-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 IE727UN/YcAuFLdvUkvVfTy/nATuRaMMy3JqwZr4F6P8ueoPdcVl7I9sj2s6jTc0
 UsqAX/Dbx6WLTIvf366h0g==

<SEC-DOCUMENT>0001082324-01-500011.txt : 20010515
<SEC-HEADER>0001082324-01-500011.hdr.sgml : 20010515
ACCESSION NUMBER:		0001082324-01-500011
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010331
FILED AS OF DATE:		20010514

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PASW INC
		CENTRAL INDEX KEY:			0001082324
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER PROGRAMMING SERVICES [7371]
		IRS NUMBER:				770390628
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		
		SEC FILE NUMBER:	000-26895
		FILM NUMBER:		1631359

	BUSINESS ADDRESS:	
		STREET 1:		703 RANCHO CONEJO BLVD
		CITY:			NEWBURY PARK
		STATE:			CA
		ZIP:			75081
		BUSINESS PHONE:		8054997722

	MAIL ADDRESS:	
		STREET 1:		703 RANCHO CONEJO BLVD
		STREET 2:		10390 SANTA MONICA BLVD, FOURTH FL
		CITY:			NEWBURY PARK
		STATE:			CA
		ZIP:			75801

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PACIFIC SOFTWORKS INC
		DATE OF NAME CHANGE:	19990322
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>paswq301.htm
<TEXT>

<HTML>

<head>
<TITLE> LEGACY SOFTWARE, INC</TITLE>
<meta CONTENT="text/html; charset=windows-1252">
<meta NAME="GENERATOR" CONTENT="Microsoft FrontPage 3.0">
<meta NAME="Template" CONTENT="C:\WINDOWS\TEMP\Pacific Softworks 10QSB - 63099.dot">
</head>

<body>
<font SIZE="3"><b>

<p ALIGN="CENTER">UNITED STATES</p>

<p ALIGN="CENTER">SECURITIES AND EXCHANGE COMMISSION</p>

<p ALIGN="CENTER">WASHINGTON, D.C. 20549</p>

<p ALIGN="CENTER">FORM 10-QSB</p>

<blockquote>
  <p align="center">QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE</p>
</blockquote>

<p ALIGN="CENTER">SECURITIES EXCHANGE ACT OF 1934</p>

<p ALIGN="CENTER">For the quarterly period ended March 31, 2001</p>

<p ALIGN="CENTER">OR</p>

<p ALIGN="CENTER">( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)</p>

<p ALIGN="CENTER">OF THE SECURITIES EXCHANGE ACT OF 1934</p>

<p ALIGN="CENTER">Commission file number 333-75137</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">(Exact name of registrant as specified in its charter)</p>

<p align="center">California
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
77-0390628 </p>

<p align="center">(State or other jurisdiction of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(I.R.S. Employer Identification No.)</p>

<p align="center">incorporation or organization)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2007 Simsbury Court</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Thousand Oaks, California
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;
91360</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(Address of principal executive offices)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(Zip Code)</p>

<p align="center">(805) 492-6623</p>

<p align="center">Registrant&#146;s telephone number, including area code)</p>

<p>Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.</p>

<p>Yes _<u> X</u>__ No____</p>

<p>There were 4,517,400 shares outstanding of the registrant&#146;s Common Stock, par
value $.001 per share, as of May 9, 2001.</p>

<p ALIGN="CENTER">&nbsp;</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">INDEX</p>

<p>Page No.</p>

<p ALIGN="CENTER">PART I - FINANCIAL INFORMATION</p>

<p>Item l. Financial Statements (Unaudited):</p>

<p>Balance Sheets at March 31, 2001 and December 31, 2000
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
3</p>

<p>Statements of Operations for the three months ended March 31, 2001 and 2000
&nbsp;&nbsp;&nbsp;&nbsp; 5</p>

<p>Statements of Cash Flows for the threemonths ended March 31, 2001 and 2000
&nbsp;&nbsp;&nbsp; 7</p>

<p>Notes to Condensed Financial Statements
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
8</p>

<p>Item 2. Management&#146;s Discussion and Analysis or Plan of Operations
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
12</p>

<p ALIGN="CENTER">PART II - OTHER INFORMATION</p>

<p>Item 1. Legal Proceedings
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18</p>

<p>Item 2. Changes in Securities and Use of Proceeds
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18</p>

<p>Item 3. Defaults Upon Senior Securities
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18</p>

<p>Item 4. Submission of Matters to a Vote of Security Holders
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18</p>

<p>Item 5. Other Information
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18</p>

<p>Item 6. Exhibits and Reports on Form 8-K
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18 </p>

<p>Signatures
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18 </p>

<p ALIGN="CENTER">PART I &#150; FINANCIAL INFORMATION</p>

<p>ITEM 1. FINANCIAL STATEMENTS</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">CONSOLIDATED BALANCE SHEETS</p>

<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <blockquote>
          <blockquote>
            <blockquote>
              <blockquote>
                <blockquote>
                  <blockquote>
                    <p align="center">(Unaudited)</p>
                  </blockquote>
                </blockquote>
              </blockquote>
            </blockquote>
          </blockquote>
        </blockquote>
      </blockquote>
    </blockquote>
  </blockquote>
</blockquote>
</b></font>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="595">
  <tr>
    <td WIDTH="59%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2001</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">December 31, </p>
    <p ALIGN="CENTER">2000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP" HEIGHT="20"><font SIZE="3"><b>ASSETS</b></font></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="20"></td>
    <td WIDTH="3%" VALIGN="TOP" HEIGHT="20"></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="20"></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Current assets:</b></font></td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Cash and cash equivalents</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">$ 216,002</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">$ 254,369</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Accounts receivable, net of allowance of <p>$0
    and $0</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">17,084</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">157,381</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Securities available for sale</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">158,960</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">198,541</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Prepaid expenses</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><b><p ALIGN="RIGHT">15,433</b></u></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><b><p ALIGN="RIGHT">30,867</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Total current assets</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">407,479</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="RIGHT">641,867</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP" HEIGHT="55"><font SIZE="3"><b>Property and equipment less
    accumulated depreciation and amortization of $43,852 and $43,852</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM" HEIGHT="55"><font SIZE="3"><b><p ALIGN="RIGHT">12,227</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="55"></td>
    <td WIDTH="19%" VALIGN="BOTTOM" HEIGHT="55"><font SIZE="3"><b><p ALIGN="RIGHT">12,784</b></font></td>
  </tr>
  <tr>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><b>Other assets</b></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><b><p ALIGN="RIGHT">6,290</b></u></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM">&nbsp;</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><b><p ALIGN="RIGHT">6,732</b></u></font></td>
  </tr>
</TABLE>
<b><font FACE="Courier New" SIZE="3">

