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<SEC-DOCUMENT>0001082324-03-000002.txt : 20030331
<SEC-HEADER>0001082324-03-000002.hdr.sgml : 20030331
<ACCEPTANCE-DATETIME>20030331101815
ACCESSION NUMBER:		0001082324-03-000002
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030331

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:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26895
		FILM NUMBER:		03627622

	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>10KSB
<SEQUENCE>1
<FILENAME>ksb02.htm
<TEXT>
<html>

<head>
<title>C:\AAAWork\Pacific Softworks\EDGAR\123102\ksb03.htm</title>
</head>

<body LINK="#0000ff">
<font SIZE="3"><b>

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

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

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

<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <p align="center">[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIESEXCHANGE ACT OF 1934</p>
        </b>
      </blockquote>
    </blockquote>
  </blockquote>
</blockquote>
<b>

<p ALIGN="center">For the fiscal year ended <u>December 31, 2002</p>
</u></b>

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

<p ALIGN="center">[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE</p>

<p ALIGN="center">SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)</p>
</b>

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

<p ALIGN="center"><b>For the transition period from to <u></p>
</u>

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

<p ALIGN="center">PASW, INC</b>.</p>

<p ALIGN="center">(formerly Pacific Softworks, Inc.)</p>
<b>

<p ALIGN="center"></b>(Name of Small Business Issuer in Its Charter)</p>
</font>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="792">
  <tr>
    <td WIDTH="164" VALIGN="TOP"></td>
    <td WIDTH="297" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">California</b></font></td>
    <td WIDTH="289" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">77-0390628</b></font></td>
  </tr>
  <tr>
    <td WIDTH="164" VALIGN="TOP"></td>
    <td WIDTH="297" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">(State or Other Jurisdiction
    of Incorporation or Organization)</font></td>
    <td WIDTH="289" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">(I.R.S. Employer</p>
    <p ALIGN="CENTER">Identification No.)</font></td>
  </tr>
</table>
<font SIZE="3">

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

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="791">
  <tr>
    <td WIDTH="161" VALIGN="TOP"></td>
    <td WIDTH="298" VALIGN="TOP"><font SIZE="3"><b><p ALIGN="CENTER">9453 Alcosta Boulevard</p>
    <p ALIGN="CENTER">San Ramon, California</b></font></td>
    <td WIDTH="290" VALIGN="BOTTOM"><font SIZE="3"><b><p ALIGN="CENTER">94583</b></font></td>
  </tr>
  <tr>
    <td WIDTH="161" VALIGN="TOP"></td>
    <td WIDTH="298" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">(Address of Principal
    Executive Offices)</font></td>
    <td WIDTH="290" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">(Zip Code)</font></td>
  </tr>
</table>
<font SIZE="3"><b>

<p ALIGN="center">Issuer's Telephone Number: (925) 828-0934</p>

<p ALIGN="center"></b>Securities registered under Section 12(b) of the Exchange Act:</p>

<p ALIGN="CENTER">None</p>

<p ALIGN="center">Securities registered under Section 12(g) of the Exchange Act:</p>

<p ALIGN="center">Common Stock, $0.001 Par Value</p>

<p ALIGN="center">(Title of class)</p>

<p ALIGN="JUSTIFY">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 <u>X </u>No <u></p>
</u>

<p ALIGN="JUSTIFY">Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB </p>

<p ALIGN="JUSTIFY">The issuer's revenues for the most recent fiscal year were $ 413,639.</p>

<p ALIGN="JUSTIFY">The aggregate market value of the voting and non-voting common equity
held by non-affiliates, based upon the average bid and asked prices of the Common Stock on
February 28, 2003 was $ 30,338. Shares of Common Stock held by each officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.</p>

<p ALIGN="JUSTIFY">The number of shares outstanding of the issuer's Common Stock, as of
February 28, 2003 was 4,997,400.</p>
<b><u>

<p ALIGN="CENTER">PART I</p>

<p ALIGN="JUSTIFY">ITEM 1.</u> <u>DESCRIPTION OF BUSINESS</p>
</u>

<p ALIGN="CENTER">GENERAL DEVELOPMENT OF BUSINESS</p>
</b>

<p ALIGN="JUSTIFY">PASW, Inc., (&quot;PASW&quot;, the &quot;Company&quot;, &quot;we&quot;
and &quot;our&quot;), 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 the San Francisco Bay Area of
Northern 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 ALIGN="JUSTIFY">The Company has historically developed and licensed software that
enabled Internet and web based communications. Our software products were embedded into
systems and developed or manufactured by others. </p>

<p ALIGN="JUSTIFY">The Company refined its strategic focus in the Fourth Quarter 1999 in
order to enhance our positioning and flexibility in the rapidly growing market for
Internetworking technology and to improve the utilization of our assets and competencies.
Key elements of the business strategy involved the segregation of our core technology into
separate business units and identifying strategic investment opportunities and/or
associations with other operating companies. In conjunction with this strategy at the
annual meeting on May 26, 2000 we changed our name to PASW, Inc.</p>

<p ALIGN="JUSTIFY">Realizing that general market conditions both in the public and private
markets had been deteriorating since late spring 2000 we embarked on an aggressive program
to find a suitable merger/acquisition opportunity. On August 31, 2000 the Company and
NetSilicon, Inc. (&quot;NSI&quot;) entered into an agreement whereby we sold the assets of
our Internet and Web software technology to NSI. The purchase price for the assets was
90,000 shares of NSI's common stock. In addition NSI agreed to grant a non-exclusive,
royalty-free license for the acquired technology, to PASW and its affiliates, subject to
certain limitations. </p>
<b>

<p>Alera Systems, Inc</b>.</p>

<p ALIGN="JUSTIFY">During 1999 we also established Alera Systems, Inc., formerly
iApplianceNet.com (&quot;Alera&quot;), a development stage company and a wholly owned
subsidiary. Alera was in the process of developing proprietary technology that would allow
potential business customers to greatly improve the management of their distributed remote
assets. </p>

<p ALIGN="JUSTIFY">In March 2000 we began a private solicitation program and in April a
private placement of 140,000 shares of Series A redeemable convertible preferred stock for
net proceeds of $350,000 was completed. On August 17, 2000 an additional 20,000 shares
were issued for net proceeds of $50,000. </p>

<p ALIGN="JUSTIFY">Although Alera continued to meet performance objectives for the
development and marketing of its products, capital market conditions deteriorated to the
point that the additional private funding required for the Alera program could not be
completed. Concurrently, the approximately $2.3 million in NSI stock received from the
sale of our Internet and Web software to NetSilicon depreciated by 80% from August 31<sup>st</sup>
to December 31<sup>st</sup>. This combination of factors materially impacted our ability
to continue funding Alera operations and our administrative operations. During December
2000 we closed the administrative office and at the end of December ceased further
development operations at Alera.</p>
<b>

<p align="center">-2-</p>

<p>Proposed Simmons Energy Services Inc. (&quot;SES&quot;) Merger </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 would 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.</font><font
FACE="Courier New" SIZE="3"> </font><font SIZE="3">A definitive combination agreement
between PASW and SES was executed in March 2001. A term of the agreement called for PASW
to initiate a private placement offering of 5,000,000 units at $4.00 per unit for an
aggregate-offering price of $20,000,000. </p>

