  be  offered  by  ARS  on  its  integrated  service
information  system.  ARS'  Crosslogix(TM)  technology provides a portal for the
integration  of an  extensive  family of wayside  warning  and  wayside to train
communications applications. The ability to integrate other applications to ARS'
system  adds  considerable   value  for  the  railways  and  yet  is  relatively
inexpensive to implement.  The Company believes that the following  applications
can be integrated with ARS' system.


                                       9A
<PAGE>

         o      HOTBOX DETECTOR.  This is a non-contact  temperature measurement
                system,  which  we will  integrate  as an  application  onto our
                information  network.  These sensors on the track will allow the
                bearing journal  temperatures to be accurately  monitored as the
                train rolls by at high speed.  This is a major  safety issue for
                the railway  since the  detection of a hot bearing can prevent a
                derailment.

         o      FLAT WHEEL  DETECTOR.  A vibration  impact sensor can be used to
                detect wheels with flat spots.  The detection of flat spots will
                allow  the  offending  cars to be  decommissioned  and  repaired
                before additional damage to the rail occurs.

         o      WIDE  AREA  NETWORKING.  ARS  Crosslogix(TM)  technology  can be
                linked  together  to  provide  a  higher  speed   communications
                capability  to monitor  locomotive  and work  equipment  in dark
                territories.  Dark  territories  are  sections of railway  track
                where there are currently no communication systems in place.

         o      HAZARDOUS MATERIALS MONITORING. Constant monitoring of tank cars
                or  other  vessels   transporting   hazardous  materials  (e.g.,
                measures  of  temperature,  pressure,  evaporation,  volatility,
                decomposition, and so forth).

         o      INTER-MODAL  REEFER  MONITORING  SYSTEMS.  This  is  a  wireless
                monitoring  application for refrigerated railway cars (Reefers),
                which communicate with each ARS service  information  system via
                wireless radio. This allows the Reefers to report such things as
                cooling temperature, fuel levels and the condition of the engine
                generators that run the refrigerator  cars,  etc.,  allowing the
                railway  to  determine  where the cars are  located,  define the
                problem  with the  refrigerated  unit  and take the  appropriate
                action to correct  problems  before the goods being  transported
                are damaged.

         Railway  crossing  systems are one of the most important safety systems
used by railroads.  Canadian  Pacific  Railroad (CPR) has agreed to test the ARS
Advance  Crossing System  application on its main line in Mississauga,  Ontario,
Canada.  The  Company  plans  to  hire  Battelle   Organization  to  conduct  an
independent system audit of the system. CN Rail shares signaling information and
test results with CPR under an agreement  signed by both railways March 26, 1998
(CPRCNJSAP98-A1).  In ARS management's  opinion both Canadian railways and their
U.S.  subsidiaries'  railroads  will agree to put the system  through  their own
internal  audit  procedures,  which  will take 3 to 6 months.  ARS will offer to
sell/lease/rent  crossing  systems  to each  of its  customers  on a money  back
guarantee  basis to gain  approval  to  install  test  systems  at all  targeted
railways as soon as possible. Certification of the ARS Advance Warning System by
selected Class I railways may lead to opportunities  for  installations at Class
II and Class III railways.  Many Class II and III railways  traditionally forego
testing if Class I railways have certified a technology.  However, certification
does not guarantee market acceptance of ARS' technology.

         ARS is  currently  looking  for  distribution  channels  related to the
signaling and communications  business in order to market the Crosslogix system.
The  Company  expects to build a field  support  group to service  the  railways
directly,  which is expected to provide further brand recognition to ARS and its
products.  It is  anticipated  that the railways will demand a strong  technical
service  group to support  systems  sold.  The Company feels growth in this area
will be ongoing and dependent on future sales.

         QUARTERLY RESULTS

         During  the  quarter  ended  July  31,  2000,  the  Company  recognized
compensation  cost of $184,125 for the extension of the expiration date of stock
options  issued  to  certain  officers.  Upon  further  review  of  the  related
accounting  and  disclosure   guidelines,   the  Company   determined  that  the
compensation cost recognized should have been $375,922, an increase of $191,797.
Additionally,  the Company  should have  recognized  compensation  for  services
settled in stock of $52,500 and $81,095  during the quarters ended July 31, 2000
and October 31, 2000,  respectively.  More information  concerning the Company's
quarterly  results  are  contained  in  Note  10 to the  Company's  Consolidated
Financial Statements.

         LIQUIDITY AND EQUITY LINE OF CREDIT

         The Company is dependent on external cash to fund its  operations.  Our
independent  auditors have noted there is substantial doubt about our ability to
continue  as  a  going  concern.  See  Note  2  to  the  Consolidated  Financial
Statements.  This "going concern"  opinion is due, in part, to our need to raise
capital to continue  operations,  including  the  development  of the  Company's
railway  communications and data management systems business,  marketing efforts
and potential acquisitions.

         As discussed  below,  the Company entered into an equity line of credit
agreement with Cornell  Capital  Partners,  L.P. (the  "Investor").  The Company
believes that this equity line of credit will provide it with sufficient capital
to fund operations through January 2002. If such capital is not available,  then
the  Company  will need to raise  additional  capital  prior to January  2002 to
continue  operations.  If such  capital is  available  under the equity  line of
credit,  then the Company  will need to raise  additional  cash prior to January
2002 to continue operations after that date.

         In an attempt to meet its working  capital needs,  the Company  entered
into an equity line of credit  agreement  on March 27,  2001 with the  Investor.
Under the equity line, the Investor is committed to purchase up to $5,000,000 of

                                       10
<PAGE>


the  Company's  common  stock  over the  course of 24 months  commencing  on the
earlier of (i) effective  registration  of the shares or (ii) as mutually agreed
in  writing.  Under the equity  line,  the Company may request an advance by the
Investor.  The number of shares of common stock that the Investor  shall receive
for each  advance is  determined  by  dividing  the amount of the advance by the
purchase  price.  The  purchase  price is 90% of the market  price.  The maximum
advance  amount is equal to 150% of the average  daily  volume of the  Company's
common stock  multiplied  by the  purchase  price.  The average  daily volume is
computed by using the forty (40) trading days prior to the advance  notice date.
The advance notice date is the date the investor  receives a written notice from
the Company requesting an advance amount under the equity line. The market price
is the average of the lowest closing bid prices of the common stock over the ten
(10)  trading  day period  beginning  on the first  trading day after an advance
notice date and ending on the trading day prior to the relevant advance date.

         There is a minimum of eleven (11) trading days between  advance  notice
dates.  The Company has the right to withdraw that portion of an advance that is
less than 75% of the lowest closing bid price of the Company's  common stock for
the fifteen (15) trading days prior to a relevant advance notice date.

         Upon each advance,  Yorkville Advisors Management, LLC (the "INVESTMENT
MANAGER")  is entitled  to receive an amount  equal to 8.4% of the amount of the
advance.  At the time of the equity line, the Company issued 450,000  restricted
shares of the Company's common stock to the Investment Manager.  Such restricted
shares have demand and "piggyback" registration rights.

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

         The equity line contains certain  negative  covenants that prohibit the
Company  from  merging or  consolidating  with  another  entity or  transferring
substantially  all of the assets of the Company into another entity,  unless the
successor assumes the Company's obligations under the equity line.

         MARKET DEVELOPMENT

         The Company  entered into an agreement for the development of corporate
and product branding, and logo design. The finished product can be viewed on the
Company's new web site at www.arsnetworks.com.

         On February 9, 2000,  the Company  entered into an agreement for public
relations and  communications  consulting.  The term of the agreement is for one
year commencing  February 9, 2000 for $7,000 monthly.  In addition,  the Company
issued  150,000  free trading  shares upon  execution  of the  contract.  If the
Company's stock price trades at $4.00 per share or more for 45 consecutive days,
then the Company is obligated to issue an  additional  150,000  shares of common
stock under this  contract.  As of the date hereof,  this condition has not been
satisfied.  The Company is presently renegotiating an additional term under this
agreement. Either party may terminate this agreement with 30 days written notice
to the other party after the first ninety days.

         On October  23,  2000,  the  Company is  committed,  under a  marketing
relations  contract  dated  October 23,  2000,  to issue 19,000  shares  monthly
through October 2001. The contract can be terminated on a quarterly basis.

         ARS  intends  to  use  a  multi-step   approach  to  develop   business
opportunities in national and international markets:

         o      Identify  and rank the  decision  makers  within  each  customer
                organization.

         o      Develop relationships among the decision-makers of ARS' clients,
                who will act as positive references of ARS.

         o      Demonstrate the signal  equipment at target accounts to insure a
                comprehensive,  unified  understanding of ARS'  advantages,  and
                identify  problems  for  which  ARS  could  contribute  to  cost
                effective solutions.

         KEY CUSTOMER

         For the year  ended  January  31,  2001,  one  customer  accounted  for
approximately 71% of the Company's total sales. This customer also accounted for
approximately  98% of the  Company's  total  accounts  receivable at January 31,
2001.

         PUBLICITY AND ADVERTISING

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

                                       11
<PAGE>


         BROCHURES AND TECHNICAL BRIEFS

         ARS has developed a web site  (http:www.arsnetworks.com)  that provides
on-line information about the Company and allows the Company to communicate with
railway  executives,  governments,  transportation  authorities  and rail safety
lobby groups.  The Company is in the process of building a customer  database to
contact  customers and direct them to the  Company's web site. In addition,  the
Company  intends  to use the web site in  direct  marketing  campaigns  to build
customer awareness from the ground up.

         ARS intends to publish  Technical  Briefs that  provide  technical  and
operational details and to distribute these briefs over the web and in hard copy
to  railway  engineering  groups to keep them  informed  and in a  knowledgeable
position to evaluate and promote the advantages of ARS' technology.

         DIRECT MAIL

         The  Company  intends  to use  direct  mail to build  awareness  of the
Advanced Warning System.  The Company intends to target senior officials at each
railway, as well as officials at municipal,  state,  provincial and Canadian and
U.S. transportation authorities. By targeting these officials and directing them
to the Company's website, the Company hopes to be able to "pull" product through
the distribution channel.

         FINANCIAL CONSULTING SERVICES

         On January 6, 2001,  the Company  entered  into a financial  consulting
services agreement.  In exchange for such consulting services,  the Company will
issue shares to a consultant on a monthly basis with value of $10,000.  The term
of the  agreement is for twelve  months.  Beginning in the seventh  month of the
agreement,  either party can  terminate  the agreement by giving 60 days written
notice.

         MANUFACTURING PLAN

         The Company intends that to use contractors for its  manufacturing  and
assembly  for the  foreseeable  future,  with care taken to ensure that ISO 9000
standards are maintained. ISO is a series of international standards for quality
management  systems.  The ISO 9000 family of standards  recognizes  four generic
product categories, hardware, software, processed materials, and services.

         PROCUREMENT

         All hardware  will be specified to meet railway  standards  and will be
procured by ARS' engineering staff. This critical function will be controlled to
ensure that only optimal  hardware from the most reliable  vendors is used.  The
Company  intends to maintain a database of hardware  component  failures,  which
occur  during  manufacturing  and  test in  order to keep  vital  statistics  on
component failure rate for each part and for each vendor. This quality assurance
program is expected to meet ISO 9000 standards.