<p>&nbsp;</p>

<p>&nbsp;</p>
</font><font SIZE="3">

<p>See accompanying notes to condensed financial statements.</p>

<p align="center">3</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">CONSOLIDATED BALANCE SHEETS</p>

<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <blockquote>
          <blockquote>
            <blockquote>
              <blockquote>
                <blockquote>
                  <blockquote>
                    <p align="center">(Unaudited)</p>
                  </blockquote>
                </blockquote>
              </blockquote>
            </blockquote>
          </blockquote>
        </blockquote>
      </blockquote>
    </blockquote>
  </blockquote>
</blockquote>
</font></b>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="583">
  <tr>
    <td WIDTH="63%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2001</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">December 31, </p>
    <p ALIGN="CENTER">2000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>LIABILITIES AND STOCKHOLDERS&#146;EQUITY</b></font></td>
    <td WIDTH="16%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Current liabilities:</b></font></td>
    <td WIDTH="16%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Accounts payable and accrued expenses</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 290,393</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 657,162</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Total current liabilities</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">290,393</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">657,162</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP" HEIGHT="20"><font SIZE="3"><b>Commitments and contingencies</b></font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="20"></td>
    <td WIDTH="3%" VALIGN="TOP" HEIGHT="20"></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="20"></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Stockholders&#146; equity:</b></font></td>
    <td WIDTH="16%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Preferred stock, par value $.01 per share,
    10,000,000 shares authorized; no shares outstanding</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Common stock, par value $.001 per share,
    50,000,000 shares authorized; 4,517,400 and 4,517,400 shares issued and outstanding</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">4,518</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">4,518</b></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Additional paid in capital</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">6,265,653</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">6,265,653</b></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Accumulated deficit</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><b><p ALIGN="RIGHT">(6,175,446)</b></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><b><p ALIGN="RIGHT">(6,241,830)</b></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Cumulative adjustment for currency
    translation</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">40,878</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><u><font SIZE="3"><b><p ALIGN="RIGHT">(24,829)</b></font></u></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP"><font SIZE="3"><b>Total stockholders&#146; equity</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">135,603</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">3,512</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="63%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 425,996</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 660,674</b></u></font></td>
  </tr>
</TABLE>
<b><font SIZE="3">

<p>See accompanying notes to condensed financial statements.</p>
</font><font FACE="Courier New" SIZE="3">

<p align="center">4</p>
</font><font SIZE="3">

<p>&nbsp;</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">CONSOLIDATED STATEMENTS OF OPERATIONS</p>

<p align="center">(Unaudited)</p>
</font></b>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="607">
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="40%" VALIGN="TOP" COLSPAN="3"><font SIZE="3"><b><p ALIGN="CENTER">Three Months
    Ended </b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2001</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">(Restated)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Net revenue</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ 117,498</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ 197,617</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Sales </b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">30,875</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">86,985</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Royalties and other</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">148,373</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">284,602</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Cost of revenue -</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Purchases and royalty fees</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">58,567</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">32,345</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Gross profit</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">89,806</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">252,257</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Expenses:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Selling, general and administrative</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(5,179)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">614,523</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Research and development</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">205,154</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Depreciation and amortization</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">0</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">19,496</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><u><p ALIGN="RIGHT">(5,179</u>)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT"><u>839,173</u></b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Other income (expenses) - Loss on sale of
    securities</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">(24,608)</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">0</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Gain (loss) from continuing operations</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">70,377</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(586,916)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Discontinued operations</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">0</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">(266,617)</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Net income (loss)</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 70,377</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ (853,533)</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Net loss per common share:<p>basic and
    diluted</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Continuing operations</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ 0.02</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ (0.13)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Discontinued operations</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ <u>0.00</u></b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ <u>(0.06)</u></b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Total</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 0.02</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ (0.19)</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Weighted average common stock shares
    outstanding Basic and diluted</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">4,640,900</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">4,301,104</b></u></font></td>
  </tr>
</TABLE>
<font SIZE="3"><b>

<p>See accompanying notes to condensed financial statements.</p>

<p align="center">&nbsp;&nbsp;&nbsp; 5</p>

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)</p>

<p align="center">(Unaudited)</p>

<p>&nbsp;</p>
</b></font>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="565">
  <tr>
    <td WIDTH="66%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="34%" VALIGN="TOP" COLSPAN="3"><font SIZE="3"><b><p ALIGN="CENTER">Three Months
    Ended </b></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2001</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="3%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><b><p ALIGN="CENTER">(Restated)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP"><font SIZE="3"><b>Net gain (loss)</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ 70,377</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$(853,533)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP"><font SIZE="3"><b>Other comprehensive income (loss:</b></font></td>
    <td WIDTH="16%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP"><blockquote>
      <font SIZE="3"><b><p>Net unrealized loss on available securities for sale</b></font></p>
    </blockquote>
    </td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(3,993)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP"><blockquote>
      <font SIZE="3"><b><p>Foreign currency translation adjustment</b></font></p>
    </blockquote>
    </td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">65,707</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">(105,545)</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="66%" VALIGN="TOP"><font SIZE="3"><b>Comprehensive gain (loss)</b></font></td>
    <td WIDTH="16%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 132,091</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="15%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$(959,078)</b></u></font></td>
  </tr>
</TABLE>
<b><font SIZE="3">