<p ALIGN="JUSTIFY">On July 18, 2001 the Company was verbally notified by Simmons Energy
Services Inc that the efforts by SES to secure the $20 million private placement were not
progressing and that it appeared to SES that current market conditions could delay or
curtail any future efforts to complete the private placement in time to cure the NADSAQ
deficiencies in a timely manner. SES concluded that it therefore appeared that the Company
could face delisting and notified the Company of its intent to terminate the combination
agreement. On July 23, 2001 the Company received formal notification from SES of its
intent to terminate the agreement.</p>
<b>

<p ALIGN="JUSTIFY">Appointment of New Director and Chairman</font><font SIZE="2"></p>
</font></b><font SIZE="3">

<p ALIGN="JUSTIFY">On August 21, 2001 the Board of Directors received the resignation of
Reg J. Greenslade as a member of the board of directors. Mr. Greenslade submitted his
resignation subsequent to termination of negotiations with Simmons Energy Services Inc
citing the need to concentrate his efforts on other business activities. The board
nominated Glenn P. Russell to replace Mr. Greenslade and to assume the position of
Chairman. Concurrent with Mr. Russell&#146;s election as Chairman William E. Sliney
resigned his position as Chairman but continues his positions as President and Chief
Financial Officer.</p>
<b>

<p ALIGN="JUSTIFY">Repricing of Registered Warrants</p>
</b>

<p ALIGN="JUSTIFY">In March 2001 the Board of Directors announced the repricing of the
Company's registered warrants (NASDAQ: PASWW). The exercise price of the warrants was
reduced from $7.50 to $4.00 per share. In September 2001 the Board of Directors amended
the terms to extend the exercise date to November 30, 2001 and to reduce the price to
$1.00 on a pre-reverse split basis. In September 2001 the Board of Directors further
amended the terms to reduce the price to twenty-five ($0.25) cents per share and extend
the exercise date to November 30, 2002. On November 30, 2002 the warrants expired. </p>
<b>

<p ALIGN="JUSTIFY">Notification of Delisting from NASDAQ.</p>
</b>

<p ALIGN="JUSTIFY">In April 2001 NASDAQ notified the Company 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. In May 2001 the Company was notified that is not
in compliance with the minimum bid price requirements of NASDAQ Market Place Rule
4310(c)(8)(B) in that the closing bid price of the Company's common stock did not meet or
exceed $1.00 over 30 consecutive trading days. The Company was given until August 22, 2001
to achieve compliance. At September 30, 2001 the Company was not in compliance with any of
the rules and, although notification has not been received from NASDAQ, the Company
believes it is not in compliance with Market Place Rule 4310(c)(7) in that it has not
maintained a minimum market value of public float of $1,000,000 over 30 consecutive
trading days. On October 1, 2001 the Company received notification from The NASDAQ Stock
Market, Inc. that it was not in compliance with the Net Tangible Assets or Net Equity
requirements for continued listing as set forth in Market Place Rule 4310(c)(2)(B) as
modified by SR-NASD-01-14 and that its securities will be delisted from The NASDAQ
National/Small Cap Market at the opening of business on October 9, 2001. The securities
were removed form NASDAQ and subsequent to that date the PASW Common Stock (PASW) has been
trading on the OTC Bulletin Board Market (OTCBB) as were the Warrants (PASWW) until their
expiration on November 30, 2002.</p>

<p ALIGN="center"><b>-3-</b></p>
<b>

<p>Conversion of Preferred Stock in Subsidiary to PASW Common Stock</p>

<p ALIGN="JUSTIFY"></b>On October 19, 2001 the Company converted 480,000 shares of
Convertible Preferred Stock of its Alera Systems Inc. (&quot;Alera&quot;), a wholly owned
subsidiary, to shares of the Company&#146;s Common Stock. The preferred stock was issued
in April and July 2000 as part of a private placement to provide funding for the Alera
technology development activities. Each share of preferred is convertible into one share
of Alera at $2.50 per share at any time within two years from closing date of the private
placement or, if Alera did not become a public company or be sold to an outside party
within this two year period, the holders of the preferred stock would be entitled to
exchange their preferred shares into shares of PASW common stock at Eighty-five percent
(85%) of its then current market price subject to a collar limit of One Dollar ($1.00) per
share and a maximum of Fifteen Dollars ($15.00) per share. Operations of Alera were
terminated in December 2000 and subsequently all preferred shareholders elected to convert
in 2001 at One Dollar per share. The conversion increase&#146;s the outstanding common
shares of PASW from 4,517,400 to 4,997,400. </p>
<b>

<p ALIGN="JUSTIFY">Appointment of new Corporate Secretary</p>
</b>

<p ALIGN="JUSTIFY">On December 31, 2001 the Company received the resignation of Joseph
Lechman as the corporate secretary of the Company. On that date the directors elected
William E. Sliney as corporate secretary in addition to his other duties as President and
Chief Financial Officer. </p>
<b>

<p ALIGN="JUSTIFY">Operating Companies</p>
</b>

<p ALIGN="JUSTIFY">We operate through two wholly owned subsidiaries: Alera Systems, Inc
(&quot;Alera&quot;) and Network Research Corporation Japan (&quot;NRCJ&quot;). We operate
in one business segment and our fiscal year ends December 31. </p>
<b>

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

<p ALIGN="JUSTIFY">As of December 31, 2002, the Company employed two individuals. We are
not represented by a labor union nor are we subject to a collective bargaining agreement.
We have never experienced a work stoppage. We believe that relations with our employees
are good.</p>
<b>

<p>Subsequent Events </p>

<p>Sale of Network Research Corporation &#150; Japan Distribution Business
(&quot;NRCJ&quot;)</p>
</b>

<p>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 substantially all of its revenue in the years ended December 31, 2002 and 2001. In
July 2002 Net Silicon ceased producing products used by NRCJ<b>. </b>During the remainder
of 2002 the sales of licenses of the subsidiary decreased to a point where operations
became unprofitable. On January 31, 2003 the Company sold the operating assets and certain
liabilities of the NRCJ distribution business to Network Technology, Inc., a new company
formed by the former employees of NRCJ, for 1.0 million Japanese Yen (US $8,400). NRCJ
will continue to receive royalty income from former NRCJ customers. The Company will
account for this transaction as a discontinued operation in 2003.</p>
<b>

<p>Change of Accountants</p>
</b>

<p>The Company has used the services of Merdinger, Fruchter, Rosen &amp; Co.
(&quot;MFRC&quot;) as its independent accountant since 1996. In January 2003 the Company
was informed by MRFC that it was exiting the business of auditing publicly traded
companies. The Company has selected Skeehan &amp; Company as its new auditor effective
February 27, 2003. The Company&#146;s Board of Directors recommended and approved the
change in the Company&#146;s certifying accountants. </p>

<p align="center"><b>-4-</b></p>
<b><u>

<p ALIGN="JUSTIFY">ITEM 2.</u> <u>DESCRIPTION OF PROPERTY</p>
</u></b>

<p ALIGN="JUSTIFY">PASW conducts its operations from a business office located in San
Ramon, California. In Japan we have subleased space of approximately 700 square feet at a
monthly rate of approximately $2,000 on a month-to-month basis.</p>

<p ALIGN="JUSTIFY">We believe that these facilities are adequate for our current needs at
this time. </p>
<b>

<p ALIGN="JUSTIFY">ITEM 3. <u>LEGAL PROCEEDINGS</p>
</u></b>

<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><u>

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

<p ALIGN="JUSTIFY">There have been no matters submitted to a vote of security holders
during the quarter ended December 31, 2002.</p>
<b><u>