         COMPONENT ASSEMBLY

         To avoid the high cost of establishing  an assembly plant,  the Company
plans to contract its assembly to a qualified  assembly  house.  Future assembly
may require in-house facilities to control production and reduce product cost.

         FUNCTIONAL TESTING

         ARS'  Crosslogix(TM)  system  will be  tested by the  Company's  design
engineers  who have  developed  the  product in  cooperation  with  third  party
contractors that provide such test and certification services. The tests will be
conducted in an  environmentally  controlled test chamber at temperature  ranges
from -40 to +85 degrees celsius.  In addition,  vibration tables will be used to
test the boards and sensors at variable  vibration levels to detect assembly and
component  mechanical  problems.  Thermal Cycling is a  well-documented  process
proven to expose failures in electronic components.

         Circuit boards will be monitored during extended temperature cycling by
a computer system,  which will record the calibration,  drift, induced noise and
functionality  over several  thermal  cycles.  Each board is serialized and this
data will be saved permanently.

         FINAL QUALITY ASSURANCE

         The Company plans to engage  contract  manufacturers  will assemble the
ARS Crosslogix(TM)  system.  Company personnel will approve all product tests in
order to control the final acceptance and quality  assurance  operations  before
shipping.


                                       12
<PAGE>

         The  Company  intends  to  operate  this  manufacturing  area under the
principles  of  "Improved  Product   Reliability   through   Continuous  Process
Improvement" in accordance with ISO 9000 standards.

         PRODUCT RESEARCH AND DEVELOPMENT

         During the  current  fiscal  year,  the Company  plans to complete  the
initial  pre-production testing of its Crosslogix(TM) service information system
and complete the first rail carrier system audit and gain  certification for the
base Advance Crossing  application  configuration  using a single-track  system.
Thereafter,  multiple track systems are expected to be deployed with the ability
to permanently  record (log) and time stamp rail data  information  and transfer
this to other computers for analysis.  Additional releases are expected to alert
vehicular  traffic of train  direction and speed,  and provide  support for wide
area network capability, and internet communications protocol.

         The Company  expects  that future  Crosslogix(TM)  service  information
system  product  releases  planned  over the next two years at  installed  level
crossing  applications  will be expanded to include  other devices and functions
that  can  build on the  installed  user-base.  For  example,  the  applications
described above (hot box detector,  flat wheel detector,  wide area  networking,
hazardous material  monitoring,  inter-modal reefer monitoring) add considerable
value for the railway, yet are relatively inexpensive to add-on to the system.

         PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT

         During  the  current  fiscal  year,  the  Company  does not  anticipate
purchasing or selling any plant or significant equipment.

         On July 31, 2000, the Company completed the purchase of the outstanding
shares  of  T&T  Diesel  Power,  Ltd.  for  approximately  $449,000,   including
acquisition costs. The purchase of T&T Diesel Power, Ltd. is expected to provide
readily  available  electrical  power to service  standby  and dark  territories
applications  which the Company  believes  will  greatly  enhance the  Company's
ability to supply  turnkey  systems to the railway  industry.  Dark  territories
encompass  thousands of miles of railway track where there is no available power
to run signaling or safety systems.

         T&T's  fiscal  year-end  was  changed  to  January  31 from  July 31 to
correspond  with that of ARS'. The purchase of T&T Diesel was ARS' first step in
implementing  its  strategy  of  acquiring  profitable  companies,  which can be
integrated  into  its  core  business  -- the  design  and  marketing  of  safe,
cost-effective  and  reliable  systems for the railway  industry.  T&T  supplies
stand-by and prime power  generators to customers  like Alcatel,  Marconi,  Bell
Mobility, Rogers and AT&T Wireless, leaders in the telecommunications sector.

         SIGNIFICANT CHANGES IN NUMBERS OF EMPLOYEES

         The Company currently has seven employees,  two of which are full-time.
The Company expects to hire one additional employee in the current fiscal year.

         PATENTS

         ARS applied for patent  protection,  under a license  agreement  for an
Automated Railway Crossing filed on January 23, 1998 in the USA. The U.S. Patent
and  Trademark  Office  issued a Notice of Allowance  on January 10,  2001.  The
Company  anticipates that the patent will be issued by the end of June 2001. The
Company is in negotiations to license a second patent filed on April 6, 2001 for
an Automated Railway Monitoring System.

         EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

         Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative  Instruments and Hedging Activities"  establishes  accounting and
reporting  requirements for derivative  instruments.  The Company has not in the
past  nor does it  anticipate  that it will  engage  in  transactions  involving
derivative  instruments,  and therefore,  this  pronouncement did not and is not
expected  to have any  effect on the  financial  statements.  SFAS No.  133,  as
amended by SFAS No. 137, is effective for fiscal years  beginning after June 15,
2000.

ITEM 7.  FINANCIAL STATEMENTS

         The Company's  consolidated  financial  statements are attached to this
filing.

                                       13
<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         On September 24, 1999, the Company dismissed  Feldhammer/Fishman as the
Company's  independent  accountants to address the Company's need to work with a
national firm.  Feldhammer/Fishman  were in agreement with the decision taken by
the Company.  On October 18, 1999, the Company  engaged BDO Seidman,  LLP as the
Company's  independent  accountants.  From the  inception  of the Company  until
September  24,1999 there were no disagreements  with  Feldhammer/Fishman  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any  reportable  events.  The Company's  Board of
Directors approved this action.

         Effective  September  6, 2000,  the Company has engaged the  accounting
firm of Lougen,  Valenti,  Bookbinder & Weintraub,  LLP as independent certified
public  accountants  for the  Company.  Previously,  the Company had engaged the
accounting firm of BDO Seidman, LLP. Effective July 1, 2000, the partners in the
Buffalo,  New York office of BDO Seidman,  LLP purchased the Buffalo  accounting
practice of BDO Seidman,  LLP and are  continuing the practice under the name of
Lougen,  Valenti,  Bookbinder & Weintraub,  LLP. Lougen,  Valenti,  Bookbinder &
Weintraub,  LLP  is an  independent  member  of  the  BDO  Seidman  Alliance.  A
resolution  was  passed  by the  board on August  24,  2000 to accept  the audit
committee's  recommendation and dismiss BDO Seidman, LLP and a motion was passed
by the board to allow the audit committee to engage the firm of Lougen, Valenti,
Bookbinder & Weintraub,  LLP as the Company's new  accounting  firm. The Company
advised the former  accountant  of its  decision to dismiss them on September 6,
2000 and the former accountant resigned on the same date.

         During the past year and any  subsequent  interim  period  prior to the
dismissal of BDO Seidman, LLP, there were no reports on the financial statements
of the Company  containing any adverse  opinion,  or modified as to uncertainty,
audit scope,  or accounting  principles,  except for the report on the financial
statements for the year ended January 31, 2000, which was modified as to a going
concern  uncertainty.  There were no disagreements with the former accountant on
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure, which disagreement,  if not resolved
to the  satisfaction  of the  former  auditor,  would have  caused  them to make
reference  to the subject  matter of the  disagreement  in  connection  with its
report.


                                       14
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The Company's present directors and executive officers are as follows:

                     NAME          AGE                     POSITION
         ----------------------- ------- ---------------------------------------
         Sydney A. Harland         50    Chief Executive Officer, President and
                                         Director
         Mark P. Miziolek          44    Chief Financial Officer and Treasurer
         Donald B. Hathaway        65    Director
         Patrick R. Shea           53    Director
         Robert M. Esecson         50    Director and Secretary
         Peter J. Hoult            57    Chairman of the Board of Directors

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

         SYDNEY A. HARLAND has been Chief Executive Officer and President of the
Company since inception.  He is a co-founder of the Company.  From 1987 to 1998,
Mr. Harland was President,  founder and sole shareholder of Ameri-can  Equipment
Sales and Leasing Inc., a product  development  and sales company.  From 1995 to
December 2000, he was a consultant to Ontario Hydro Technologies. He has over 20
years of business experience,  primarily in sales and marketing, in the railway,
telecommunications,  nuclear  utility  and  mining  industries.  He  received  a
four-year  Electrical  Diploma  from C.P  Tech.,  Montreal,  Quebec,  Canada and
studied  Business  Administration  and  Marketing  at Dawson  College  Montreal,
Quebec,  Canada.  He has been  elected a member  of the  Canadian  Institute  of
Marketing,   and  the  American  Railway   Engineering  and   Maintenance-of-Way
Association.

         MARK P. MIZIOLEK has been the Vice President  Finance,  Chief Financial
Officer and Treasurer of the Company since May 20, 1998.  From 1994 to 1998, Mr.
Miziolek  became  the  Treasurer  and  Chief  Financial  Officer  and  later the
President,  Treasurer & CFO of Thornmark Holdings Inc./Thornmark  Corporation, a
privately  held  investment  holding  company with  interests in industrial  and
residential  real estate  development and Great Lakes and ocean  shipping.  From
1981 to 1994,  Mr.  Miziolek  was first the  Assistant  Controller  and then the
Controller of Upper Lakes Group Inc., one of Canada's  largest dry bulk shipping
companies with 21 vessels operating on the Great Lakes and in 4 vessels in ocean
trades.  Mr. Miziolek  received a B. Com. from the University of Toronto in 1983
and became a Certified General Accountant in 1989.

         DONALD B.  HATHAWAY  has been a Director of the  Company  since June 3,
1998. He is a co - founder of the Company. Mr. Hathaway is the Managing Director
and co-founder of NetFX  Concepts Inc.,  which was founded in 1996 to pursue the
commercialization of new and innovative technologies. While pursuing a career in
electronics  design and manufacturing,  academia and management  consulting over
the last thirty years, he has also been an active  entrepreneur,  with interests
in several  small  companies.  He has been a partner in two national  consulting
firms and the president of two others,  and he is a Past  President and a Fellow
of the Institute of Management  Consultants of Ontario,  and a Past President of
the Institute of Management Consultants of Canada. He is active on several other
Boards,  including Qnetix Inc.  (Chairman);  Wordwrap  Associates Inc.  (Chair);
Organization  and Systems  Design Inc.  (Chairman);  The Uxmal  Group;  Keystone
Enterprizes Inc. (Secretary); Nu-wave Photonics Inc., and NetFX Concepts Inc. He
is a former Governor of York University and he is currently on the University of
Waterloo  Advisory Council and The Financial Post's selection  committee for the
Leaders in Management  Education  Award. He has a B.Eng.  (electrical)  from Sir
George Williams University (now Concordia), a B.Sc. in mathematics from the same
university, and an MBA from York University.