<p>See accompanying notes to condensed financial statements.</p>
</font>

<p>&nbsp;</p>

<p align="center"><font SIZE="3">6</font></p>
<font SIZE="3">

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">STATEMENT OF CASH FLOWS</p>

<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <blockquote>
          <blockquote>
            <blockquote>
              <blockquote>
                <blockquote>
                  <blockquote>
                    <p align="center">(Unaudited)</p>
                  </blockquote>
                </blockquote>
              </blockquote>
            </blockquote>
          </blockquote>
        </blockquote>
      </blockquote>
    </blockquote>
  </blockquote>
</blockquote>
</font></b>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="625">
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="38%" VALIGN="TOP" COLSPAN="3"><font SIZE="3"><b><p ALIGN="CENTER">Three Months
    Ended </b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2001</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">March 31,</p>
    <p ALIGN="CENTER">2000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Cash flows from operating activities:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">(Restated)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Net gain (loss)</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ 70,377</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">$ (586,916)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Adjustments to reconcile net loss to net
    cash used in operating activities:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Depreciation and amortization</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">29,496</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>(Increase) decrease in assets:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Accounts receivable</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">140,297</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(285,086)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Loss on marketable securities</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">24,608</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Prepaid expenses</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">15,434</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">41,423</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Other assets</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">442</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">( 6,541)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Increase (decrease) in liabilities:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Accounts payable and accrued expenses</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(366,769)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">175,567</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Deferred revenue</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">0</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">14,534</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Net cash used in operating activities </b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(115,611)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(617,523)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Loss from discontinued operations</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(266,617)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Cash flows from investing activities:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Acquisition of fixed assets</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(107,626)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Disposition of assets, net </b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">558</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><blockquote>
      <font SIZE="3"><b><p>Proceeds of sale or marketable Securities</b></font></p>
    </blockquote>
    </td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">147,479</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Purchase of marketable securities</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">(136,500)</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">________ 0</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Net cash used in investing activities</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">11,537</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(107,626)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Cash flows from financing activities:</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Exercise of warrants</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">0</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">548,624</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Net cash provided by financing activities</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">0</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">548,624</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Effect of exchange rate changes on cash</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">65,707</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">(105,545)</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Net increase (decrease) in cash</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">( 38,367)</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">(548,687)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Cash &#150; Beginning</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">254,369</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">1,661,708</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP"><font SIZE="3"><b>Cash &#150; Ending</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 216,002</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$1,113,021</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="17%" VALIGN="TOP">&nbsp;</td>
  </tr>
</TABLE>
<b><font SIZE="3">

<p>Supplemental non-cash financing activities: None</p>

<p>See accompanying notes to condensed financial statements.</p>
</font>

<p>&nbsp;</p>

<p align="center"><font SIZE="3">&nbsp;&nbsp; 7</font></p>
<font SIZE="3">

<p ALIGN="CENTER">PASW, INC.</p>

<p ALIGN="CENTER">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</p>

<p ALIGN="CENTER">(UNAUDITED)</p>

<blockquote>
  <p ALIGN="JUSTIFY">Basis of presentation</p>
</blockquote>
</b>

<p ALIGN="JUSTIFY">The accompanying unaudited consolidated financial statements of PASW,
INC. (&quot;PASW&quot;, or the &quot;Company&quot;) have been prepared in accordance with
generally accepted accounting principles for interim financial information and the
instructions to Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of the Company&#146;s
financial position at March 31, 2001, the results of operations for the three months ended
March 31, 2001 and March 31, 2000, and the cash flows for the three months ended March 31,
2001 and March 31, 2000 are included. Operating results for the three-month period ended
March 31, 2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001.</p>

<p ALIGN="JUSTIFY">The information contained in this Form 10-QSB should be read in
conjunction with audited financial statements and related notes for the year ended
December 31, 2000 which are contained in the Company&#146;s Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission (the &quot;SEC&quot;) on March 28, 2001,
Form 10KSBA Number 1 filed on April 27, 2001 and the Company&#146;s Registration Statement
on Form SB-2 filed with the Securities and Exchange Commission on July 29, 1999 (File
333-75137).</p>
<b>

<blockquote>
  <p ALIGN="JUSTIFY">Earnings per share</p>
</blockquote>
</b>

<p ALIGN="JUSTIFY">The Company adopted SFAS No. 128, &quot;Earnings Per Share&quot;,
during 1998. SFAS No. 128 requires presentation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the reporting period.
Diluted earnings per share reflects the potential dilution that could occur if securities
or other contracts, such as stock options, to issue common stock were exercised or
converted into common stock. All prior period weighted average and per share information
has been restated in accordance with SFAS No. 128.</p>
<b>

<p ALIGN="CENTER">COMPUTATION OF WEIGHTED AVERAGE</p>

<p ALIGN="CENTER">COMMON SHARES OUTSTANDING</p>
</b></font>

<table BORDER="1" CELLSPACING="1" CELLPADDING="7" WIDTH="589">
  <tr>
    <td WIDTH="60%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="CENTER">Total Number of Shares</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">Three Months Ended </p>
    <p ALIGN="CENTER">March 31, 2001</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Outstanding shares as of January 1, 2001</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">4,517,400</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">4,517,400</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Options treated as Common Stock</b></font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">123,500</b></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="RIGHT">123,500</b></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><b><font SIZE="3">Total weighted average</font> <font
    SIZE="3">shares outstanding</font></b></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">4,640,900</b></u></font></td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">4,640,900</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Net gain</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="RIGHT">$ 70,377</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="60%" VALIGN="TOP"><font SIZE="3"><b>Net loss per common share basic and diluted</b></font></td>
    <td WIDTH="18%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="3%" VALIGN="TOP">&nbsp;</td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><b><u><p ALIGN="RIGHT">$ 0.02</u> </b></font></td>
  </tr>
</TABLE>
<font SIZE="3"><b>