<p ALIGN="CENTER"></u>-5-</p>

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

<p ALIGN="CENTER"><u>PART II</u></p>

<p ALIGN="left"><u>ITEM 5</u>.&nbsp; <u>MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS</u></p>
</b>

<p ALIGN="JUSTIFY">The Company's Common Stock and warrants began trading on the NASDAQ
SmallCap Market under the symbol &quot;PASW&quot; and &quot;PASWW&quot; on July 29, 1999,
respectively. On October 9, 2001 the Company was delisted from the NASDAQ Small Cap and
began trading on the OTC Bulletin Board Market. The following table sets forth the high
and low bid prices as reported on NASDAQ and the OTC Bulletin Board for the periods
indicated below. </p>
<u><b>

<p ALIGN="JUSTIFY">Year ending December 31, 2001 High Low </p>
</b></u></font><div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="444">
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">03/31/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">1.0312</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.2812</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">03/31/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.3438</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.0625</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">06/30/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">1.04</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.5312</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">06/30/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.4375</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.125</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">09/30/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.90</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.04</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">09/30/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.16</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">12/31/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.10</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.05</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">12/31/01</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.08</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
</table>
</center></div><font SIZE="3"><u><b>

<p ALIGN="JUSTIFY">Year ending December 31, 2002 </p>
</b></u></font><div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="444">
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">03/31/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.08</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.05</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">03/31/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.04</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">06/30/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.06</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.03</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">06/30/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.04</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">09/30/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.05</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.03</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">09/30/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">12/31/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Common Stock</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.03</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.01</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">12/31/02</font></td>
    <td WIDTH="47%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Warrants (expired 11/30/02)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.00</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">0.00</font></td>
  </tr>
</table>
</center></div><font SIZE="3"><b><u>

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

<p ALIGN="JUSTIFY">Number of Holders of Common Stock </p>
</b>

<p ALIGN="JUSTIFY">At December 31, 2002 there were twenty-five</font><font SIZE="3"
COLOR="#ff0000"> </font><font SIZE="3">stockholders of record of the Company's Common
Stock. This number does not include stockholders who hold their shares in &quot;street
name&quot; or through broker or nominee accounts.</font><font SIZE="3" COLOR="#ff0000"> </p>
</font><font SIZE="3"><b>

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

<p ALIGN="JUSTIFY">The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain earnings for use in its business and, therefore, does
not anticipate paying cash dividends on its Common Stock in the foreseeable future. </p>
<b>

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

<p ALIGN="CENTER"></u>-6-</p>

<p ALIGN="JUSTIFY">Recent Sales of Unregistered Securities</p>

<p ALIGN="JUSTIFY"></b>In March 2001 the Board of Directors of the Company approved a
resolution changing the terms of the Company&#146;s registered public warrants exercise
price from $7.50 to $1.00 per share and extended the expiration date from July 29, 2001 to
November 30, 2001. In September 2001 the Company reduced the exercise price to $0.25 and
extended the expiration date to November 30, 2002. The registered warrants expired on
November 30, 2002. Also in September 2001 the Company repirced all outstanding non-public
options and warrants to an exercise price of $0.25, fully vested, with an expiration date
of September 17, 2006. </p>
<b>

<p ALIGN="JUSTIFY"></b>On October 19, 2001 the Company converted 480,000 shares of
Convertible Preferred Stock of &quot;Alera&quot;, a wholly owned subsidiary, to shares of
the Company&#146;s Common Stock. The preferred stock was issued in April and July 2000 as
part of a private placement to provide funding for the Alera technology development
activities. Each share of preferred is convertible into one share of Alera at $2.50 per
share at any time within two years from closing date of the private placement or, if Alera
did not become a public company or be sold to an outside party within this two year
period, the holders of the preferred stock would be entitled to exchange their preferred
shares into shares of PASW common stock at Eighty-five percent (85%) of its then current
market price subject to a collar limit of One Dollar ($1.00) per share and a maximum of
Fifteen Dollars ($15.00) per share. Operations of Alera were terminated in December 2000
and subsequently all preferred shareholders elected to convert in 2001 at One Dollar per
share. The conversion increase&#146;s the outstanding common shares of PASW from 4,517,400
to 4,997,400. </p>
<b><u>

<p ALIGN="left">ITEM 6.</u> <u>MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION</p>
</u>

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

<p ALIGN="JUSTIFY">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.
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 positioning of the Company&#146;s products in the Company&#146;s market
segments; the Company&#146;s ability to effectively manage its various businesses in a
rapidly changing environment; the timing of new product introductions; sell-through of the
Company&#146;s products; the continued emergence of the internet resulting in new
competition and changing customer demands; the Company&#146;s ability to adapt and expand
its product offerings in light of changes to and developments in the internet environment;
growth rates of the Company&#146;s market segments; variations in the cost of, and demand
for, customer service and technical support; price pressures and competitive environment;
the possibility of programming errors or other &quot;bugs&#146; in the Company&#146;s
software; the timing and customer acceptance of new product releases and services
(including current users&#146; willingness to upgrade from older versions of the
Company&#146;s products); 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. 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 26, 2002, the risk factors included in this filing under &quot;Factors That
May Affect Future Results&quot; and the risks discussed in the Company&#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 The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof.</p>

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

<p ALIGN="CENTER"></u>-7-</p>

<p>Overview</p>
</b>

<p ALIGN="JUSTIFY">PASW 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 the San Francisco Bay Area of
Northern 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 ALIGN="JUSTIFY">The Company has historically developed and licensed software that
enabled Internet and web based communications. Our software products were embedded into
systems and developed or manufactured by others. </p>

<p ALIGN="JUSTIFY">Realizing that general market conditions both in the public and private
markets had been deteriorating since late spring 2000 we embarked on an aggressive program
to find a suitable merger/acquisition opportunity. On August 31, 2000 the Company and NSI
entered into an agreement whereby we sold the assets of our Internet and Web software
technology to NSI. The purchase price for the assets was 90,000 shares of NSI's common
stock. In addition NSI agreed to grant a non-exclusive, royalty-free license for the
acquired technology, to PASW and its affiliates, subject to certain limitations. </p>

<p>During 1999 we also established Alera a development stage company and a wholly owned
subsidiary. Alera was in the process of developing proprietary technology that would allow
potential business customers to greatly improve the management of their distributed remote
assets. </p>

<p ALIGN="JUSTIFY">Although Alera continued to meet performance objectives for the
development and marketing of its products, capital market conditions deteriorated to the
point that the additional private funding required for the Alera program could not be
completed. Concurrently, the approximately $2.3 million in NSI stock received from the
sale of our Internet and Web software to NSI depreciated by 80% from August 31<sup>st</sup>
to December 31<sup>st</sup>. This combination of factors materially impacted our ability
to continue funding Alera operations and our administrative operations. During December
2000 we closed the administrative office and at the end of December ceased further
development operations at Alera.</p>
</font><b>