         PATRICK R. SHEA has been a Director of the Company  since June 3, 1998.
Mr.  Shea is the  President  and  co-founder  of  Taima  Corporation,  providing
in-bound call center and related  technical  support services to the high growth
internet,  hardware and software  market.  In 1985, Mr. Shea  co-founded The PSC
Communications  Group (PSC),  a high tech systems,  consulting  and OEM training
company.  While at PSC, he assumed the positions of President,  CEO and Chairman
of the Board.  He sold the company in 1994,  but retained  executive  leadership
until he joined Taima in 1996.  The company was renamed to Geotrain in 1997, and
remains  one  of  Ciscos's  prime  global  training  partners.  He  is  still  a
shareholder and Director of Geotrain. He joined Bell Canada in 1969 and designed
and  managed  numerous  communications  and systems  projects  in  networks  and
telematics.  He  worked  at  Royal  Trust  from  1978  to  1980,  leading  major
initiatives in Information  Systems  programs.  Mr. Shea is actively involved in
several  investments in the high tech sector, and serves on the board of various
companies.  He has a Diploma  in  Electronics  from the  Montreal  Institute  of
Technology (1969).

         ROBERT M.  ESECSON  has been a Director  of the  Company  since June 3,
1998.  Mr.  Esecson is the  founder,  Senior  Managing  Director  and CEO of The
Esmarox  Group,   LLC,  an  investment   banking  and  business   advisory  firm


                                       15
<PAGE>
specializing  in  comprehensive  services  to public and  private  middle-market
companies. The Esmarox Group provides merger and acquisition, corporate finance,
private  placement  and  mezzanine  financing  services to middle  market  firms
located  throughout  North  America.   Its  consulting   division  develops  and
implements  creative  marketing  programs and strategic growth plans to increase
the  profitability  of client firms and provide exit  strategy  development  and
implementation.  Trained as a lawyer,  and an entrepreneur in his own right, Mr.
Esecson has a comprehensive  background in finance,  management,  and consulting
businesses.   He  has  held  senior  executive   positions  at  a  merchant  and
investment-banking firm and at several financial services firms. He earned BS in
Management and Accounting from Bentley College in Waltham,  Massachusetts  and a
JD from the New England School of Law in Boston.

         PETER J. HOULT has been a Director of the  Company  since June 3, 1998.
In 1993, Peter Hoult formed the international strategic marketing and consulting
practice which he operates from North Carolina and Toronto, Ontario. In 1965, he
joined Unilever in London,  England as a management  trainee while attending the
London School of Economics in the doctoral  program.  In 1967, he formed his own
market research company in London with an American partner and conducted studies
in all parts of the world.  In 1972, he joined RJR Tobacco as the  International
Research  Director,  and moved  through  successively  more senior  positions to
become  President  and  CEO,  RJR  Canada  and  Executive  Vice  President  U.S.
Operations.  He joined  Northwest  Airlines in 1990 as Executive  Vice President
Marketing,  Sales, and Strategic Planning.  He teaches marketing and strategy at
the Fuqua  Graduate  School of Business at Duke  University  in North  Carolina,
while  continuing  to  serve  his key  clients.  Mr.  Hoult  graduated  from the
University of Reading with an Upper Second  Honours degree in Psychology in 1965
and he has  completed  the course work for a doctorate  at the London  School of
Economics.

         DIRECTORSHIPS HELD IN REPORTING COMPANIES

         Donald B. Hathaway  serves on the Board of Directors of Rodin Networks,
a public company with an application to trade on the Canadian Venture Exchange.

         OTHER KEY EMPLOYEES

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

               NAME                   AGE             POSITION
         -------------------------- ------ -------------------------------------
         Shabir Gova                  34     Vice President, Technology
         Gary S. Johnson              40     Vice President, Marketing
         Susan Boyd MacStravick       51     Director, Investor Relations
         Ronald Moodie                65     Controller and Advisory Board Chair

         The  following is a brief  description  of the  background of these key
employees.

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

         GARY S. JOHNSON has been Vice President, Marketing of the Company since
inception.  From 1996 to 1998, Mr. Johnson was Marketing Manager,  Ontario Hydro
Technologies,   responsible  for  developing   technology   services   marketing
opportunities to the electric  utility industry in the U.S.,  Mexico and Canada.
From 1989 to 1996,  Mr.  Johnson worked for  Schlumberger  Limited,  Electricity
Division a world leader in the metering industry.  He started as Product Manager
Core Products and Automatic  Meter Reading  Technology and by 1994 he became the
Director,  Utility  Services  Group,  responsible  for P&L, 142  employees,  and
contracting services to electricity, water and gas utilities across Canada. From
1988 to 1989,  Mr.  Johnson was the Marketing  Manager  Semi-conductors  Philips
electronics  Limited.  Mr.  Johnson  received  his  MBA,  and  B.Sc.  Electrical
Engineering from Queens University in Kingston, Ontario, Canada.

         SUSAN BOYD  MACSTRAVICK has been the Director of Investor  Relations of
the Company since  inception.  Ms. Boyd  MacStravick has been President of Susan
Boyd & Associates  for 12 years and has over 20 years of  experience in investor
relations and communications,  advisor work for the Toronto Stock Exchange,  and
pre and post offering phases for new equity issues aimed at gaining national and
international  media  coverage for Canadian and American  high tech and resource


                                       16
<PAGE>


companies.  She has organized and  orchestrated  international  conferences  and
events. Ms. Boyd MacStravick  received her Hon. B.A., from University of Toronto
1971, Postgrad Journalism Diploma, from University of Western Ontario 1972.

         RONALD  MOODIE has been on the Company's  Advisory  Board since June 5,
1998 and was appointed Controller in June 2000. From 1989 to present, Mr. Moodie
has been  President of Moodie  Consulting,  providing  management and investment
services to commercial real estate  developers and heavy equipment  suppliers to
the railway and construction industries. From 1953 to 1989, Mr. Moody was in the
precious  and  non-precious  metals  and  the  ferrous  and  non-ferrous  metals
manufacturing  industries and the ferrous metals  distribution  industry  mostly
with what are now Johnson Matthey, Jannock and Russel Metals. Mr. Moody finished
his career at Vincent Steel,  a division of the present  Russel Metals,  as Vice
President,  a  position  he held for 15 years.  Mr.  Moodie  studied  Registered
Industrial  Accounting at the University of Toronto,  and received a real estate
license to sell commercial real estate from Ryerson Polytech University.

         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The following persons failed to make the filings specified below:

         o      Sydney A. Harland failed to file a Form 3 in connection with his
                becoming an officer and  director of the  Company.  Mr.  Harland
                also failed to file a Form 3 in connection with his ownership of
                7,572,368  shares of the common  stock and  options to  purchase
                shares of common stock.

         o      Peter  Ross  failed  to  file a Form 3 in  connection  with  his
                becoming  an officer of the  Company,  as well as the receipt of
                options to purchase  146,773  shares of common stock.  Moreover,
                Mr.  Ross failed to file a Form 3 or Form 4 in  connection  with
                his receipt of 250,050 shares of common stock.

         o      March P. Miziolek failed to file a Form 3 in connection with his
                becoming  an officer of the  Company,  as well as the receipt of
                options to purchase 88,250 shares of common stock. Moreover, Mr.
                Miziolek  failed to file a Form 3 or Form 4 in  connection  with
                his receipt of 361,800 shares of common stock.

         o      Donald B. Hathaway  failed to file a Form 3 in  connection  with
                his becoming a director of the  Company,  as well as the receipt
                of 754,000 shares of common stock.  Moreover,  Mr.  Hathaway has
                failed to file a Form 3 or Form 4 in connection with his receipt
                of options to purchase 237,625 shares of common stock.

         o      Patrick R. Shea failed to file a Form 3 in  connection  with his
                becoming a director of the Company.

         o      Robert M. Esecson failed to file a Form 3 in connection with his
                becoming an officer and director of the Company.

         o      Peter J. Hoult  failed to file a Form 3 in  connection  with his
                becoming a director of the Company.

         o      John  Andrews  failed  to file a Form 3 in  connection  with his
                becoming a director of the Company.

ITEM 10.  EXECUTIVE COMPENSATION

         The  following  table  shows  all  the  cash  compensation  paid by the
Company,  as well as certain  other  compensation  paid or  accrued,  during the
fiscal  years  ended  January 31,  2001,  2000 and 1999 to the  Company's  three
highest paid executive officers. No restricted stock awards, long-term incentive
plan  payouts  or  other  types of  compensation,  other  than the  compensation
identified  in the chart below,  were paid to these  executive  officers  during
these fiscal years. No other executive  officer earned a total annual salary and
bonus for any of these years in excess of $100,000.



                                       17
<PAGE>

<TABLE>
<CAPTION>
                                   ANNUAL COMPENSATION                  LONG-TERM COMPENSATION
                                   -------------------                  ----------------------
                                                                            AWARDS          PAYOUTS
                                                                            ------          -------
                                                         OTHER      RESTRICTED
                                                         ANNUAL       STOCK      OPTIONS/    LTIP      ALL OTHER
                                 SALARY     BONUS     COMPENSATION   AWARD(S)      SARS     PAYOUTS   COMPENSATION
NAME AND                         ------     -----     ------------   --------      ----     -------   ------------
PRINCIPAL POSITION      YEAR       ($)       ($)          ($)           ($)        (#)        ($)         ($)
------------------      ----       ---       ---          ---           ---        ---        ---         ---
<S>                     <C>      <C>        <C>       <C>           <C>          <C>        <C>       <C>

Sydney A. Harland,       2001     $107,000      -0-       -0-           -0-      1,236,860    -0-         -0-
President and Chief      2000     $100,000  $17,000       -0-           -0-      1,130,069    -0-         -0-
Executive Officer        1999      $75,000      -0-       -0-           -0-           -0-     -0-         -0-


Peter Ross, Chief        2001      $20,000      -0-       -0-           -0-        25,000     -0-     $263,000(2)
Operating Officer(1)     2000      $61,000  $10,000       -0-           -0-        36,023     -0-         -0-
                         1999      $45,750      -0-       -0-           -0-       115,000     -0-         -0-

Mark P. Miziolek, Vice   2001      $51,000      -0-       -0-           -0-        35,500     -0-     $113,000(2)
President Finance and    2000      $45,000   $8,000       -0-           -0-        15,750     -0-         -0-
Chief Financial Officer  1999      $33,750      -0-       -0-           -0-        50,000     -0-         -0-
</TABLE>

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

         (1)      Mr. Ross was the Company's Chief Operating Officer until
                  May 2000.

         (2)      These amounts relate to the extension of stock options granted
                  in 1999 that were due to expire in April 2000.



                                       18
<PAGE>

         The following table contains information regarding options exercised in
the year  ended  January  31,  2001,  and the  number of shares of common  stock
underlying  options held as of January 31, 2001, by the Company's  three highest
paid executive officers.

<TABLE>
<CAPTION>
                                             AGGREGATED OPTIONS/SAR EXERCISES
                                                  IN LAST FISCAL YEAR AND
                                           FISCAL YEAR END OPTIONS/SAR VALUES(1)

                                                                          NUMBER OF SECURITIES     VALUE OF UNEXERCISED
                                       SHARES                            UNDERLYING UNEXERCISED        IN-THE-MONEY
                                    ACQUIRED ON             VALUE           OPTIONS/SAR'S AT         OPTIONS/SAR'S AT
             NAME                     EXERCISE          REALIZED ($)       FISCAL YEAR END(1)       FISCAL YEAR END(2)
             ----                     --------          ------------       ------------------       ------------------
--------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>              <C>                       <C>
Sydney A. Harland, President            -0-                  -0-         Exercisable:  2,366,929        $1,484,834
and Chief Executive Officer                                              Unexercisable :       0

Peter Ross, Chief Operating             -0-                  -0-         Exercisable:    146,773          $162,361
Officer(3)                                                               Unexercisable :       0
Mark P. Miziolek, Vice                  -0-                  -0-         Exercisable:     88,250          $89,462
President Finance and Chief                                              Unexercisable :       0
Financial Officer
</TABLE>

---------------------------------
(1)      These grants represent options to purchase common stock.  No SAR's have
         been granted.