<p align="center">8</p>

<p ALIGN="JUSTIFY">(3) Subsequent events </p>
</b>

<p ALIGN="JUSTIFY">In February 2001, PASW entered into a letter of intent to acquire the
operations of Simmons Energy Services Inc. (&quot;SES&quot;), a privately held Alberta
(Canada) company. Under the terms of the proposed transaction, PASW will issue shares of
its common stock, Series B preferred stock and Series C convertible preferred stock to
acquire SES in a transaction to be accounted for as a reverse acquisition. In a reverse
acquisition, SES is considered to be the acquirer of PASW and all historic financial
statements are restated to reflect only the operations of SES. </p>

<p ALIGN="JUSTIFY">In February 2001, The Russell Trust, the majority stockholder of PASW
(one of the trustees of which is Glenn P. Russell, the former chairman of PASW), entered
into a letter of intent to sell 2,500,000 of its 3,000,000 shares of PASW to 912502
Alberta Ltd., a company controlled by Walter Dawson, a director, officer and shareholder
of SES. The Russell Trust has agreed to vote its shares, representing approximately 61% of
the voting common stock of PASW, in favor of the proposed reverse acquisition. On April
30, 2001 this agreement was amended whereby the Russell Trust will sell 1,500,000 shares
of stock for the sum of $1.00 and will retain the balance of its shares. It will continue
to vote its remaining shares in favor of the proposed reverse acquisition.</p>

<p ALIGN="JUSTIFY">A definitive combination agreement between PASW and SES was executed in
March 2001.<b> </b>A term of the agreement calls for PASW to initiate a private placement
offering of 5,000,000 units (the &quot;Units&quot;) at $4.00 per unit for an aggregate
offering price of $20,000,000. Each unit consists of one share of Series A convertible
preferred stock (the &quot;Series A Shares&quot;) and one-half of one warrant (the
&quot;Warrants&quot;). Each whole Warrant allows the purchase of one share of post 1:4
reverse split common stock of PASW at $5.00 per share for a period of 12 months from the
close of the offering. The Warrants are subject to redemption at $0.05 per warrant if the
closing bid price of PASW common stock equals or exceeds $7.00 per share for 15
consecutive trading days. The Series A Shares are non-voting and will automatically
convert into an equal number of post one-for-four reverse split common shares of PASW upon
the effectiveness of a registration statement filed with the Securities and Exchange
Commission to register the common shares underlying the Series A Shares and Warrants<b>. </b>The
definitive combination agreement between PASW and SES calls for:</p>

<blockquote>
  <p ALIGN="JUSTIFY">the issuance of 10,687,502 shares of PASW common stock (post-reverse
  split) for the shares of SES valued at $38,047,507, to the shareholders of SES. Of these
  shares, 2,251,705 will be issued at the closing of the reverse acquisition, and 8,435,797
  shares will be reserved for issuance upon the exchange of an equal number of shares issued
  by a wholly owned Canadian subsidiary of PASW and that are exchangeable on a one-for-one
  basis into common shares of PASW.</p>
  <p ALIGN="JUSTIFY">the issuance of one share of Series B special voting preferred stock
  (&quot;Series B Shares&quot;). The Series B Shares will possess a number of votes equal to
  the number of outstanding exchangeable shares not owned by PASW or its affiliates and may
  be exercised for the election of directors and on all other matters submitted to a vote of
  PASW's shareholders. In conjunction with the Series B Shares, the exchangeable shares have
  the economic and voting rights equivalent to those of PASW common stock, and </p>
  <p ALIGN="JUSTIFY">the issuance of 1,017,276 shares of Series C convertible preferred
  stock (&quot;Series C Shares&quot;) for the purchase of certain loans to SES totaling
  $3,621,500 from SES shareholders. </p>
  <p ALIGN="center">9</p>
</blockquote>

<p ALIGN="JUSTIFY">The reverse acquisition will close simultaneous with the closing of the
private placement. If the private placement closes before PASW shareholders have approved
the common stock to be issued in this transaction:</p>

<blockquote>
  <p ALIGN="JUSTIFY">shares of non-voting Series C preferred stock will be issued to the
  shareholders of SES in lieu of shares of common stock, to be automatically converted to
  common stock on the effective date of the one for four reverse stock split following
  shareholder approval,</p>
  <p ALIGN="JUSTIFY">8,435,797 shares will be issued by a wholly owned Canadian subsidiary
  of PASW. These shares will not be exchangeable into shares of PASW common stock until
  shareholder approval is received and the one for four reverse stock split is effective,</p>
  <p ALIGN="JUSTIFY">Series B shares will not be issued until shareholder approval is
  received, and</p>
  <p ALIGN="JUSTIFY">The Series C Shares will not be convertible into shares of PASW common
  stock until shareholder approval is received and the one for four reverse stock split is
  effective</p>
  <b>
</blockquote>
</b>

<p ALIGN="JUSTIFY">Following the completion of the reverse acquisition and the reverse
split (and assuming the sale of the maximum 5,000,000 Units offered in the private
placement), there will be 17,934,128 common shares outstanding, assuming conversion of all
preferred and exchangeable shares and no exercise of warrants, of which the PASW
shareholders existing prior to the reverse acquisition will own 6.9%.</p>

<p ALIGN="JUSTIFY">At the PASW annual meeting of shareholders expected to be held in June
2001, the PASW shareholders will be voting to:</p>

<blockquote>
  <p ALIGN="JUSTIFY">Approve the conversion of preferred shares issued to SES in the reverse
  acquisition to shares of common stock,</p>
  <p ALIGN="JUSTIFY">Approve the creation and issuance of Series B special voting preferred
  to be issued to SES in conjunction with the reverse acquisition,</p>
  <p ALIGN="JUSTIFY">Reverse split outstanding common stock on a one-for-four basis,</p>
  <p ALIGN="JUSTIFY">Change the name of PASW, Inc. to Simmons Energy Services Inc. or such
  other name requested by SES,</p>
  <p ALIGN="JUSTIFY">Elect three additional directors submitted by SES, </p>
  <p ALIGN="JUSTIFY">Appoint PriceWaterhouseCoopers, the current auditors for SES, as the
  auditors for PASW for the year ending December 31, 2001, and</p>
  <p ALIGN="JUSTIFY">Change the legal domicile of PASW from California to Nevada.</p>
</blockquote>