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

<p ALIGN="CENTER"></u>-8-</p>
</font>

<p>Results of Continuing Operations </p>
</b><font SIZE="3">

<p>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>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="638">
  <tr>
    <td WIDTH="53%" VALIGN="TOP"></td>
    <td WIDTH="47%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><u><b><p ALIGN="CENTER">Year ended
    December 31,</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="CENTER">2001</b></u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="CENTER">2002</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Net revenue </font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">100.00%</font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">100.00%</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Cost of revenue</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">45.72</u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">36.15</u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Gross profit</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">54.28 </u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">63.85 </u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Selling, general and administrative</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">65.07</font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">73.00</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP" HEIGHT="13"><font SIZE="3">Depreciation and amortization</font></td>
    <td WIDTH="23%" VALIGN="TOP" HEIGHT="13"><font SIZE="3"><p ALIGN="CENTER"><u>1.26</u></font></td>
    <td WIDTH="24%" VALIGN="TOP" HEIGHT="13"><font SIZE="3"><p ALIGN="CENTER"><u>0.54</u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Total operating expenses</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">66.33</u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">73.54</u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Loss from operations</font></td>
    <td WIDTH="23%" VALIGN="TOP"><p align="center"><font SIZE="3">(12.05)</font></td>
    <td WIDTH="24%" VALIGN="TOP"><p align="center"><font SIZE="3">(9.69)</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Other income (expense)</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">( 203.88)</u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">0.72</u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Loss from continuing operations</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">( 215.93)</font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">( 8.97)</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Income tax expense</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">0</font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">0</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Loss from discontinued operations</font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">( 3.59)</u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">&nbsp; 0&nbsp; </u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP" HEIGHT="9"><font SIZE="3">Net loss </font></td>
    <td WIDTH="23%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><p ALIGN="CENTER">(219.52)</font></td>
    <td WIDTH="24%" VALIGN="TOP" HEIGHT="9"><font SIZE="3"><p ALIGN="CENTER">(8.97)%</font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP" HEIGHT="35"><font SIZE="3">Other comprehensive unrealized
    gains and (losses)<p>and foreign currency translation </font></td>
    <td WIDTH="23%" VALIGN="bottom" HEIGHT="35"><font SIZE="3"><p ALIGN="CENTER"><u>205.00</u></font></td>
    <td WIDTH="24%" VALIGN="bottom" HEIGHT="35"><font SIZE="3"><p ALIGN="CENTER"><u>(2.98) </u></font></td>
  </tr>
  <tr>
    <td WIDTH="53%" VALIGN="TOP"><font SIZE="3">Comprehensive loss </font></td>
    <td WIDTH="23%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER"><u>(14.52)%</u></font></td>
    <td WIDTH="24%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER"><u>(11.95)% </u></font></td>
  </tr>
</table>
<font SIZE="3">

<p>All of the Company&#146;s 2001 and 2002 revenues were derived from sales in Japan and
Asia. </p>
<b>

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

<p ALIGN="JUSTIFY">Our net revenues from continuing operations decreased 31% to $413,639
from $595,353 from 2001 to 2002 reflecting our sale of operations in the United States in
2000. Sales of licenses in Japan, our remaining selling operation, decreased 37% from 2001
and royalty revenue in Japan decreased by 11% from 2001 to 2002 to $124,606 from $139,895.</p>

<p ALIGN="JUSTIFY">With the sale of our distribution business in January 2003 royalty
revenue in Japan will represent substantially all of our net revenue. Any change in the
value of the dollar against the Japanese Yen may reduce or increase our revenue in US
dollars from our Japanese royalty revenue.</p>
<b>

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

<p ALIGN="JUSTIFY">The cost of our license revenue for the year 2002 was $149,533 or 52%
of license sales compared to $272,219 or 60% of license sales in 2001. The decrease in
cost of sales reflects improvements in purchases of products from suppliers in Japan and
the United States. </p>
<b>

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

<p ALIGN="JUSTIFY">Selling, general and administrative expense decreased from $387,379 in
2001 to $301,929 in 2002. This decrease is the result of maintaining a sales office in
Japan and eliminating all operations in the United States except for an administrative
staff of one individual. </p>
<b>

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

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

<p ALIGN="CENTER"></u>-9-</p>

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

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

<p ALIGN="JUSTIFY">Depreciation and amortization decreased to $2,228 in 2002 from $7,543
in 2001. The depreciation for both years was incurred at our Japanese office. </p>
<b>

<p ALIGN="JUSTIFY">Other income and expense</p>
</b>

<p ALIGN="JUSTIFY">In 2002 we received interest income of $2,958 in our Japanese
operations compared to $1,559 in 2001. In the 2001 we incurred losses on sales of
securities of $1,215,369. </p>
<b>

<p ALIGN="JUSTIFY">Loss from discontinued operations</p>
</b>

<p ALIGN="JUSTIFY">In 2001 we had a loss from discontinued operations of $21,356 from
remaining expenses of our web-based technologies. </p>
<b>

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

<p ALIGN="JUSTIFY">In February 1999 the Company terminated its S election and became
subject to taxation. For 2002 and 2001 the Company had no income tax liability. </p>
<b>

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

<p ALIGN="JUSTIFY">At December 31, 2002 and December 31, 2001 we had working capital
(deficiency) of $(9,191) and $39,100 and cash and cash equivalents of $98,901 and
$152,148.</p>

<p ALIGN="JUSTIFY">We used $40,294 in cash flow from operating activities for 2002
compared to $338,402 for 2001. The decrease in use of cash of $298,108 was the result of a
decreased loss for the year of $37,093 compared to a loss of $1,306,954 in 2001. Cash
generated or used in operating activities principally reflect the loss from operations and
the related changes in working capital components.</p>

<p ALIGN="JUSTIFY">Our investing activities in 2002 consisted of acquisition of fixed
assets of $623 in our Japanese office. In 2001 we purchased marketable securities of
$136,500 and sold marketable securities of $302,856.</p>

<p ALIGN="JUSTIFY">We had no financing activities in 2002. In 2001 our financing
activities consisted of a loan from a related party of $32,075.</p>
<u><b>

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

<p ALIGN="JUSTIFY">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 and uncertainties that could cause results to differ materially
from historical or anticipated results, including the following:</p>
<b>

<p ALIGN="JUSTIFY">We received a Going Concern opinion from our auditors on our financial
statements for the years ended December 31, 2002 and December 31, 2001. 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 losses of $1,306,954 and $37,093 for 2001 and 2002. We also
have an accumulated deficit of $6,402,763 and a stockholders' equity of $1,167 as of
December 31, 2002. We can provide no assurance we will be profitable in the future and if
we do not become profitable our business could be adversely affected.</p>
<b>

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

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

<p ALIGN="JUSTIFY">We were delisted by the NASDAQ Stock Market on October 9, 2001 and our
stock has been trading on the OTC Bulletin Board Market (OTCBB) since that time.</font><font
FACE="Courier New" SIZE="3"> </p>
</font></b><font SIZE="3">

<p ALIGN="JUSTIFY">The NASDAQ National/Small Cap Market delisted our stock at the opening
of business on October 9, 2001. The securities were removed from NASDAQ and subsequent to
that date the PASW Common Stock traded on the OTC Bulletin Board Market (OTCBB) as were
the Warrants (PASWW) until their expiration on November 30, 2002. While we still have
market makers for our securities there can be no assurance we can continue to rely on our
current market makers and that the price and trading volume of our securities could not be
materially affected.</p>
</font><font SIZE="3" COLOR="#ff0000">

<p ALIGN="JUSTIFY"></font><font SIZE="3"><b>Our only operating subsidiary lost its major
supplier of product in July 2002</b>. </p>