(2)      The value of the  unexercised  in-the-money  options were calculated by
         determining the difference  between the fair market value of the common
         stock  underlying  the options and the exercise price of the options as
         of January 31, 2001.

(3)      Mr. Ross was the Company's Chief Operating Officer until May 2000.

         EQUITY INCENTIVE PLAN

         On June 20, 1998,  the Company  adopted the Equity  Incentive Plan (the
"Equity Plan"). The purpose of the Equity Plan is to provide directors, officers
and certain  key  employees  with  additional  incentives  by  increasing  their
proprietary  interest in the Company. The Company has 4,500,000 shares of common
stock  reserved for issuance  under the Equity Plan.  Options  granted under the
Equity Plan may be either  Incentive  Stock  Options (as defined in the Internal
Revenue  Code of 1986,  as amended) or Options  that do not qualify as incentive
stock options  ("Non-Qualified  Options").  The exercise  price of all Incentive
Stock Options granted under the Equity Plan may not be less than the fair market
value of the underlying  common stock at the date of grant. In the event that an
optionee owns more than 10% of the voting power or value of all classes of stock
of the Company, the minimum exercise price of the Incentive Stock Option may not
be less than 110% of the market value of the underlying common stock at the date
of grant.  No Option may be  exercised  after 10 years from the date of grant (5
years for optionees who are greater than 10%  stockholders).  A committee of two
or more non-employee members of the Company's Board of Directors will administer
the Equity Plan.  Options are transferable only with the written approval of the
Committee.

         Under the Equity Plan,  each  non-employee  director is granted in each
year that he serves as a director,  a  Non-Qualified  Option to purchase  common
stock at an  exercise  price equal to the fair  market  value of the  underlying
common stock at the date of grant.  Each option is for a term of up to ten years
and  can be  exercised  immediately.  Except  for  the  foregoing,  non-employee
directors are not otherwise eligible to receive options,  awards or other rights
under the Equity Plan.

         The  Equity  Plan  also  provides   that  the   officers,   independent
contractors,  consultants  and  employees  of the Company may  receive,  without
payment, awards of common stock, cash or a combination thereof in respect of the
attainment of certain  performance  goals  determined by the Board of Directors,
under the Incentive Compensation Plan or otherwise.

         The Equity Plan also provides that stock  appreciation and depreciation
rights may be granted in tandem with, or independently of, options granted under
the Equity Incentive Plan (except for non-employee  directors).  However,  stock
appreciation  rights  granted in tandem with an  Incentive  Stock  Option may be
granted only at the time such option is granted,  and stock depreciation  rights
may not be granted in connection with an Incentive Stock Option.

         Under the Equity Plan,  participants other than non-employee  directors
may be granted the right to exercise their options by  surrendering  all or part
of the option (to the extent then exercisable) and receive in exchange an amount
payable by the Company in cash or common  stock  (valued at the then fair market
value) or a  combination  thereof  equal to the  excess of the then fair  market
value of the shares  issuable  upon  exercise  of the option or portion  thereof
surrendered   over  the  exercise  price  of  the  option  or  portion   thereof
surrendered.  Generally,  options that are exercisable at death or disability or
termination  for cause may be exercised at any time prior to the  expiration  of
the option but not more than three months after the date of termination,  unless
the option has vested.

         On June 20, 1998 the Company  adopted the Incentive  Compensation  Plan
(the  "Incentive  Plan").  The  purpose  of the  Incentive  Plan is to  attract,
motivate and retain key employees of the Company. The Company has not reserved a


                                       19
<PAGE>

specific number of shares of common stock under the Incentive Plan. Employees of
the Company are eligible to participate in the Incentive Plan. Each  participant
is  eligible  to  receive a  performance  award  under the plan as  computed  on
measured performance equal to a predetermined percentage of annual salary at the
beginning of the Company's  fiscal year. The maximum eligible award by component
is: profit  performance - 50%,  budget  discipline - 30%,  subjective - 20%. The
profit performance  segment relates directly to the achievement of certain goals
set at the beginning of the year. The budget discipline  segment is based on the
approved  budget  for the year.  The  subjective  segment  relates  to the total
performance  of the  participant  as determined by the Chief  Executive  Officer
and/or the Board of Directors.  No profit performance award will be given if the
Company does not achieve at least 80% of its profit plan for the year. The Board
of Directors  reserves the right to modify,  change and/or delete  components or
the entire Incentive Plan. Consultants and/or other independent  contractors may
be eligible to participate in the Incentive Plan.

         The following  table  contains  information  regarding  grants of stock
options  made  during the year ended  January 31,  2001 to the  Company's  three
highest paid executive officers.

         OPTION/SAR GRANTS TABLE

                                                          % TOTAL
<TABLE>
<CAPTION>
                                  NO. OF SECURITIES     OPTIONS/SARS
                                     UNDERLYING          GRANTED TO
                                   OPTIONS/SARS         EMPLOYEES IN      EXERCISE OR BASE PRICE
             NAME                   GRANTED (#)        FISCAL YEAR (%)        ($ PER SHARE)          EXPIRATION DATE
             ----                   -----------        ---------------        -------------          ---------------

------------------------------- --------------------- ------------------ ------------------------ -----------------------
<S>                               <C>                  <C>                <C>                        <C>
Sydney A. Harland, President         1,236,860               76%                 $0.6875             August 24, 2005
and Chief Executive Officer

Peter Ross, Chief Operating            25,000                2%                  $0.6875             August 24, 2005
Officer(1)

Mark P. Miziolek, Vice                 35,500                2%                  $0.6875             August 24, 2005
President Finance and Chief
Financial Officer
</TABLE>
------------------------
(1)      Mr. Ross was the Company's Chief Operating Officer until May 2000.

         COMPENSATION OF DIRECTORS

         The shareholders  elect all directors for a two-year term. No directors
are paid for their  services on the Board,  except that  non-employee  directors
will be granted options to purchase  shares of the Company's  common stock on an
annual  basis.  These  options  have an exercise  price equal to the fair market
value of such stock on the date of grant, are immediately exercisable and have a
ten-year term. In addition,  each director may purchase for each year of service
on the Board up to 50,000  shares of common  stock at a price  equal to the fair
market value of such stock on the date of purchase.

         MANAGEMENT AGREEMENTS

         On January 1, 2001,  the Company  entered into a  Management  Agreement
with Ameri-can  Equipment  Sales and Leasing.  Under the terms of the Agreement,
Mr. Harland,  President of Ameri-can  Equipment Sales and Leasing,  will provide
employment services as the Company's President and Chief Executive Officer.  The
Agreement has a three year term and pays Mr. Harland $180,000 per year,  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  based  on  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 payment of two times
Mr. Harland's then-existing compensation, plus $1,000,000.

         On January 1, 2001,  the Company  entered into a  Management  Agreement
with Mark Miziolek. Under the terms of the Agreement, Mr. Miziolek will serve as
the Company's Vice President Finance and Chief Financial Officer.  The Agreement
has a three  year term and pays Mr.  Miziolek  $84,000  per year,  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  compensation  based on  annual  performance
criteria  established  annually  by the  Board of  Directors.  The  Company  can
terminate  this  Agreement  at any  time  upon  the  payment  of two  times  Mr.
Miziolek's then-existing compensation.

                                       20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

         The following table sets forth, as of April 23, 2001,  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 the outstanding  shares,  (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group.

                                                           COMMON STOCK
                                                        BENEFICIALLY OWNED
NAME/ADDRESS                                        NUMBER           PERCENT(1)
------------                                    --------------------------------

Sydney A. Harland .......................          7,572,368(2)         47.1%
2155 Winchester Court
Burlington, Ontario, Canada
L7P 3M7

Donald B. Hathaway.......................            991,625(3)          7.1%
5964 Nine Line
Erin, Ontario, Canada
N0B 1T0

Mark P. Miziolek ........................            450,050(4)          3.3%
1450 Bayshore Drive
Oakville, Ontario, Canada
L6H 6E7

Peter Ross...............................            397,323(5)          2.9%
50 Park Avenue
Oakville, Ontario, Canada
L6J 3X8

Patrick R. Shea..........................            179,125(6)          1.3%
100 Walnut Street
Champlain, New York 12919

Robert M. Esecson........................            175,625(7)          1.3%
100 Walnut Street
Champlain, New York 12919

Peter J. Hoult...........................            175,625(8)          1.3%
100 Walnut Street
Champlain, New York 12919
All Officers and Directors as a Group(9)         10,068,341(10)         59.9%

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

(1)  Applicable  percentage of ownership is based on 13,696,692 shares of common
     stock  outstanding as of April 23, 2001,  together with applicable  options
     for each shareholder. Beneficial ownership is determined in accordance with
     the rules of the  Commission  and generally  includes  voting or investment
     power with respect to securities. Shares of common stock subject to options
     that are currently  exercisable or exercisable  within 60 days of April 23,
     2001 are deemed to be beneficially owned by the person holding such options
     for the purpose of computing  the  percentage  of ownership of such person,
     but are not  treated  as  outstanding  for the  purpose  of  computing  the
     percentage  ownership  of any other  person.  The common  stock is the only
     outstanding class of equity securities of our company.

(2)  Includes  options to purchase  2,366,929 shares of common stock that can be
     acquired within sixty days of April 23, 2001.

(3)  Includes  options to purchase  237,625  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(4)  Includes  options to  purchase  88,250  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(5)  Includes  options to purchase  146,773  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(6)  Includes  options to  purchase  75,125  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(7)  Includes  options to  purchase  75,125  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(8)  Includes  options to  purchase  75,125  shares of common  stock that can be
     acquired within sixty days of April 23, 2001.

(9)  Eight persons.

(10) Includes  options to purchase  3,102,452 shares of common stock that can be
     acquired within sixty days of April 23, 2001.


                                       21
<PAGE>

         Mr. Harland and the Company's  other  executive  officers and directors
hold  approximately  59.9% of the Company's  outstanding  common stock. As such,
these   people  have  the  ability  to  approve  any  action   required  by  the
shareholders, including the election of the directors.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

         On July 31,  2000,  Mr.  Harland's  wife  loaned the Company a total of
$100,000 Canadian  dollars.  This loan is due in July 2001 and bears interest at
8.5% per year.

         The Company  entered into a License  Agreement dated as of May 20, 1998
with Mr. Sydney A. Harland, the Company's President and Chief Executive Officer.
Under the  terms of this  agreement,  Mr.  Harland  has  granted  the  Company a
non-exclusive license to certain intellection property, a trade name and patents
owned and developed by Mr.  Harland.  In exchange for this license,  the Company
issued Mr. Harland a total of 4,520,239 shares of common stock.