<p ALIGN="JUSTIFY">PASW has not filed a registration statement with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 with respect to securities of
PASW or its subsidiaries issuable in connection with the reverse acquisition and
accordingly, any PASW common shares issued in connection with the reverse acquisition will
be &quot;restricted&quot; for the purposes of the Securities Act until a registration
statement is effective. PASW may file a registration statement with the Securities and
Exchange Commission respecting the resale of the 11,704,778 shares of common stock
issuable pursuant to the reverse acquisition at a future date.</p>

<p ALIGN="JUSTIFY">On March 29, 2001 the Board of Directors announced the repricing of the
Company's registered warrants (NASDAQ:PASWW). The exercise price of the warrants has been
reduced from $7.50 to $1.00 per share on a pre-reverse split basis ($4.00 per share on a
post-reverse split basis.)</p>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="center">10</p>

<p ALIGN="JUSTIFY">In April 2001 the Company was notified by NASDAQ that at December 31,
2000 it was not in compliance with the Net Tangible Asset requirements of NASDAQ Market
Place Rule 4310 ( c)(2)(B) in that PASW failed to have a minimum of $2 million in net
tangible assets. At the same time PASW was notified that in light of the &quot;going
concern&quot; opinion from our auditors we may not be able sustain compliance with the
continued listing requirements of the NASDAQ Stock Market. At March 31, 2001 PASW is still
not in compliance with either rule. </p>

<p ALIGN="center">11</p>

<p ALIGN="center">&nbsp;</p>
<b>

<p ALIGN="JUSTIFY">ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION</p>

<p ALIGN="JUSTIFY">AND RESULTS OF OPERATIONS.</p>

<p ALIGN="JUSTIFY">Cautionary Note Regarding Forward-Looking Statements</p>

<p ALIGN="JUSTIFY"></b>Except for historical information contained herein, the statements
in this report (including without limitation, statements indicating that the Company
&quot;expects,&quot; &quot;estimates,&quot; anticipates,&quot; or &quot;believes&quot; and
all other statements concerning future financial results, product offerings, proposed
acquisitions or combinations or other events that have not yet occurred) are
forward-looking statements that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.</p>

<p ALIGN="JUSTIFY">Forward-looking statements involve known and unknown factors, risks and
uncertainties, which may cause the Company&#146;s actual results in future periods to
differ materially from forecasted results. Those factors, risks and uncertainties include,
but are not limited to; the consummation of possible acquisitions or combinations; and the
Company&#146;s ability to integrate acquired or combined operations with its existing
business and otherwise manage growth; and the Company&#146;s ability to generate or obtain
additional capital resources to fund its operations and growth. </p>

<p ALIGN="JUSTIFY">Additional information on these and other risk factors are included in
the &quot;Factors That May Affect Future Results&quot; section in the Company&#146;s
Annual Report on Form 10-KSB filed with the SEC on March 28, 2001, Form 10KSBA Number 1
filed on April 27, 2001 and the risks discussed in PASW&#146;s other filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements,
which reflect management&#146;s analysis, judgement, belief and expectations only as of
the date hereof. PASW undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.</p>
<b>

<p ALIGN="JUSTIFY">General</p>
</b>

<p ALIGN="JUSTIFY">The Company was incorporated in California in November 1992 as a
developer and licensor of Internet and Web related software and software development
tools. Our operations are conducted principally from an office in Southern California and
we have a sales office in Japan. The Company completed an initial public offering of
950,000 units consisting of one share of common stock and one warrant on July 29, 1999. An
additional 142,500 units representing the underwriter&#146;s overallotment was sold on
September 13, 1999. </p>

<p>The Company has historically developed and licensed software which enabled Internet and
web based communications. Our software products were embedded into systems and information
appliances&quot; developed or manufactured by others. Information appliances are
internet-connected versions of every day products such as telephones, fax machines,
personal digital assistants and other digitally based devices. We developed a proprietary
Internet browser for use within independent, non Windows information appliances. The
browser may be effectively placed in use without an operating system and does not require
substantial amounts of memory. We began marketing the initial version of this browser
during the first quarter of 2000. </p>

<p ALIGN="JUSTIFY">The Company operates in one business segment. The Company&#146;s fiscal
year ends on December 31</p>

<p ALIGN="center">12</p>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="JUSTIFY">&nbsp;</p>
<b>

<p ALIGN="JUSTIFY">Results of Operations </p>
</b>

<p ALIGN="JUSTIFY">The following table sets forth, for the periods indicated, the
percentage relationship to net revenue of certain items in the consolidated statements of
operations and comprehensive income</p>
</font><div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="615">
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="31%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">Unaudited</font></td>
    <td WIDTH="30%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="37"></td>
    <td WIDTH="31%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="37"><font SIZE="3"><p ALIGN="CENTER">Three
    Months Ended</p>
    <u><p ALIGN="CENTER">March 31,</u></font></td>
    <td WIDTH="30%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="37"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="9"></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><u><p ALIGN="CENTER">2001</u></font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><u><p ALIGN="CENTER">2000</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="9"></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="9"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Net revenue</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">100.00%&nbsp;</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">100.00%&nbsp;</font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Cost of revenue</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">39.47&nbsp;</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">11.37&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Gross profit</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">60.53&nbsp;</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">88.63&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><p ALIGN="JUSTIFY"><font SIZE="3">Selling, general
    and administrative</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">(3.48)&nbsp;</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><p ALIGN="JUSTIFY"><font SIZE="3">215.91</font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Research and
    development</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">0.00&nbsp;</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">72.10&nbsp;</font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Depreciation and
    Amortization</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">0.00</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">6.85&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Total expenses </font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">(3.48)&nbsp;</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">294.86&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="5"><font SIZE="3"><p ALIGN="JUSTIFY">Other income
    (expense) </font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="5" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">(16.58)&nbsp;</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="5" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">0.00&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="5"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="5"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Net gain (loss)
    from Operations</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">47.43</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><p ALIGN="JUSTIFY">(206.23)</font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="5"><font SIZE="3"><p ALIGN="JUSTIFY">Discontinued
    operations</font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="5" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">0.00&nbsp;</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="5" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">(93.67)&nbsp;</u></font></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="5"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="5"></td>
  </tr>
  <tr>
    <td WIDTH="39%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Net gain (loss) </font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">47.43%</u></font></td>
    <td WIDTH="16%" VALIGN="bottom" HEIGHT="4" align="right"><font SIZE="3"><u><p
    ALIGN="JUSTIFY">(299.90%)</u></font></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="15%" VALIGN="BOTTOM" HEIGHT="4"></td>
  </tr>
</TABLE>
</center></div><font SIZE="3">