<p ALIGN="JUSTIFY">Our NRCJ subsidiary is a distributor for products supplied by NSI.
Revenue from licenses of the suite of Internet and Web products and sales of services
accounted for substantially all of its revenue in the years ended December 31, 2002 and
2001. In July 2002 Net Silicon ceased producing products used by NRCJ<b>. </b>During the
remainder of 2002 the sales of licenses of the subsidiary decreased to a point where
operations became unprofitable. The operations were sold in January 2003. There is no
assurance that the remaining royalty income is sufficient to allow the Company to continue
operations. </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.</p>

<p ALIGN="JUSTIFY"></b>At the present time we have limited resources available to continue
operations other than maintaining day-to-day activities without any capabilities for
expansion. The revenue received from royalties of our NRCJ subsidiary is sufficient to
handle only maintenance administrative operations for the Company. While efforts are in
process to seek a merger partner or other means of financing there is no assurance that
any means can be obtained to permit the Company to resume any form of operations which
could expand the business.</p>

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

<p ALIGN="JUSTIFY">Our officers, directors and independently the majority stockholder
beneficially own approximately 60% 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. </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</b>.</p>

<p ALIGN="JUSTIFY">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">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>
</font><font FACE="Courier New">

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

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

<p ALIGN="JUSTIFY">ITEM 7.</u> <u>FINANCIAL STATEMENTS</p>
</u></b>

<p ALIGN="JUSTIFY">The Consolidated Financial Statements of the Company are attached as
follows:</p>

<p ALIGN="JUSTIFY">Independent Auditor&#146;s Report&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; F-1 </p>

<p ALIGN="JUSTIFY">PASW, Inc. Financial Statements as of and for the year ended December
31, 2002 and 2001&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; F-2 through F-17</p>
<b><u>

<p ALIGN="JUSTIFY">ITEM 8.</u> <u>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON</p>
</u>

<p ALIGN="JUSTIFY"><u>ACCOUNTING AND FINANCIAL DISCLOSURE</p>
</u></b>

<p>The Company has used the services of Merdinger, Fruchter, Rosen &amp; Co.
(&quot;MFRC&quot;) as its independent accountant since 1996. In January 2003 the Company
was informed by MRFC that it was exiting the business of auditing publicly traded
companies. The Company has selected Skeehan &amp; Co. as its new independent accountant
effective February 27, 2003. The Company&#146;s Board of Directors recommended and
approved the change in the Company&#146;s certifying accountants. </p>

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

<p ALIGN="CENTER">PART III</p>

<p ALIGN="JUSTIFY">ITEM 9.</u> <u>DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS</u></b>; <b><u>COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT</p>

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

<p ALIGN="CENTER">EXECUTIVE OFFICERS AND DIRECTORS</p>
</b></font>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="681">
  <tr>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><u><b>Name</b></u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="CENTER">Age</b></u></font></td>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3"><u><b>Position</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3">Glenn P. Russell</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">48</font></td>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3">Chairman</font></td>
  </tr>
  <tr>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3">William E. Sliney</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">64</font></td>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3">President, Chief Financial Officer, Secretary
    and Director</font></td>
  </tr>
  <tr>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3">Wayne T. Grau</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="CENTER">54</font></td>
    <td WIDTH="59%" VALIGN="TOP"><font SIZE="3">Director</font></td>
  </tr>
</table>
<font SIZE="3"><b>

<p ALIGN="JUSTIFY">Glenn P. Russell. </b>Mr. Russell was our chairman from 1992 to October
2000. He was reelected chairman in August 2001. He also served as president and chief
executive officer from 1992 to 1999. Before 1992 he had various sales and marketing
positions at IBM, Unisys and Network Research Corporation, a predecessor of PASW. Mr.
Russell is also an officer and director of Luke Systems International, a distributor of
electronic components. Luke Systems International is controlled by Mr. Russell&#146;s
spouse. Mr. Russell was educated in the United Kingdom.</p>
<b>

<p ALIGN="JUSTIFY">William E. Sliney. </b>Mr. Sliney has been our president since August
2001. He was chairman from October 2000 to August 2001. Prior to that he was president
since December 1999, chief financial officer since April 1999 and was elected secretary in
December 2001. Before joining us, Mr. Sliney was the chief financial officer for Legacy
Software Inc. from 1995 to 1998. From 1993 to 1994, Mr. Sliney was chief executive officer
for Gumps. Mr. Sliney received his masters in business administration from the University
of California at Los Angeles. </p>
<b>

<p ALIGN="JUSTIFY">Wayne T. Grau.</b> Mr. Grau has been a director of PASW since January
1999. He has been the president and chief executive officer of Fielding Electric, Inc.
since 1981. Mr. Grau is currently a member of the Los Angeles Chapter membership committee
of the National Electrical Contractors Association, a trustee for the Joint Apprenticeship
Training Committee and a trustee for the Los Angeles Electrical Training Trust.</p>
<b>

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

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

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

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

<p><b>SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE</p>
</b></font><font FACE="Courier New">

<p ALIGN="JUSTIFY"></font><font SIZE="3">Section 16(a) of the Exchange Act requires the
Company's directors and executive officers, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file with the Securities and
Exchange Commission (the &quot;SEC&quot;) initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during the year ended
December 31, 2002, all officers, directors and greater than ten percent beneficial owners
listed in the above table complied with the following Section 16(a) filing requirements.</p>
<b><u>

<p ALIGN="JUSTIFY">ITEM 10.</u> <u>EXECUTIVE COMPENSATION</p>
</u>

<p ALIGN="CENTER">EXECUTIVE COMPENSATION AND OTHER MATTERS</p>
</b>

<p ALIGN="JUSTIFY">The following table sets forth the compensation earned for services
rendered to PASW in all capacities for the three most recently completed years by our
Chief Executive Officer and our other most highly compensated executive officers whose
salary and bonus during the year ended December 31, 2002 exceeded $100,000.</p>
<u><b>