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

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


<TABLE>
<CAPTION>
 EXHIBIT
   NO.       DESCRIPTION                                 LOCATION
   ---       -----------                                 --------
<S>          <C>                                         <C>

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

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

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

   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    Provided herewith.
             Incorporation

   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        Provided herewith.

   4.2       Lockup Agreement with Donald Hathaway       Provided herewith.

   4.3       Lockup Agreement with Robert Esecson        Provided herewith.

   4.4       Lockup Agreement with Peter Hoult           Provided herewith.

   4.5       Lockup Agreement with Mark Miziolek         Provided herewith.

   4.6       Lockup Agreement with Patrick Shea          Provided herewith.

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

                                       22
<PAGE>

 EXHIBIT
   NO.       DESCRIPTION                                 LOCATION
   ---       -----------                                 --------

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

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

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

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

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

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

   10.8      License Agreement dated as of May 20, 1998  Provided herewith.
             between Sydney Harland and the Company

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

   11.1      Statement re: Computation of Per Share      Not Applicable.
             Earnings

   21.1      Subsidiaries of the Registrant              Provided herewith.

   23.1      Consent of Experts and Counsel              Not Applicable.
</TABLE>

         (b) The  Company  did not file any reports on Form 8-K during the three
months ended January 31, 2001.



                                       23
<PAGE>












                           ARS NETWORKS, INCORPORATED
                                       AND SUBSIDIARY













                                           CONSOLIDATED FINANCIAL STATEMENTS
                                           YEARS ENDED JANUARY 31, 2000 AND 2001



<PAGE>


                                                     ARS NETWORKS, INCORPORATED
                                                                 AND SUBSIDIARY


                                                                       CONTENTS

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






    INDEPENDENT AUDITORS' REPORTS                                        F-3-F-4


    FINANCIAL STATEMENTS
       Consolidated Balance Sheet                                        F-5-F-6
       Consolidated Statements of Operations                                 F-7
       Consolidated Statements of Stockholders' Deficit                      F-8
       Consolidated Statements of Cash Flows                                 F-9


    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                         F-10-F-22


















                                                                             F-2
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
  ARS Networks, Incorporated and Subsidiary
Champlain, New York


We have audited the  accompanying  consolidated  balance  sheet of ARS Networks,
Incorporated and Subsidiary as of January 31, 2001 and the related  consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of ARS  Networks,
Incorporated  and  Subsidiary  at January  31,  2001,  and the  results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles in the United States of America.

The accompanying  financial  statements for the year ended January 31, 2001 have
been  prepared  assuming  that ARS Networks  Incorporated  and  Subsidiary  will
continue as a going concern. As discussed in Note 2 to the financial statements,
ARS Networks,  Incorporated  and Subsidiary has incurred losses since inception.
The Company is dependent upon the successful development of its advanced railway
level  communications  and data management  systems  business and its ability to
raise capital  utilizing its equity line of credit or from other sources.  These
conditions  raise  substantial  doubt  about its  ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 2. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.




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

March 29, 2001
Buffalo, New York





                                                                             F-3
<PAGE>


Independent Auditors' Report


To the Board of Directors and Stockholders of
ARS Networks, Incorporated
Champlain, New York


We have audited the accompanying statements of operations, stockholders' deficit
and cash  flows of ARS  Networks  Incorporated  (a  development  stage  company)
(formerly known as Ameri-can  Railway Systems,  Inc.) for the year ended January
31, 2000.  These financial  statements are the  responsibility  of the company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the results of operations and cash flows of ARS Networks,
Incorporated  (a development  stage company) for the year ended January 31, 2000
in conformity with generally accepted accounting principles in the United States
of America.

The  accompanying  financial  statements  have been  prepared  assuming that ARS
Networks,  Incorporated will continue as a going concern. As discussed in Note 2
to the financial statements,  ARS Networks,  Incorporated is a development stage
company  which has incurred  losses since  inception  and is dependent  upon the
raising of additional  capital.  These conditions raise  substantial doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters are also  described in Note 2. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.



/s/ BDO Seidman, LLP
BDO Seidman, LLP


March 22, 2000
Chicago, Illinois



                                                                             F-4
<PAGE>


                                                ARS NETWORKS, INCORPORATED
                                                            AND SUBSIDIARY

                                                CONSOLIDATED BALANCE SHEET


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



JANUARY 31, 2001
--------------------------------------------------------------------------------

ASSETS




CURRENT

   Cash                                                             $   125,366

   Accounts receivable (Notes 3 and 11)                                 237,712

   Due from officer                                                       2,320

   Inventory (Note 3)                                                   132,948

   Prepaid expenses                                                       9,705
--------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                                    508,051










OTHER ASSETS

   Equipment, net of accumulated depreciation of $2,319 (Note 5)         16,192

   Goodwill, net of accumulated amortization of $28,476 (Note 3)        386,728

   Other                                                                    646
--------------------------------------------------------------------------------

                                                                    $   911,617
--------------------------------------------------------------------------------



                                                                             F-5
<PAGE>


                                                  ARS NETWORKS, INCORPORATED
                                                              AND SUBSIDIARY

                                                  CONSOLIDATED BALANCE SHEET

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




JANUARY 31, 2001
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT
   Accounts payable                                               $     277,631
   Dividends payable - former shareholders of T & T Diesel
     Power, Ltd. (Note 3)                                                65,690
   Obligation under consulting agreement (Note 4)                        30,000
   Accrued management compensation (Note 3)                             269,127
   Accrued expenses (Notes 3 and 7)                                      20,445
   Note payable - related party (Note 7)                                 68,500
   Notes payable - former shareholders of T & T Diesel
     Power, Ltd. (Note 3)                                               115,516
   Current maturities of long-term debt (Note 5)                          5,283
--------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                               852,192

LONG-TERM DEBT, less current maturities (Note 5)                          1,392
--------------------------------------------------------------------------------

TOTAL LIABILITIES                                                       853,584
--------------------------------------------------------------------------------

REDEEMABLE COMMON STOCK (NOTE 3)                                        200,000
--------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (NOTES 2, 3, 7, 9 AND 13)

STOCKHOLDERS' DEFICIT (NOTES 7, 8, 9 AND 13)
   Preferred stock, $.0001 par value - 25,000,000 shares
     authorized; none outstanding -
   Common stock - $.0001 par value - 50,000,000 shares
     authorized; 12,607,889 outstanding (including 200,000
     redeemable common shares)                                            1,241
   Additional paid in capital                                         2,447,069
   Deficit                                                           (2,590,277)
--------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' DEFICIT                                            (141,967)
--------------------------------------------------------------------------------

                                                                  $     911,617
--------------------------------------------------------------------------------
                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




                                                                             F-6
<PAGE>

<TABLE>
<CAPTION>
                                                                 ARS NETWORKS, INCORPORATED
                                                                             AND SUBSIDIARY

                                                      CONSOLIDATED STATEMENTS OF OPERATIONS


<S>                                                       <C>                <C>
YEARS ENDED JANUARY 31,                                            2000                2001
---------------------------------------------------------------------------------------------

SALES (NOTE 11)                                           $           -      $      562,304

Cost of sales                                                         -             411,289
---------------------------------------------------------------------------------------------

GROSS PROFIT                                                          -             151,015
---------------------------------------------------------------------------------------------

EXPENSES:
   Officers' compensation (Note 8)                              241,000             640,935
   Professional fees                                            205,797             464,084
   Advertising and promotion                                          -             179,140
   Development expenses                                               -              80,331
   Office wages                                                       -              46,934
   Depreciation and amortization                                      -              30,795
   Rent and telecommunications                                   22,178              29,716
   Interest expense (Note 7)                                          -              11,935
   Other                                                          9,657              10,012
---------------------------------------------------------------------------------------------

TOTAL EXPENSES                                                  478,632           1,493,882
---------------------------------------------------------------------------------------------

LOSS BEFORE INCOME TAXES                                       (478,632)         (1,342,867)

Income taxes (Note 6)                                                 -              17,000
---------------------------------------------------------------------------------------------

NET LOSS                                                  $    (478,632)     $   (1,359,867)
---------------------------------------------------------------------------------------------

LOSS PER SHARE (BASIC AND DILUTED):
   Net loss                                               $       (.05)      $         (.12)
---------------------------------------------------------------------------------------------

WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED)       9,962,240          11,049,462
---------------------------------------------------------------------------------------------
                                              SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





                                                                                         F-7
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                          ARS NETWORKS, INCORPORATED
                                                                                                      AND SUBSIDIARY

                                             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (NOTES 7, 8, 9 AND 13)



                                                    COMMON STOCK
                                                                         ADDITIONAL
                                                                            PAID-IN
YEARS ENDED JANUARY 31, 2000 AND 2001              SHARES       AMOUNT      CAPITAL       DEFICIT            TOTAL
---------------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>       <C>           <C>              <C>
BALANCE, January 31, 1999                       9,726,489      $   973   $  698,431    $   (751,778)    $    (52,374)

Net loss for the year                                   -            -             -       (478,632)        (478,632)

Sales of common stock                             187,500           19       187,481              -          187,500

Common stock issued for services                   82,500            8        82,492              -           82,500

Common stock issued for officers'
   compensation                                   362,500           36       240,964              -          241,000

Exercise of stock options                         250,000           25             -              -               25
---------------------------------------------------------------------------------------------------------------------

BALANCE, January 31, 2000                      10,608,989        1,061     1,209,368     (1,230,410)         (19,981)

Net loss for the year                                   -            -             -     (1,359,867)      (1,359,867)

Sales of common stock                             430,000           43       259,662              -          259,705

Common stock issued for services                  361,000           36       378,458              -          378,494

Common stock issued for officers'                                                                 -
   compensation                                 1,000,900          100       218,900                         219,000

Common stock issued to satisfy advances due                                                       -
   to directors                                     7,000            1         4,759                           4,760

Redeemable stock issued for acquisition of
   T & T Diesel Power, Ltd.                       200,000            -             -              -                -

Officers' compensation recognized for
   modifications of stock options                       -            -       375,922              -          375,922
---------------------------------------------------------------------------------------------------------------------

BALANCE, January 31, 2001                      12,607,889      $  1,241   $2,447,069    $(2,590,277)      $ (141,967)
---------------------------------------------------------------------------------------------------------------------
                                                                      SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




                                                                                                                 F-8
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  ARS NETWORKS, INCORPORATED
                                                                                                              AND SUBSIDIARY

                                                                             CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 14)



YEARS ENDED JANUARY 31,                                                                         2000                   2001
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                             $   (478,632)         $  (1,359,867)
------------------------------------------------------------------------------------------------------------------------------

Adjustments to reconcile net loss to net cash
     (used in) operating activities:
   Professional fees settled in stock                                                         82,500                378,494
   Officers' compensation recognized for modifications of stock options                            -                375,922
   Officers' compensation settled in stock                                                   241,000                219,000
   Depreciation and amortization                                                                   -                 30,795
   Changes in assets and  liabilities  net of  effects  from  purchase  of T & T
     Diesel Power, Ltd.:
     (Increase) in accounts receivable                                                             -                (70,684)
     (Increase) in inventories                                                                     -                (35,277)
     (Increase) in prepaid expenses                                                                                  (8,333)
     (Increase) in due from officer                                                                -                 (2,320)
     (Increase) in other assets                                                                 (645)                     -
     Increase in accounts payable and accrued expenses                                        86,181                255,677
     (Decrease) in obligation under consulting agreement                                     (10,000)               (10,000)
------------------------------------------------------------------------------------------------------------------------------