<p ALIGN="center">13</p>
</font>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="JUSTIFY"><font SIZE="3">The following table sets forth, for the periods
indicated, the percentage of net revenue by principal geographic area to total revenue:</font></p>
<div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="621">
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="27%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">Unaudited</font></td>
    <td WIDTH="25%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="27%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">Three
    Months Ended</p>
    <u><p ALIGN="CENTER">March 31,</u></font></td>
    <td WIDTH="25%" VALIGN="BOTTOM" COLSPAN="2" HEIGHT="26"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="9"></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><u><p ALIGN="CENTER">2001</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><u><p ALIGN="CENTER">2000</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="9"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="9"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">United States </font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="RIGHT">0%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="CENTER">58%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">United Kingdom
    and Europe </font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="RIGHT">0%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="CENTER">28%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Japan and Asia</font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="RIGHT">100%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="CENTER">12%</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Other </font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><u><p ALIGN="RIGHT">0%</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><u><p ALIGN="CENTER">2%</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="4"></td>
  </tr>
  <tr>
    <td WIDTH="48%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><p ALIGN="JUSTIFY">Total </font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><u><p ALIGN="RIGHT">100%</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"><font SIZE="3"><u><p ALIGN="CENTER">100%</u></font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="4"></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="4"></td>
  </tr>
</TABLE>
</center></div><b><font FACE="Courier New" SIZE="3">

<p ALIGN="center">&nbsp;</p>
</font><font SIZE="3">

<p ALIGN="JUSTIFY">Three months ended March 31, 2001 and 2000.</p>

<p ALIGN="JUSTIFY">Net revenue</p>
</b>

<p ALIGN="JUSTIFY">For the three months ended March 31, 2001 revenues decreased 48% to
$148,373 from $284,602 for the three months ended March 31, 2000. Sales of licenses
decreased 64% for the three months ended March 31, 2001 due the cessation of all revenue
producing activities in the Company except sales activity in Japan which accounted for
100% of license and royalty sales.</p>
<b>

<p ALIGN="JUSTIFY">Cost of revenue</p>
</b>

<p ALIGN="JUSTIFY">The cost of revenue for the three months ended March 31, 2001 was
$58,567 or 39.5% of sales compared to $86,985 or 11.4% of sales for the three months ended
March 31, 2000. The increase in cost of sales reflects the impact of distribution fees
under a contract negotiated by our Japanese subsidiary in August 2000. </p>
<b>

<p ALIGN="JUSTIFY">Selling, general and administrative</p>

<p ALIGN="JUSTIFY"></b>Selling, general and administrative expense was $(5,179) for the
three months ended March 31, 2001 compared to $614,523 for the three months ended March
31, 2000. The decrease reflects the closure of all operations in the Company in
anticipation of the reverse acquisition with Simmons Energy Services Inc.</p>
<b>

<p ALIGN="JUSTIFY">Research and development expense</p>

<p ALIGN="JUSTIFY"></b>Research and development expense was $0 for the three months ended
March 31, 2001 compared to $205,154 for the three months ended March 31, 2000 as a result
of ceasing all development activities in the Company at the end of December 2000.</p>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="center">14</p>
<b>

<p ALIGN="JUSTIFY">Depreciation and amortization</p>

<p ALIGN="JUSTIFY"></b>Depreciation and amortization was $0 in the three months ended
March 31, 2001 compared to $19,496 for the three months ended March 31, 2000 reflecting
the write down of the Company's operating assets at the end of December 2000.</p>
<b>

<p ALIGN="JUSTIFY">Other income and expenses</p>

<p ALIGN="JUSTIFY"></b>During the three months ended March 31, 2001 the Company had a net
loss of $24,608 consisting of losses from the sale of securities. The Company had no
income or expenses of this nature in the three months ended March 31, 2000.</p>
<b>

<p ALIGN="JUSTIFY">Provision for taxes</p>

<p ALIGN="JUSTIFY"></b>Commencing in 1995 the Company elected to be treated as a
subchapter S corporation. Through 1998 all federal tax liabilities were recognized at the
individual stockholder level. In February 1999 the Company terminated the S election and
became subject to taxation at the corporate level. Had the Company been subject to
taxation as a C corporation in 1998, it would have received a pro forma tax benefit of
$1,099. For the three months ended March 31, 2001 the Company had no income tax liability.
</p>
<b>

<p ALIGN="JUSTIFY">Liquidity and capital resources</p>
</b>

<p ALIGN="JUSTIFY">At March 31, 2001 and December 31, 2000 the Company had working capital
of $117,116 and ($16,004) and cash and cash equivalents of $216,002 and $254,369.</p>

<p ALIGN="JUSTIFY">The Company used $115,611 in cash flow from operating activities in the
three months ended March 31, 2001 compared to using $617,523 in the three months ended
March 31, 2000. The decrease in use of cash of $501,912 was the result of an decrease of
$140,297 in accounts receivable, a loss of $24,608 in the sale of marketable securities a
decrease of $15,434 in prepaid expenses, a decrease of $442 in other assets, and a
decrease of $366,769 in accounts payable.</p>

<p ALIGN="JUSTIFY">Investing activities in the three months ended March 31, 2001 consisted
of the disposition of fixed assets of $558, the sale of certain marketable securities for
$147,479 and the purchase of other securities for $136,500. In the three months ended
March 31, 2000 the Company purchased $107,626 in fixed assets.</p>

<p ALIGN="JUSTIFY">The Company had no financing activities for the three months ended
March 31, 2001 In the three months ended March 31, 2000 the Company provided $548,624 from
financing activities through the exercise of warrants. </p>
<b><u>