<p>Summary Compensation Table </p>
</b></u></font><div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="8" WIDTH="622">
  <tr>
    <td WIDTH="32%" VALIGN="bottom"><font SIZE="3"><u><b>Name and principal position</b></u></font></td>
    <td WIDTH="10%" VALIGN="bottom"><font SIZE="3"><b><p ALIGN="CENTER">Year <u>ended</u></b></font></td>
    <td WIDTH="24%" VALIGN="bottom" COLSPAN="2"><font SIZE="3"><b><p ALIGN="CENTER">Annual
    compensation</p>
    </b></font><p ALIGN="CENTER"><font SIZE="3"><b><u>Salary</u> <u>Bonus</u></b></font></td>
    <td WIDTH="17%" VALIGN="bottom"><font SIZE="3"><b><p ALIGN="CENTER">Long-term compensation
    <u>awards</p>
    </u><p ALIGN="CENTER">Securities underlying <u>options</u> </b></font></td>
    <td WIDTH="17%" VALIGN="bottom"><font SIZE="3"><b><p ALIGN="CENTER">All other <u>compensation</u></b></font></td>
  </tr>
  <tr>
    <td WIDTH="32%" VALIGN="TOP" HEIGHT="78" rowspan="3"><font SIZE="3">Glenn P. Russell <sup>(1)
    </sup>Chairman and Chief Executive Officer</font></td>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3">2002</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">0</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">30,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"></td>
  </tr>
  <tr>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3"><p ALIGN="CENTER">2001</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">0</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">30,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
  </tr>
  <tr>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3"><p ALIGN="CENTER">2000</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">168,345</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">30,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
  </tr>
  <tr>
    <td WIDTH="32%" VALIGN="TOP" HEIGHT="78" rowspan="3"><font SIZE="3">William E. Sliney <sup>(2)
    </sup>President and Chief Financial Officer and Secretary</font></td>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3"><p ALIGN="CENTER">2002</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">0</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">187,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">30,000</font></td>
  </tr>
  <tr>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3"><p ALIGN="CENTER">2001</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">46,875</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">187,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">15,000</font></td>
  </tr>
  <tr>
    <td WIDTH="10%" VALIGN="TOP" HEIGHT="26" align="center"><font SIZE="3"><p ALIGN="CENTER">2000</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">105,313</font></td>
    <td WIDTH="11%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">87,000</font></td>
    <td WIDTH="17%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
  </tr>
  <tr>
    <td VALIGN="BOTTOM" COLSPAN="6" HEIGHT="26"><blockquote>
      <font SIZE="3"><p ALIGN="JUSTIFY">(1) Mr. Russell resigned as Chairman in November 2000
      and was re-appointed Chairman in August 2001.</p>
      <p ALIGN="JUSTIFY">(2) Mr. Sliney commenced employment in April 1999 and became Chairman
      in November 2000. He resigned as Chairman in August 2001. His annual salary is $125,000.
      In the year ended December 31,2000, 300,000 of the options granted to Mr. Sliney in 1999
      were canceled and replaced with 75,000 fully vested options at $2.50 expiring in November
      2004. In September 2001 the 87,000 outstanding options were repriced to $0.25 and
      additionally he was granted 100,000 fully vested options at $0.25. All options expire on
      September 17, 2006. The additional compensation to Mr. Sliney in 2002 and 2001is in the
      form of a management fee after he ceased being an employee of the Company in March 2001.</font></p>
    </blockquote>
    </td>
  </tr>
</table>
</center></div><font SIZE="3"><b>

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

<p ALIGN="center">-13-</p>
</b>

<p><b>Option Grants in Last Fiscal Year </b></p>

<p>There were no options granted to Executive Officers in 2002. </p>
<b>

<p>Aggregate Option Exercises in Last Fiscal Year</p>
</b>

<p ALIGN="JUSTIFY">The following table summarizes the value of options held at December
31, 2002 by our Executive Officers. The value of unexercised in-the-money options in the
right-hand columns are based on the difference between the fair market value of $0.01 per
share at year-end and the per-share exercise price, multiplied by the number of shares
issued upon exercise of the option.</p>
</font><div align="center"><center>

<table CELLSPACING="0" BORDER="0" WIDTH="675">
  <tr>
    <td WIDTH="18%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="bottom"><font SIZE="3"><p ALIGN="CENTER">Number of shares acquired
    </font></td>
    <td WIDTH="12%" VALIGN="bottom"><font SIZE="3"><u><b><p ALIGN="JUSTIFY">&nbsp;</p>
    </b></u><p ALIGN="CENTER">Value</font></td>
    <td WIDTH="28%" VALIGN="bottom" COLSPAN="2"><font SIZE="3"><p ALIGN="CENTER">Number of
    securities underlying unexercised </p>
    <u><p ALIGN="CENTER">options at year end</u></font></td>
    <td WIDTH="29%" VALIGN="bottom" COLSPAN="2"><font SIZE="3"><p ALIGN="CENTER">Value of
    unexercised</p>
    <p ALIGN="CENTER">In-the-money options </p>
    <u><p ALIGN="CENTER">at year end</u></font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><b>Name</b></font></td>
    <td WIDTH="14%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Upon
    exercise</u></font></td>
    <td WIDTH="12%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Realized</u></font></td>
    <td WIDTH="13%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Exercisable</u></font></td>
    <td WIDTH="14%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Unexercisable</u></font></td>
    <td WIDTH="13%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Exercisable</u></font></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><p ALIGN="CENTER">Unexercisable</u></font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="26"><font SIZE="3">Glenn P. Russell</font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">30,000</font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">$0</font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
  </tr>
  <tr>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="26"><font SIZE="3">William E. Sliney</font></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="12%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">187,000</font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
    <td WIDTH="13%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">$0</font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><p ALIGN="CENTER">-</font></td>
  </tr>
</table>
</center></div><font SIZE="3"><b>

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

<p ALIGN="CENTER">REPORT OF THE COMPENSATION COMMITTEE</p>
</b>

<p ALIGN="JUSTIFY">Appointed in February 1999, the Compensation Committee is charged with
the responsibility of reviewing all aspects of the Company's executive compensation
programs and administering the Company's stock option plans. The Compensation Committee
did not meet during 2002.</p>
<b><u>

<p ALIGN="JUSTIFY">ITEM 11.</u> <u>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT</p>
</u></b>

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

<p ALIGN="CENTER"><b>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</p>
</b>

<p ALIGN="JUSTIFY">The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 2002 for:</p>

<blockquote>
  <ul>
    <li><p ALIGN="JUSTIFY">each person who is known to own beneficially more than 5% of our
      outstanding common stock,</font></p>
      <font SIZE="3"></li>
    <li><p ALIGN="JUSTIFY">each of our executive officers and directors and</font></p>
      <font SIZE="3"></li>
    <li><p ALIGN="JUSTIFY">all executive officers and directors as a group.</p>
    </li>
  </ul>
</blockquote>

<p ALIGN="JUSTIFY">The percentage of beneficial ownership for the following table is based
on 4,997,400 shares of common stock outstanding on December 31, 2002. </p>

<p ALIGN="JUSTIFY">Unless otherwise indicated below, to our knowledge, all persons and
entities listed below have sole voting and investment power over their shares of common
stock, except to the extent that individuals share authority with spouses under applicable
law. </p>

<p ALIGN="JUSTIFY">Shares of common stock not outstanding but deemed beneficially owned
because an individual has the right to acquire the shares of common stock within 60 days
are treated as outstanding when determining the amount and percentage of common stock
owned by that individual and by all directors and executive officers as a group. Each
person has sole voting and investment power with respect to the shares of common stock
shown. </p>
</font>

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

<p ALIGN="center">-14-</p>
</font></b><div align="center"><center>

<table BORDER="0" CELLSPACING="0" CELLPADDING="8" WIDTH="631">
  <tr>
    <td WIDTH="65%" VALIGN="MIDDLE" HEIGHT="26"><font SIZE="3"><u><p ALIGN="JUSTIFY">&nbsp;</p>
    <b><p></b></u></font>&nbsp;</td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"><font SIZE="3"><b><p ALIGN="CENTER">Number of
    shares beneficially owned</b></font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><b><p ALIGN="CENTER">Percentage
    of shares outstanding</b></font></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><u><b><p ALIGN="JUSTIFY">Name
    and address of beneficial owner</b></u></font></td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="26"></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="JUSTIFY">Glenn P.
    Russell</font></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">3,030,000</font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">60.6%</font></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="JUSTIFY">William E.
    Sliney</font></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">187,500</font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">3.8%</font></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="JUSTIFY">Wayne T.
    Grau </font></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">15,000</font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">*</font></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"><blockquote>
      <font SIZE="3"><p ALIGN="JUSTIFY">All directors and executive officers as a group (3) </font></p>
    </blockquote>
    </td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">3,232,500</font></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"><font SIZE="3"><p ALIGN="RIGHT">64.4%</font></td>
  </tr>
  <tr>
    <td WIDTH="65%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="3%" VALIGN="BOTTOM" HEIGHT="26"></td>
    <td WIDTH="16%" VALIGN="BOTTOM" HEIGHT="26"></td>
  </tr>
</table>
</center></div><font SIZE="3">