TOTAL ADJUSTMENTS                                                                            399,036              1,133,274
------------------------------------------------------------------------------------------------------------------------------

NET CASH (USED IN) OPERATING ACTIVITIES                                                      (79,596)              (226,593)
------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of T & T Diesel Power Ltd., net of cash acquired                                    -                (95,267)
   Capital expenditures                                                                            -                 (1,779)
------------------------------------------------------------------------------------------------------------------------------

NET CASH (USED IN) INVESTING ACTIVITIES                                                            -                (97,046)
------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the sale of common stock                                                    187,525                259,705
   Proceeds from note payable - related party                                                      -                 68,500
   Advances from (to) directors                                                               20,000                (15,240)
   Payments of long-term debt                                                                      -                 (2,539)
------------------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                    207,525                310,426
------------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                                              127,929                (13,213)
Cash, beginning of year                                                                       10,650                138,579
------------------------------------------------------------------------------------------------------------------------------

CASH, end of year                                                                       $    138,579          $     125,366
------------------------------------------------------------------------------------------------------------------------------
                                                                               SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





                                                                                                                           F-9
</TABLE>
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.   ORGANIZATION           ARS Networks,  Incorporated ("ARS"), incorporated on
                            May 4, 1998 in New  Hampshire,  was formed to design
                            and develop advanced railway communications and data
                            management   systems.   ARS's  first  product  under
                            development is  Crosslogix(TM),  an advanced warniNG
                            system for railway level  crossings.  The Company is
                            devoting most of its efforts to this business line.

                            On July 31,  2000,  ARS  acquired the stock of T & T
                            Diesel  Power,  Ltd.  ("T & T"). T & T  manufactures
                            custom  diesel  power  generating  equipment.  As  a
                            result  of  this  acquisition,  ARS  began  to  earn
                            revenue and is no longer  considered  a  development
                            stage enterprise.

2.   SUMMARY OF             BASIS OF PRESENTATION
     SIGNIFICANT
     ACCOUNTING             The accompanying  consolidated  financial statements
     POLICIES               have been prepared in accordance with U.S. generally
                            accepted accounting  principles and are presented in
                            U.S. dollars.

                            PRINCIPLES OF CONSOLIDATION

                            The consolidated  financial  statements  include the
                            accounts of ARS and its wholly owned subsidiary, T &
                            T.   All   material    intercompany   accounts   and
                            transactions are eliminated.

                            GOING CONCERN AND MANAGEMENT'S PLANS

                            The Company has a limited  operating history with no
                            revenues  from its railway  communications  and data
                            management  systems  business.  Because of this, the
                            Company  faces  significant  obstacles in regards to
                            financing  and customer  acceptance of the Company's
                            products.  The  Company's  continuation  as a  going
                            concern  is  dependent  upon  its  ability  to raise
                            capital under its equity line of credit (Note 13) or
                            from other  sources.  In connection  with the equity
                            line  of  credit,  the  Company  plans  to  register
                            additional  shares for sale with the  Securities and
                            Exchange Commission.  Management believes sufficient
                            funds are or will be available to sustain operations
                            for at least the twelve months  following the latest
                            balance  sheet date.  These funds have been and will
                            continue to be utilized to fund  development  of the
                            Company's railway communications and data management
                            systems  business,  marketing  efforts and potential
                            acquisitions.  The Company intends to purchase small
                            companies  that have  products and services that add
                            value  and  are  strategic  to  the  success  of the
                            Company's   growth.   It  is  intended   that  these
                            acquisitions  of small companies will complement the
                            Company's product and generate ongoing revenue.

                            These factors create uncertainty about the Company's
                            ability  to  continue  as  a  going   concern.   The
                            financial  statements do not include any adjustments
                            to   reflect   the   possible   future   effect   on
                            recoverability  and  classification of assets or the
                            classification of liabilities that might result from
                            the outcome of this uncertainty.

                            INVENTORIES

                            Inventories  are  stated at lower of cost or market.
                            Cost is determined using the specific identification
                            method.




                                                                            F-10
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            EQUIPMENT

                            Equipment  is  carried  at  cost.   Depreciation  is
                            computed using the  straight-line  method over 3 - 7
                            years.

                            INTANGIBLE ASSETS

                            Goodwill  represents the excess of the cost of T & T
                            over the  fair  value  of the net  assets  acquired.
                            Amortization  is  computed  using the  straight-line
                            method over 15 years.

                            EVALUATING RECOVERABILITY OF LONG-LIVED ASSETS

                            The  Company  reviews  the  carrying  values  of its
                            long-lived and  identifiable  intangible  assets for
                            possible  impairment  whenever  events or changes in
                            circumstances  indicate that the carrying  amount of
                            the  assets  may  not be  recoverable.  The  Company
                            assesses   recoverability   of   these   assets   by
                            estimating  future  nondiscounted  cash  flows.  Any
                            long-lived  assets held for disposal are reported at
                            the lower of their  carrying  amounts  or fair value
                            less cost to sell. No impairments have been recorded
                            through January 31, 2001.

                            REVENUE RECOGNITION

                            Revenue from the sale of products is recorded at the
                            time the goods are  shipped,  or title has passed to
                            the customer and payment has been received.

                            In  December  1999,  the  Securities  and  Exchanged
                            Commission  (the  "SEC")  issued  Staff   Accounting
                            Bulletin  ("SAB") No. 101,  "Revenue  Recognition in
                            Financial   Statements."   SAB  No.  101  summarizes
                            certain  of the SEC's  views in  applying  generally
                            accepted    accounting    principles    to   revenue
                            recognition  in  financial  statements.  In  October
                            2000, the SEC issued additional  written  guidelines
                            supplementing  SAB No.  101.  The  adoption  of this
                            bulletin and these guidelines did not have an effect
                            on the Company's financial statements.

                            FREIGHT

                            The Company follows the classification  requirements
                            for freight costs  required by Emerging  Issues Task
                            Force ("EITF") No. 00-10,  "Accounting  for Shipping
                            and Handling  Fees and Costs."  This  pronouncement,
                            issued in  September  2000,  requires  that all such
                            costs billed to customers be classified as revenue.




                                                                            F-11
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            EARNINGS PER SHARE

                            The   Company   follows   Statement   of   Financial
                            Accounting Standards ("SFAS") No. 128, "Earnings per
                            Share,"  which   requires   presentation   of  basic
                            earnings per share and diluted earnings per share by
                            all entities that have publicly  traded common stock
                            or  potential   common  stock  (options,   warrants,
                            convertible    securities   or   contingent    stock
                            arrangements).  Basic earnings per share is computed
                            by dividing income available to common  stockholders
                            by the  weighted  average  number of  common  shares
                            outstanding during the period.  Diluted earnings per
                            share  gives  effect to  dilutive  potential  common
                            shares  outstanding   during  the  period.   Assumed
                            exercise  of options  has not been  included  in the
                            calculation of diluted  earnings per share since the
                            effect would be  anti-dilutive.  Accordingly,  basic
                            and diluted net loss per share do not differ for any
                            period presented.

                            STOCK BASED COMPENSATION

                            The Company  accounts for stock  options  granted to
                            employees   under  the   provisions   of  Accounting
                            Principles Board ("APB") Opinion No. 25, "Accounting
                            for Stock Issued to Employees", as permitted by SFAS
                            No. 123, "Accounting for Stock-Based  Compensation."
                            Since the  Company  has elected to continue to apply
                            the provisions of APB No. 25, they have provided the
                            proforma disclosure provisions of SFAS No. 123.

                            In March, 2000, the Financial  Accounting  Standards
                            Board ("the FASB") issued  Interpretation  No. 44 to
                            APB  25,   "Accounting   for  Certain   Transactions
                            Involving Stock  Compensation,"  which,  among other
                            things,  addressed the  accounting  consequences  of
                            modifications of stock option awards.

                            USE OF ESTIMATES

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

                            INCOME TAXES

                            Deferred  income  taxes are  recognized  for the tax
                            consequences  of temporary  differences  between the
                            financial   reporting  and  the  tax  bases  of  the
                            Company's  assets and liabilities in accordance with
                            SFAS No. 109.  Valuation  allowances are established
                            when necessary to reduce  deferred tax assets to the
                            amount expected to be realized.




                                                                            F-12
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            START-UP COSTS

                            Pursuant  to  AICPA   Statement  of  Position  98-5,
                            "Reporting on the Costs of Start-Up Activities", all
                            costs incurred in the  organization  and start-up of
                            the Company have been expensed.

                            FOREIGN CURRENCY TRANSLATION

                            The Company remeasures foreign currency  denominated
                            monetary assets and liabilities at year-end exchange
                            rates and  non-monetary  assets and  liabilities  at
                            historical    exchange   rates.   The   effects   of
                            remeasurement are included in income. Exchange gains
                            and losses arising from transactions  denominated in
                            foreign   currencies   are   translated  at  average
                            exchange  rates.   The  effects  of  these  exchange
                            adjustments are included in operations for the years
                            ended January 31, 2000 and 2001 and are immaterial.

                            COMPREHENSIVE INCOME

                            The  Company has  adopted  SFAS No. 130,  "Reporting
                            Comprehensive  Income",  which establishes standards
                            for reporting and display of  comprehensive  income,
                            its    components    and    accumulated    balances.
                            Comprehensive  income  is  defined  to  include  all
                            changes  in  equity  except  those   resulting  from
                            investments by owners and  distributions  to owners.
                            Among other disclosures,  SFAS No. 130 requires that
                            all items that are required to be  recognized  under
                            current   accounting   standards  as  components  of
                            comprehensive  income  be  reported  in a  financial
                            statement that is displayed with the same prominence
                            as other financial statements.

                            Total comprehensive loss for the years ended January
                            31,  2000 and 2001 is the same as the  reported  net
                            loss.

                            EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

                            SFAS No. 133, "Accounting for Derivative Instruments
                            and Hedging Activities"  establishes  accounting and
                            reporting  requirements for derivative  instruments.
                            The  Company  has  not  in  the  past  nor  does  it
                            anticipate  that  it  will  engage  in  transactions
                            involving  derivative  instruments,  and  therefore,
                            this  pronouncement  did not and is not  expected to
                            have any effect on the  financial  statements.  SFAS
                            No. 133,  as amended by SFAS No.  137, is  effective
                            for fiscal years beginning after June 15, 2000.

3.   ACQUISITION OF         On  July  31,  2000,   ARS   purchased  all  of  the
     T & T                  outstanding  stock  of T & T.  The  acquisition  was
                            accounted for as a purchase.  The purchase price was
                            $418,266  of  which  $102,750  was  paid  in cash at
                            closing,   with   notes   payable   to  the   former
                            shareholders  of T & T ("the  sellers") of $115,516,
                            and the  issuance  of  200,000  shares of ARS common
                            stock  valued at  $200,000.  The notes  payable bear
                            interest  at 8% and are due no later  than  July 31,
                            2001.  The  acquisition   resulted  in  goodwill  of
                            approximately   $415,000,   including  approximately
                            $31,000  of   acquisition   costs   which  is  being
                            amortized on a straight-line basis over 15 years.