<p ALIGN="JUSTIFY">Factors That May Affect Future Results</p>
</u>

<p ALIGN="JUSTIFY"></b>This report, including Management&#146;s Discussion and Analysis or
Plan of Operation, contains forward looking statements and other prospective information
relating to future events. These forward-looking statements and other information are
subject to certain risks<b> </b>and uncertainties that could cause results to differ
materially from historical or anticipated results, including the following:</p>
<b>

<p ALIGN="JUSTIFY">We have received a Going Concern opinion from our auditors on our
financial statements for the year ended December 31, 2000. Those statements indicate that
we have reported losses for our last two years and if we do not become profitable our
business could be adversely affected.</p>
</b>

<p ALIGN="JUSTIFY">We reported a gain of $70,377 for the three months ended March 31, 2001
however we have incurred losses of $2,613,101 for the year ended December 31, 2000 and
$2,464,067 in the year ended December 31, 1999. We also have an accumulated deficit of $
6,175,446 and stockholders equity of $135,603 as of</p>

<p ALIGN="center">15</p>

<p ALIGN="JUSTIFY">March 31, 2001. We can provide no assurance that we will be profitable
in the future and if we do not become profitable our business could be adversely affected.</p>
<b>

<p ALIGN="JUSTIFY">We have been notified by the NASDAQ Stock Market that we are deficient
in two of its Market Place Rules specifically concerning the minimum net tangible assets
required and that we have received a &quot;going concern&quot; opinion on our financial
statements for the year ended December 31, 2000. If the net tangible asset deficiency is
not cured and we can not assure NASDAQ that we can demonstrate that we can continue
operations is not cured we face delisting from the NASDAQ Small Cap Market. </p>

<p ALIGN="JUSTIFY"></b>In April 2001 we were notified by NASDAQ the Company is not in
compliance with the Net Tangible Asset requirements of NASDAQ Market Place Rule 4310 (
c)(2)(B) in that we failed to have a minimum of $2 million in Net Tangible Assets. At the
same time we were notified that in light of the &quot;going concern&quot; opinion from our
auditors we may not be able sustain compliance with the continued listing requirements of
The NASDAQ Stock Market. At March 31, 2001 we are still not in compliance with either
rule. </p>
<b>

<p ALIGN="JUSTIFY">We have entered into an agreement for a reverse acquisition with
Simmons Energy Services however there is no assurance that the transaction can be
completed.</p>
</b>

<p ALIGN="JUSTIFY">A definitive combination agreement between PASW and Simmons Energy
Services (&quot;SES&quot;) was executed in March 2001, with final closing subject to
approval at the PASW annual meeting of shareholders expected to be held in June 2001. In
addition to approving the reverse acquisition at the PASW annual meeting of shareholders,
the PASW shareholders will be voting to:</p>

<blockquote>
  <p ALIGN="JUSTIFY">Reverse split outstanding common stock on a 1 for 4 basis,</p>
  <p ALIGN="JUSTIFY">Change the name of PASW, Inc. to Simmons Energy Services Inc. or such
  other name requested by SES,</p>
  <p ALIGN="JUSTIFY">Elect three additional directors submitted by SES, </p>
  <p ALIGN="JUSTIFY">Appoint PriceWaterhouseCoopers, the current auditors for SES, as the
  auditors for PASW for the year ending December 31, 2001, </p>
  <p ALIGN="JUSTIFY">Spin-off inactive businesses and assets currently owned by PASW to the
  pre-acquisition shareholders of PASW common stock</p>
  <p ALIGN="JUSTIFY">Approve certain amendments to PASW&#146;s option plan, and</p>
  <p ALIGN="JUSTIFY">Change the domicile of PASW from California to Nevada.</p>
</blockquote>

<p ALIGN="JUSTIFY">The reverse acquisition agreement is subject to the completion of due
diligence by both parties and stipulates that if PASW loses our listing on the NASDAQ
Small Cap Market SES has the option of canceling the agreement. There is no assurance that
this transaction can be completed in time to forego delisting or if the transaction can be
completed at all.</p>
<b>

<p ALIGN="JUSTIFY">We have limited resources available to continue operations unless a
successful transaction is completed with a merger partner or that additional funding can
be obtained from outside sources</b>.</p>

<p ALIGN="JUSTIFY">At the present time we have limited resources available to continue
operations other than maintaining day-to-day operations without any capabilities for
expansion. The revenue received from our NRCJ subsidiary is sufficient to handle only
maintenance administrative operations for the Company. In the current market it is
doubtful that funding can be obtained for resumption of operations of our Alera subsidiary
therefore we run the risk of not being able to pursue activities that would ultimately
benefit the long range strategies of the new Company created by the reverse takeover of
our Company by SES. </p>

<p ALIGN="center">16</p>
<b>

<p ALIGN="JUSTIFY">Because our operating subsidiary depends on a small number of large
orders, the loss or deferral of orders may have a negative impact on revenue.</p>
</b>

<p ALIGN="JUSTIFY">NRCJ is our only operating subsidiary and as such provides the majority
of the funds required to operate the Company. Although none of its customers has accounted
for 10% or more of total revenue in any fiscal year, a significant portion of software
license revenue in each quarter is derived from a small number of relatively large orders.
While we believe that the loss of any particular customer is not likely to have a material
adverse effect on our business, our operating results could be materially adversely
affected if our operating subsidiaries were unable to complete one or more substantial
license sales in any future period.</p>
<b>

<p ALIGN="JUSTIFY">Any decrease in the market acceptance of our operating subsidiary's
Internet and web products or lack of acceptance of new products would decrease our
revenue.</p>
</b>