<p ALIGN="JUSTIFY">* Less than 1%.</p>

<p ALIGN="JUSTIFY">The address of each officer and director for PASW, Inc. is 9453 Alcosta
Boulevard., San Ramon, CA 94583 </p>

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

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

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

<p ALIGN="JUSTIFY">ITEM 12.</u> <u>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</p>
</u>

<p>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</p>
</b>

<p ALIGN="JUSTIFY">In March 1996, PASW agreed with a former officer, director and
principal stockholder to a buyout of his employment agreement and Glenn P. Russell agreed
to purchase all of that former officer's shares of common stock of PASW. PASW and that
former officer also entered into a consulting agreement and that former officer agreed not
to compete with PASW. PASW paid the former officer $ 257,143 and $314,286 for 1999 and
1998, respectively. As of December 31, 2001 the Company has satisfied its obligations to
the former officer in full.</p>

<p ALIGN="JUSTIFY">In December 1998, Luke Systems International, a company controlled by
the spouse of Glenn P. Russell, loaned PASW $100,000 interest free. In March 1999, PASW
repaid the loan.</p>

<p ALIGN="JUSTIFY">During 1998 and a portion of 1999 Company subleased a portion of the
premises to Luke Systems International. The Company believes that the terms of Luke&#146;s
occupancy are favorable to the Company. This affiliated company relocated to other
premises before September 30, 1999.</p>

<p ALIGN="JUSTIFY">At July 1, 1999 the Company owed a bank approximately $250,000 for
advances that were obtained under a line of credit. Glenn P. Russell has provided our bank
with his personal guarantee and the Company has collateralized our accounts receivable as
security for these advances. This amount was repaid in August 1999.</p>

<p ALIGN="JUSTIFY">During 1996, 1997 and 1998 we employed Glenn P. Russell&#146;s mother,
a resident of the United Kingdom, to perform various administrative and managerial tasks
for us within that country. We paid her $105,769 in 1998. She ceased to be our employee in
the fall of 1998.</p>

<p ALIGN="JUSTIFY">In February 2001 Luke Systems International loaned the Company $32,075
which remains outstanding at December 31, 2002.</p>

<p ALIGN="JUSTIFY">During 2002 an officer of PASW was paid $30,000 in management fees.
During 2002 the Company occupied office space in California provided by an officer at no
charge. </p>

<p ALIGN="JUSTIFY">PASW believes that the transactions described above, other than the
employment of the mother of Glenn P. Russell, were made on terms no less favorable to PASW
than could have been obtained from unaffiliated third parties.</p>
</font><b><u><font SIZE="3" COLOR="#ff0000">

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

<p ALIGN="center"></font></u><font SIZE="3" color="#000000">-16-</font><u><font SIZE="3"
COLOR="#ff0000"></p>
</font><font SIZE="3">

<p ALIGN="JUSTIFY">ITEM 13.</u> <u>EXHIBITS AND REPORTS ON FORM 8-K</p>

<blockquote>
  </b><p ALIGN="JUSTIFY">Exhibits</p>
  </u>
</blockquote>
<u>

<p ALIGN="JUSTIFY">Exhibit No. Description Page</p>
</u></font>

<table CELLSPACING="0" BORDER="0" WIDTH="686">
  <tr>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3">2.1</font></td>
    <td WIDTH="93%" VALIGN="TOP" COLSPAN="2"><font SIZE="2"><p ALIGN="JUSTIFY">Combination
    Agreement among PASW, Inc. Glenn P. Russell and Simmons Energy Services Inc. (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3">2.2</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Voting Trust and Exchange
    Rights Agreement among PASW, Inc. [#2] Alberta Ltd., Shareholders and Montreal Trust
    Company of Canada (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">2.3</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Support Agreement among
    PASW, Inc.&nbsp; and [#2] Alberta Ltd.(4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">2.4</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Share Capital Provisions to
    be Included in the Articles of Incorporation of [#2] Alberta Ltd. (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">3.1</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Articles of Incorporation of the Registrant,
    as amended to date (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">3.2</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Bylaws of the Registrant (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">4.2</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Specimen Warrant (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">4.3</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Form of Warrant Agreement
    (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">4.4</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Specimen Common Stock Certificate (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">4.5</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Form of Lock Up Agreement (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">4.6</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Form of Underwriter's
    Option for Purchase of Units (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.1</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Form of Indemnification
    Agreements (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.2</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">1998 Equity Incentive Program (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.3</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Security and Loan Agreement, dated September
    15, 1998 between Bank of America National Trust and Savings<p>Association and Pacific
    Softworks (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.4</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Form of Invention Assignment and Proprietary
    Information Agreement (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.5</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Sublease, dated April 7, 1998 between SHR
    Perceptual Management and Pacific Softworks for the premises at 703<p>Rancho Conejo Blvd.,
    Newbury Park, California (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.6</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Consulting Agreement dated March 8, 1996
    between Kenneth Woodgrift and Pacific Softworks (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.7</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Letter from Golenberg &amp; Co, merchant
    bankers, to Glenn Russell dated June 18, 1998 and Letter from Pacific<p>Softworks to Glenn
    Golenberg dated January 27, 1999 (1)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.8</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Letter of intent regarding
    investment in FSPNetwork dated October 25, 1999 (2). </font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.9</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Convertible 10% promissory note due from
    FSPNetwork (3)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.10</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Letter of intent regarding investment in
    RedFlag dated January 13, 2000(3)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.11</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">NetSilicon sale of assets dated September 8,
    2000 (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">10.12</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2"><p ALIGN="JUSTIFY">Letter of intent between
    PASW, Inc. and Simmons Energy Services dated February 9, 2001 (4)</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">21.1</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">21.1 Subsidiaries of the Registrant*</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">99.1</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Certification of Chief Executive Officer
    pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.*</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"><font SIZE="3"><p ALIGN="JUSTIFY">99.2</font></td>
    <td WIDTH="92%" VALIGN="TOP"><font SIZE="2">Certification of Chief Financial Officer
    pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.*</font></td>
  </tr>
  <tr>
    <td WIDTH="8%" VALIGN="TOP" COLSPAN="2"></td>
    <td WIDTH="92%" VALIGN="TOP"><blockquote>
      <font FACE="Xerox Serif Wide" SIZE="2"><p ALIGN="JUSTIFY">(1) </font><font SIZE="2">As
      filed on Form SB2 effective July 29, 1999.</p>
      </font><font FACE="Xerox Serif Wide" SIZE="2"><p ALIGN="JUSTIFY">(2) </font><font SIZE="2">As
      filed on Form 10-QSB on November 12, 1999.</p>
      </font><font FACE="Xerox Serif Wide" SIZE="2"><p ALIGN="JUSTIFY">(3) </font><font SIZE="2">As
      filed on Form 10KSB dated March 28, 2000.</p>
      </font><font FACE="Xerox Serif Wide" SIZE="2"><p ALIGN="JUSTIFY">(4) </font><font SIZE="2">As
      filed on Form 8-K effective March 29, 2001.</p>
      </font><font FACE="Xerox Serif Wide" SIZE="2"><p ALIGN="JUSTIFY">(5) </font><font SIZE="2">As
      filed on Form 10KSB dated March 29, 2001.</font></p>
    </blockquote>
    <font SIZE="3"><p ALIGN="JUSTIFY">* Filed herewith</font></td>
  </tr>
</table>
<font SIZE="2">