                                                                            F-13
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            In  conjunction  with the  acquisition of T & T, the
                            stock of T & T is being held in escrow subject to an
                            escrow  agreement  dated July 31,  2000.  The escrow
                            agreement  provides,  that in the  event of  default
                            under the notes payable to the sellers,  the sellers
                            have the right to terminate the purchase of T & T by
                            ARS as follows:

                            (a)    The stock of T & T shall be  returned  to the
                                   sellers,
                            (b)    the sellers  shall  return to ARS the 200,000
                                   common  shares of ARS  issued to the  sellers
                                   upon the purchase of T & T, and
                            (c)    the purchase of T & T shall be deemed to have
                                   never occurred, except the sellers may retain
                                   any payments received.

                            The escrow  agreement also provides that, if on July
                            31, 2001,  the ARS shares  issued to the sellers are
                            not   freely   tradable   to  the   public   without
                            restriction  or are trading for a price of less than
                            $1.00  per  share,  the  sellers  have the  right to
                            require ARS to  purchase  the 200,000 ARS shares for
                            $1.00 per share.  If such purchase is not made,  the
                            sellers  have the right to retain the ARS shares and
                            release the T & T shares from  escrow,  or terminate
                            the purchase of T & T by ARS as follows:

                            (a)    The stock of T & T shall be  returned  to the
                                   sellers,
                            (b)    the  sellers  shall  return  to  ARS both the
                                   200,000  common  shares of ARS  issued to the
                                   sellers  upon the  purchase  of T & T and the
                                   notes payable to the sellers (if outstanding)
                                   along with any principal payments made to the
                                   sellers under the notes.

                            At January 31, 2001, there is approximately $182,000
                            included in liabilities for compensation,  dividends
                            and interest  owed to the sellers.  The sellers have
                            been granted a security interest in T & T's accounts
                            receivable  and  inventories  with  respect to these
                            liabilities.

                            Pro  forma  results  of  operations,   assuming  the
                            acquisition  of T & T had  occurred  on  February 1,
                            1999, are unaudited and presented  below.  Pro forma
                            adjustments   primarily   relate  to   depreciation,
                            additional   interest  on  debt   incurred  for  the
                            acquisition, and amortization of goodwill.

<TABLE>
                                                                                              Unaudited
                                                                             ----------------------------------------

                            YEAR ENDED JANUARY 31,                                        2000                2001
                            -----------------------------------------------------------------------------------------
                            <S>                                                 <C>                 <C>
                            Sales                                               $    1,106,408      $    1,342,491
                            Net loss                                                  (417,752)         (1,369,357)
                            Net loss per share (basic and diluted)                        (.04)               (.12)
</TABLE>

4.   OBLIGATION             The Company has an obligation under an agreement for
     UNDER                  business  and  financial  consulting  services.  The
     CONSULTING             balance  due under the  agreement  is  $30,000 as of
     AGREEMENT              January 31, 2001.



                                                                            F-14
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.   LONG-TERM DEBT         Long-term debt consists of the following at January
                            31, 2001:

<TABLE>
<S>                         <C>                                                       <C>
                            Loan  payable -  finance  company,  maturing  in
                            monthly  installments  of $446 through  April,
                            2002,     including    interest    at    2.8%,
                            collateralized by a specific vehicle                       $        6,675

                            Less current maturities                                             5,283
                            ----------------------------------------------------------------------------

                            Long-term debt, less current maturities                    $        1,392
                            ----------------------------------------------------------------------------

                            Maturities of long-term  debt are  approximately  as follows:

                            2002                                                        $       5,283
                            2003                                                                1,392
                            ----------------------------------------------------------------------------

                            Total                                                       $       6,675
                            ----------------------------------------------------------------------------
</TABLE>

6.   INCOME  TAXES          The Company did not have taxable income for the year
                            ended January 31, 2000 and, therefore, does not have
                            any  current  income  tax  expense.  The  income tax
                            provision  for  the  year  ended  January  31,  2001
                            consists  solely of foreign  taxes  (Canada)  on the
                            operations of T & T.

                            At January 31, 2001, the  significant  components of
                            the  Company's  deferred  income  tax  assets are as
                            follows:

<TABLE>
<S>                         <C>                                                     <C>                <C>
                            Start up costs  deferred for tax  purposes,  expensed for  financial
                               reporting purposes                                                      $   760,000
                            Less:  Valuation allowance                                                    (760,000)
                            -----------------------------------------------------------------------------------------

                            Net deferred income tax asset                                              $         -
                            -----------------------------------------------------------------------------------------

                            The net change  during the year  ended  January  31,
                            2001  in  the  total  valuation   allowance  was  an
                            increase of $546,000.

                                                                                      2000                2001
                            -----------------------------------------------------------------------------------------

                            Tax expense at U.S. statutory rate                        (34.0)%            (34.0)%
                            Change in Federal valuation allowance                      34.0               34.0
                            Foreign Income Taxes                                        -                  1.3%
                            -----------------------------------------------------------------------------------------

                            Effective income tax rate                                   -%                 1.3%
                            -----------------------------------------------------------------------------------------
</TABLE>



                                                                            F-15
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7.   RELATED PARTY          The Company has entered  into  management agreements
     TRANSACTIONS           with  its  executive  officers.  The  terms  of  the
                            agreements  provide for  provisions to terminate the
                            parties  at  any  time  as   stipulated   under  the
                            conditions of their individual agreements, including
                            termination   payments  ranging  from  three  months
                            salary to twice the  annual  compensation  rate.  In
                            addition to the stipulated termination payments, the
                            agreement with the President requires the Company to
                            pay  $1,000,000 to the President if the agreement is
                            terminated.  These agreements,  which expire through
                            2003,  provide  minimum  salary  levels,  as well as
                            incentive  bonuses and stock options.  The aggregate
                            commitment  for future  minimum  salaries at January
                            31, 2001,  excluding bonuses and stock options,  was
                            approximately $1,269,000.

                            The note  payable - related  party of $68,500  bears
                            interest at 8.5% per annum and is due July, 2001.

                            At  January  31,  2001,   accrued  expenses  include
                            approximately  $9,000  for  interest  due to related
                            parties.  Interest  expense to related  parties  was
                            approximately $12,000 for the year ended January 31,
                            2001.


8.   STOCK INCENTIVE        (a)  On June 20, 1998 the Company adopted the Equity
     PLANS                       Incentive  Plan ("the Equity  Plan") to provide
                                 directors,  officers and certain key  employees
                                 with  additional  incentives.  Under the Equity
                                 Plan,  4,500,000  shares of common  stock  have
                                 been  reserved for  issuance  pursuant to stock
                                 options  and  stock  awards.  The  Equity  Plan
                                 provides  for  the  grant  of  incentive  stock
                                 options and  non-qualified  stock options.  The
                                 exercise  price of all incentive  stock options
                                 granted  may not be less  than the fair  market
                                 value  of the  underlying  common  stock at the
                                 date of grant.  The Equity Plan is administered
                                 by a  committee  of  two or  more  non-employee
                                 members of the Company's Board of Directors.

                                 The  Company  applies APB 25,  "Accounting  for
                                 Stock   Issued  to   Employees,"   and  related
                                 interpretations  in  accounting  for this plan.
                                 Under   APB  25,  no   compensation   cost  was
                                 recognized   because  the  exercise   price  of
                                 employee  stock options was equal to or greater
                                 than the market price of the  underlying  stock
                                 on the  date  of  grant.  However,  under  FASB
                                 Interpretation   No.   44,  the   Company   did
                                 recognize  $375,922  of  compensation   expense
                                 during the year ended  January 31, 2001 related
                                 to  extending  the  lives of  certain  existing
                                 stock   option   awards   which  caused  a  new
                                 measurement   of   compensation   cost  at  the
                                 modification date.



                                                                            F-16
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                SFAS  No.  123,   "Accounting   for  Stock-Based
                                Compensation," requires that the Company provide
                                pro  forma  information  regarding  net loss and
                                loss per share as if the  compensation  cost for
                                the   Company's   stock  option  plan  had  been
                                determined  in  accordance  with the fair  value
                                method prescribed in such statement. The Company
                                estimates the fair value of each stock option at
                                the  grant  date  by  using  the   Black-Scholes
                                option-pricing model with the following weighted
                                average assumptions used for grants as follows:

<TABLE>
                                 YEAR ENDED JANUARY 31,                           2000                     2001
                                 ----------------------------------------------------------------------------------
                                <S>                                            <C>                        <C>
                                Dividend yield                                    0%                         0%
                                Expected volatility                               0%                        90%
                                Risk free interest rates                       4.94%                      6.16%
                                Expected lives                                 2.5 years                  2.5 years
</TABLE>

                                For the year ended  January  31,  2000,  the net
                                loss would have been increased by  approximately
                                $147,000  and  loss per  share by $.01.  For the
                                year ended January 31, 2001,  the net loss would
                                have been  increased by  approximately  $450,000
                                and loss per share by $.04.

                                A summary of the status of the  Company's  stock
                                option  plans for options  held by officers  and
                                directors  as of January  31,  2000 and 2001 and
                                changes  during the years  ending on those dates
                                is presented below:

<TABLE>
                                                  JANUARY 31, 2000                            JANUARY 31, 2001
                                         ------------------------------------       --------------------------------------

                                                             WEIGHTED                                      WEIGHTED
                                                              AVERAGE                                      AVERAGE
                                            SHARES        EXERCISE PRICE                SHARES          EXERCISE PRICE
     ----------------------------------- ------------- ---------------------- ----- ---------------- ---------------------
<S>                                       <C>                <C>                        <C>               <C>
     Outstanding, beginning of year         122,750          $   .0001                  1,592,717         $   .93
     Granted                              1,469,967             1.01                    1,618,230           .6875
     Exercised                                    -               -                             -               -
     ----------------------------------- ------------- ---------------------- ----- ---------------- ---------------------

     Outstanding at end of year           1,592,717          $   .93                    3,210,947         $   .81
     ----------------------------------- ------------- ---------------------- ----- ---------------- ---------------------

     Options exercisable at year-end      1,469,967          $   .93                    3,210,947         $   .81
     ----------------------------------- ------------- ---------------------- ----- ---------------- ---------------------

     Weighted  average  fair  value  of
     options granted during the year                         $  1.00                                      $   .6875
     ----------------------------------- ------------- ---------------------- ----- ---------------- ---------------------
</TABLE>



                                                                            F-17
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                 The  following  table  summarizes   information
                                 about stock options  outstanding at January 31,
                                 2001:
<TABLE>

                                                      WEIGHTED
                                                      AVERAGE         WEIGHTED
                                   NUMBER            REMAINING        AVERAGE             NUMBER            WEIGHTED
           EXERCISE            OUTSTANDING AT       CONTRACTUAL       EXERCISE        EXERCISABLE AT         AVERAGE
            PRICES            JANUARY 31, 2001          LIFE           PRICE         JANUARY 31, 2001    EXERCISE PRICE
     ---------------------------------------------------------------------------------------------------------------------
<S>                              <C>                   <C>           <C>                 <C>                  <C>
         $0.0001                   122,750             51 months     $  0.0001             122,750            $ 0.0001
         $1.00 to $1.01          1,469,967             37 months        1.0100           1,469,967              1.0100
         $0.6875                 1,618,230             55 months        0.6875           1,618,230              0.6875
     ---------------------------------------------------------------------------------------------------------------------

                                 3,210,947                                               3,210,947
     ---------------------------------------------------------------------------------------------------------------------
</TABLE>


                           (b) On  June  20,  1998  the   Company   adopted  the
                               Incentive   Compensation   Plan  ("the  Incentive
                               Plan").  The purpose of the Incentive  Plan is to
                               attract, motivate and retain key employees of the
                               Company.   Under   the   Incentive   Plan,   each
                               participant   shall  be  eligible  to  receive  a
                               performance   award  as   computed   on  measured
                               performance.  Consultants  and other  independent
                               contractors may be eligible to participate in the
                               Incentive  Plan.  No awards  have been made under
                               the Incentive Plan through January 31, 2001.
                           (c) On July 1,  1998,  options  to  purchase  500,000
                               shares of the Company's common stock were granted
                               to  certain  consultants  of  the  Company.   The
                               options have a term of five years and were vested
                               upon  the  date  of the  grant.  In  April  1999,
                               options  for  250,000  shares  of  the  Company's
                               common stock were  exercised by the  consultants.
                               The remaining  options for 250,000  shares of the
                               Company's   common  stock  were   outstanding  at
                               January 31, 2001.