<p ALIGN="JUSTIFY">Our future results depend heavily on continued market acceptance of our
operating subsidiary's products in existing and new markets. Our NRCJ subsidiary is a
distributor for products supplied by Net Silicon, Inc. Revenue from licenses of the suite
of Internet and Web products and sales of services accounted for all its revenue in the
three months ended March 31, 2001 and the years ended December 31, 2000 and 1999. There is
no assurance that Net Silicon will continue to fund the research required to keep our
subsidiary supplied with state of the art products, that Net Silicon will continue the
Distribution Agreement with NRCJ beyond its current termination date or that our
subsidiary will have sufficient funds to properly advertise and market their product lines
as an independent distributor. Any of these factors could have a material effect on our
continued operations and financial results. </p>
<b>

<p ALIGN="JUSTIFY">Because our ownership is concentrated, our officers and directors and
independently our majority stockholder will be able to control all matters requiring
stockholder approval including delaying or preventing a change in our corporate control or
taking other actions of which individual shareholders may disapprove.</p>

<p ALIGN="JUSTIFY"></b>Our officers, directors and independently the majority stockholder
beneficially own approximately 73% of our outstanding common stock. These parties will be
able to exercise control over all matters requiring stockholder approval and other
investors will have minimal influence over the election of directors or other stockholder
actions. As a result, our officers, directors and independently the majority stockholder
could approve or cause the Company to take actions of which you disapprove or that are
contrary to your interests. While the majority stockholder has indicated his approval of
the transaction between the company and SES his ability to exercise control over all
matters requiring stockholder approval could prevent or significantly delay another
company from acquiring or merging with us at prices and terms that you might find to be
attractive.</p>
<b>

<p ALIGN="JUSTIFY">Issuance of our authorized preferred stock could discourage a change in
control, could reduce the market price of our common stock and could result in the holders
of preferred stock being granted voting rights that are superior to those of the holders
of common stock.</p>

<p ALIGN="JUSTIFY"></b>The Company is authorized to issue preferred stock without
obtaining the consent or approval of stockholders. The issuance of preferred stock could
have the effect of delaying, deferring, or preventing a change in control. Management also
has the right to grant superior voting rights to the holders of preferred stock. Any
issuance of preferred stock could materially and adversely affect the market price of the
common stock and the voting rights of the holders of common stock. The issuance of
preferred stock may also result in the loss of the voting control of holders of common
stock to the holders of preferred stock.</p>
<b>

<p ALIGN="JUSTIFY">You may experience dilution if we are compelled to litigate or
arbitrate claims that have been asserted by Golenberg &amp; Co. for the right to purchase
10% of the Company.</p>

<p ALIGN="JUSTIFY"></b>In April 1999 we were notified that a merchant banker, Golenberg
&amp; Co., has asserted rights under a June 1998 letter agreement to purchase 10% of our
then outstanding common stock for $400,000. In June 1999 counsel for Golenberg &amp; Co.
reiterated this demand and advised us that these claims were being evaluated for possible
legal action. Investors could be significantly diluted if Golenberg &amp; Co. successfully
brings a lawsuit against us.</p>
<b>

<p ALIGN="JUSTIFY">Trading in our common stock and warrants may be limited and could
negatively affect the ability to sell your securities.</p>
</b>

<p ALIGN="JUSTIFY">A public market for our common stock and our warrants has only existed
since July 29, 1999, the date of our initial public offering. We do not know how liquid
the market for our stock and warrants will remain and if the market becomes illiquid, it
may negatively affect your ability to resell your securities. </p>
<b>

<p ALIGN="center">17</p>

<p ALIGN="JUSTIFY">PART II - OTHER INFORMATION</p>

<p ALIGN="JUSTIFY">ITEM 1. LEGAL PROCEEDINGS</p>

<p ALIGN="JUSTIFY"></b>In April 1999 the Company was notified that a merchant banker,
Golenberg &amp; Co., had asserted rights under a June 1998 letter agreement to purchase
10% of the then outstanding common stock of the Company for $400,000. In June 1999 counsel
for Golenberg &amp; Co. reiterated this demand and advised the Company that these claims
were being evaluated for possible legal action. To date no action has been taken by
Golenberg &amp; Co.</p>

<p ALIGN="JUSTIFY">The Company is not currently involved in any litigation that is
expected to have a material adverse effect on the Company's business or financial
position. There can be no assurance, however, that third parties will not assert
infringement or other claims against the Company in the future which, regardless of the
outcome, could have an adverse impact on the Company as a result of defense costs,
diversion of management resources and other factors. </p>
<b>

<p ALIGN="JUSTIFY">ITEM 2. CHANGES IN SECURITIES.</p>

<p ALIGN="JUSTIFY">Not Applicable.</p>

<p ALIGN="JUSTIFY">ITEM 3. DEFAULTS UPON SENIOR SECURITIES.</p>

<p ALIGN="JUSTIFY">Not Applicable.</p>

<p ALIGN="JUSTIFY">ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.</p>

<p ALIGN="JUSTIFY">Not Applicable</p>

<p ALIGN="JUSTIFY">ITEM 5. OTHER INFORMATION.</p>

<p ALIGN="JUSTIFY">Not Applicable.</p>

<p ALIGN="JUSTIFY">ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.</p>
</b>

<p ALIGN="JUSTIFY"><b>Exhibits - Not Applicable.</b></p>

<p ALIGN="JUSTIFY"><strong>Reportson Form 8-K - </strong>The Company filed a report on
Form 8-K in February 2001 announcing the terms of the reverse acquisition between the
Company and Simmons Energy Services Inc. </p>
<b>

<p ALIGN="center">18</p>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="CENTER">SIGNATURES</p>
</b>

<p ALIGN="JUSTIFY">Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.</p>
<b>

<p ALIGN="JUSTIFY">Date: May 11, 2001 PASW, INC.</p>

<p ALIGN="JUSTIFY">&nbsp;</p>

<p ALIGN="JUSTIFY">/s/ WILLIAM E. SLINEY</p>

<p ALIGN="JUSTIFY">__________________________________</p>

<p ALIGN="JUSTIFY">William E. Sliney</p>

<p ALIGN="JUSTIFY">President and Chief Financial Officer</p>

<p ALIGN="JUSTIFY">(Duly Authorized Officer and Principal</p>

<p ALIGN="JUSTIFY">Financial and Accounting Officer)</p>

<p ALIGN="center">19</p>
</b></font>
</body>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