                               During  the year  ended  January  31,  2000,  the
                               Company sold 41,500  shares of common stock which
                               included  an  option  to  purchase  one  share of
                               common  stock 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  certain  conditions  and  expire  60
                               months from that date.  These options for a total
                               of 83,000  shares of the  Company's  common stock
                               were outstanding at January 31, 2001.

9.   COMMITMENTS            On February 9, 2000,  the  Company  entered  into an
     AND                    agreement for public  relations  and  communications
     CONTINGENCIES          consulting.  The  term of the  agreement  is for one
                            year commencing February 9, 2000 for $7,000 monthly.
                            In addition, the Company issued 150,000 free trading
                            shares  upon  execution  of  the  contract,  and  is
                            required  to  issue  another  150,000  free  trading
                            shares if the Company's  stock is $4.00 per share or
                            over  for  45  days.   The   Company  is   presently
                            renegotiating   an   additional   term   under  this
                            agreement. Either party may terminate this agreement
                            with 30 days written notice to the other party after
                            the first ninety days.

                            At January 31, 2001, the Company is committed, under
                            a marketing  relations  contract  dated  October 23,
                            2000,  to  issue  19,000  shares   monthly   through
                            October,  2001.  The contract can be terminated on a
                            quarterly basis.

                            At January 31, 2001, the Company is committed, under
                            a  financial  consulting  services  agreement  dated


                                      F-18
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            January 6,  2001,  to issue  shares  with a value of
                            $10,000  on  a  monthly  basis.   The  term  of  the
                            agreement  is for twelve  months.  Beginning  in the
                            seventh  month of the  agreement,  either  party can
                            terminate  the  agreement  by giving 60 days written
                            notice.

                            ARS  has  commenced   litigation   against   certain
                            individuals ("the respondents"). The case involves a
                            claim  by ARS for  shares  issued  in  error  to the
                            respondents.  The shares  were to be issued upon the
                            completion   of  certain   consulting   work  to  be
                            performed by the respondents. ARS claims that by not
                            completing  the work, the  respondents  breached the
                            contract.  The  respondents  claim  that there is no
                            breach of  contract  and that the  shares  have been
                            earned.  ARS has obtained a  preliminary  injunction
                            preventing the  respondents  from  transferring  the
                            shares.  The respondents claim damages of an unknown
                            amount.   ARS  intends  to  vigorously   pursue  its
                            position in this  matter,  and  management  believes
                            that it will be resolved  without a material  effect
                            on the  Company's  financial  position or results of
                            operations.




                                                                            F-19
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.  QUARTERLY              During the quarter ended July 31, 2000,  the Company
     RESULTS                recognized  compensation  cost of  $184,125  for the
                            extension of the  expiration  date of stock  options
                            issued to certain  officers.  Upon further review of
                            the related  accounting and  disclosure  guidelines,
                            the Company  determined that the  compensation  cost
                            recognized should have been $375,922, an increase of
                            $191,797.  Additionally,  the  Company  should  have
                            recognized  compensation  for  services  settled  in
                            stock  of  $52,500  and  $81,095 during the quarters
                            ended  July  31,   2000  and   October   31,   2000,
                            respectively.  Revision of these  compensation costs
                            resulted in the  following  for the  periods  ending
                            July 31, 2000 and October 31, 2000:

<TABLE>
                                           THREE MONTHS            SIX MONTHS            THREE MONTHS       NINE MONTHS
                                               ENDED                  ENDED                 ENDED             ENDED
                                           JULY 31, 2000          JULY 31, 2000        OCTOBER 31, 2000   OCTOBER 31, 2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>                    <C>                 <C>
Loss as originally reported                $     (304,578)      $     (694,228)        $     (133,854)     $     (828,082)
Effect of revision                               (244,297)            (244,297)               (81,095)           (325,392)
---------------------------------------------------------------------------------------------------------------------------

Restated net loss                          $     (548,875)      $     (938,525)        $     (214,949)     $   (1,153,474)
---------------------------------------------------------------------------------------------------------------------------

Loss per share as originally reported      $        (.03)       $        (.06)         $        (.01)      $        (.08)
Effect of revision                                  (.02)                (.03)                  (.01)               (.03)
---------------------------------------------------------------------------------------------------------------------------

Restated loss per common share             $        (.05)       $        (.09)         $        (.02)      $        (.11)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



11.  MAJOR                  Sales to one customer in the year ended  January 31,
     CUSTOMER               2001,  were  approximately  71% of total  sales.  At
                            January  31,  2001,  accounts  receivable  from this
                            major  customer  represented  approximately  98%  of
                            total accounts receivable.



                                                                            F-20
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12.  SEGMENT                The Company  has two  reportable  segments:  (i) ARS
     INFORMATION            which is designing and developing  advanced  railway
                            communications  and data management systems and (ii)
                            T  &  T  which  manufactures   custom  diesel  power
                            generating  equipment.  The Company  operates  these
                            segments as separate  strategic  business units. All
                            of the Company's sales and equipment relate to T & T
                            and are in Canada. The majority of T & T's customers
                            are located in Eastern Canada. T & T was acquired on
                            July 31, 2000 and its operations are included in the
                            Company's  financial  statements from August 1, 2000
                            to January 31, 2001. Therefore,  segment information
                            is only being  presented  for the six  months  ended
                            January 31, 2001, as prior periods  include only the
                            operations  of ARS. The  following  tables set forth
                            certain   performance   and  other   information  by
                            reportable segment.

<TABLE>
                            SIX MONTHS ENDED JANUARY 31, 2001                   ARS           T & T            Total
                            -----------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>             <C>
                            Sales                                       $         -     $   562,304     $    562,304
                            Segment net income (loss)                    (1,365,585)          5,718       (1,359,867)
                            Total assets  (excluding net goodwill of
                              $386,728)                                      65,149         459,740          524,889
                            Interest expense                                  7,361           4,574           11,935
                            Depreciation       and      amortization
                              (excluding  goodwill  amortization  of
                              $28,476)                                            -           2,319            2,319
                            Income taxes                                          -          17,000           17,000
                            Equipment acquisitions                                -           1,779            1,779
</TABLE>

13.  EQUITY LINE OF         On March  27,  2001,  the  Company  entered  into an
     CREDIT                 equity line of credit  agreement  "the equity  line"
                            with   Cornell   Capital   Partners,    L.P.   ("the
                            investor").  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 months
                            commencing   on  the   earlier   of  (i)   effective
                            registration  of the  shares,  or (ii)  as  mutually
                            agreed  in  writing.  Under  the  equity  line,  the
                            Company may request an advance by the investor.  The
                            number of shares of common  stock that the  investor
                            shall  receive for each advance  shall be determined
                            by  dividing  the  amount  of  the  advance  by  the
                            purchase  price.  The  purchase  price is 90% of the
                            market price.  The maximum  advance  amount shall be
                            equal to 150% of the  average  daily  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  days  prior to the
                            advance  notice date. The advance notice date is the
                            date the investor receives a written notice from the
                            Company  requesting  an  advance  amount  under  the
                            equity line.  The market price is the average of the
                            lowest  closing bid prices of the common  stock over
                            the ten (10)  trading  day period  beginning  on the
                            first  trading day after an advance  notice date and
                            ending  on the  trading  day  prior to the  relevant
                            advance date.



                                                                            F-21
<PAGE>

                                                      ARS NETWORKS, INCORPORATED
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                            There will be a minimum of eleven (11)  trading days
                            between  advance  notice dates.  The Company has the
                            right to withdraw  that  portion of an advance  that
                            does not  meet the  minimum  acceptable  price.  The
                            minimum  acceptable  price is  defined as 75% of the
                            lowest  closing  bid price of the  Company's  common
                            stock for the fifteen  (15)  trading days prior to a
                            relevant advance notice date.

                            Upon each advance date, the Company shall pay to the
                            investor's  business  manager,   Yorkville  Advisors
                            Management, LLC ("the investment manager") an amount
                            equal to 8.4% of the amount of the advance. Upon the
                            execution  of the equity  line,  the Company  issued
                            450,000  restricted  shares of the Company's  common
                            stock to the  investment  manager.  Such  restricted
                            shares  have  demand  and  "piggyback"  registration
                            rights.

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

                            Additionally,  under  the  covenants  of the  equity
                            line,  the  Company  shall not  effect any merger or
                            consolidation,  or transfer substantially all of the
                            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 investor is entitled
                            to pursuant to the equity line.

14.  SUPPLEMENTAL           The Company did not make any  payments  for interest
     CASH FLOW              or income  taxes  during the year ended  January 31,
     INFORMATION            2000.  Interest  paid during the year ended  January
                            31, 2001 was approximately $7,000. Income taxes paid
                            during  the  year  ended   January   31,  2001  were
                            approximately $20,000.

                            During the year ended January 31, 2001,  the Company
                            issued  7,000  shares of its common stock to satisfy
                            advances in the amount of $4,760 due to directors of
                            the Company.










                                                                            F-22
<PAGE>



                                   SIGNATURES

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



Date:    April 30, 2001              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 been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
NAME                                 TITLE                                        DATE
------------------------------------ -------------------------------------------- ------------------------
<S>                                  <C>                                          <C>

/s/ Sydney A. Harland                Chief Executive Officer, President and       April 30, 2001
-------------------------            Director
Sydney A. Harland

/s/ Mark P. Miziolek                 Chief Financial Officer                      April 30, 2001
-------------------------
Mark P. Miziolek

/s/ Donald P. Hathaway               Director                                     April 30, 2001
-------------------------
Donald P. Hathaway

/s/ Robert M. Esecson                Director                                     April 30, 2001
-------------------------
Robert M. Esecson


</TABLE>