<p ALIGN="JUSTIFY">(b) <u>Reports on Form 8-K</p>
</u>

<p ALIGN="JUSTIFY">None</p>
<b>

<p></font><font SIZE="3">ITEM 14. CONTROLS AND PROCEDURES </b></p>

<p>&nbsp;Evaluation of Disclosure Controls and Procedures</p>

<p ALIGN="JUSTIFY">Within the 90 days prior to the date of this report, PASW. carried out
an evaluation, under the supervision and with the participation of the Company&#146;s
management, including the Company&#146;s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company&#146;s disclosure
controls and procedures. The Company&#146;s disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in its
periodic Securities and Exchange Commission (&quot;SEC&quot;) filings is recorded,
processed and reported within the time periods specified in the SEC&#146;s rules and
forms. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company&#146;s disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to be
included in the Company&#146;s periodic SEC filings.</p>

<p ALIGN="JUSTIFY">Changes in Internal Controls</p>

<p ALIGN="JUSTIFY">There were no significant changes in the Company&#146;s internal
controls or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.</font></p>
<font SIZE="3"><b>

<p ALIGN="center">-17-</p>
</b></font>

<p ALIGN="center"><font SIZE="3"><b>SIGNATURES</p>
</b>

<p ALIGN="JUSTIFY">In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.</p>
<u>

<p ALIGN="JUSTIFY">PASW, Inc.</p>
</u>

<p ALIGN="JUSTIFY">(Registrant)</p>

<p ALIGN="JUSTIFY">Date: March 31, 2003 <u></p>

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

<blockquote>
  </u><p ALIGN="JUSTIFY">President</p>
</blockquote>

<p ALIGN="JUSTIFY">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.</p>
</font>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="747">
  <tr>
    <td WIDTH="212" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="JUSTIFY">Signature</b></u></font></td>
    <td WIDTH="365" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="JUSTIFY">Title</b></u></font></td>
    <td WIDTH="128" VALIGN="TOP"><font SIZE="3"><u><b><p ALIGN="JUSTIFY">Date</b></u></font></td>
  </tr>
  <tr>
    <td WIDTH="212" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">Glenn P. Russell </u></font></td>
    <td WIDTH="365" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="JUSTIFY">Chairman</font></td>
    <td WIDTH="128" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="JUSTIFY">03/31/03</u></font></td>
  </tr>
  <tr>
    <td WIDTH="212" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">William E. Sliney </u></font></td>
    <td WIDTH="365" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">President, Chief Financial
    OfficerAnd Secretary</font></td>
    <td WIDTH="128" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">03/31/03</u></font></td>
  </tr>
  <tr>
    <td WIDTH="212" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">Wayne T. Grau</u></font></td>
    <td WIDTH="365" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Director</font></td>
    <td WIDTH="128" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">03/31/03</u></font></td>
  </tr>
</table>
<font SIZE="3">

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

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

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

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

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

<p ALIGN="CENTER">CONSOLIDATED FINANCIAL STATEMENTS</p>

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

<p ALIGN="CENTER">DECEMBER 31, 2002 AND 2001&nbsp;</p>

<p>&nbsp;</p>

<p>CONTENTS</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="676">
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">INDEPENDENT AUDITORS&#146; REPORT</td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F-1</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">CONSOLIDATED BALANCE SHEETS</td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F-2</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">CONSOLIDATED STATEMENTS OF OPERATIONS</td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F-3</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS</td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F-4</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">CONSOLIDATED STATEMENT OF STOCKHOLDERS&#146;
    EQUITY </td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F-5</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">CONSOLIDATED STATEMENTS OF CASH FLOWS</td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F6 - F7</td>
  </tr>
  <tr>
    <td WIDTH="86%" VALIGN="TOP" HEIGHT="26">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="26">F8 &#150; F17</td>
  </tr>
</table>

<p>&nbsp;&nbsp;&nbsp;</p>

<p>INDEPENDENT AUDITORS' REPORT</p>

<p>&nbsp;</p>

<p>TO THE STOCKHOLDERS AND BOARD OF DIRECTORS</p>

<p>PASW, INC. AND SUBSIDIARIES (PASW)</p>

<p ALIGN="JUSTIFY">We audited the accompanying consolidated balance sheet of PASW as of
December 31, 2002, and related consolidated statements of operations, comprehensive loss,
stockholders&#146; equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audit. The financial statements of PASW as of December 31, 2001 were audited by
other auditors whose report dated February 16, 2002, on those statements, included an
explanatory paragraph that described the significant operating losses PASW incurred to
date and negative cash flows from operations discussed in Note 13 to the financial
statements.</p>

<p ALIGN="JUSTIFY">We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require we plan and perform the
audit to obtain reasonable assurance that 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 our audit provides a
reasonable basis for our opinion.</p>

<p ALIGN="JUSTIFY">In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of PASW as
of December 31, 2002, and the consolidated results of their operations and cash flows for
the year then ended, in conformity with accounting principles generally accepted in the
United States of America.</p>

<p ALIGN="JUSTIFY">The accompanying financial statements were prepared assuming PASW will
continue as a going concern. As shown in the accompanying financial statements, PASW has
incurred significant operating losses to date and has negative cash flows from operations.
These factors raise substantial doubt as to PASW&#146;s ability to continue as a going
concern. Management&#146;s plans with respect to those matters are discussed in Note 13 to
the financial statements. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.</p>

<p>SKEEHAN &amp; COMPANY </p>

<p>Pasadena, California </p>

<p>March 26, 2003</p>

<p ALIGN="CENTER">- F1 -</p>

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

<p align="center">CONSOLIDATED BALANCE SHEETS</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="655">
  <tr>
    <td WIDTH="67%" VALIGN="TOP">ASSETS</td>
    <td WIDTH="33%" VALIGN="TOP" COLSPAN="3"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Current assets</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Cash and cash equivalents</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">$ 98,901</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$ 152,148</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Accounts receivable</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 32,842</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 43,855</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total current assets</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">131,743</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">196,003</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Property and equipment-net (Note 3)</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">4,242</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">5,847</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Other asset</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 6,116</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp; 5,643</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">TOTAL ASSETS</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 142,101</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 207,493</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Current liabilities</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Accounts payable and accrued expenses</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">$ 108,859</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$124,828</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Advances payable &#150; related party (Note 8)</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 32,075</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 32,075</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total current liabilities</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">1 40,934</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 156,903</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Commitments and contingencies (Note 4)</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Stockholders&#146; equity</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Preferred stock, $.01 par value; 10,000,000 shares
    authorized, no shares issued and outstanding</td>
    <td WIDTH="16%" VALIGN="BOTTOM"><p ALIGN="RIGHT">-</td>
    <td WIDTH="3%" VALIGN="BOTTOM"></td>
    <td WIDTH="15%" VALIGN="BOTTOM"><p ALIGN="RIGHT">-</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Common stock, $.001 par value; 50,000,000 shares authorized;
    4,997,400 and 4,997,400 shares issued and outstanding</td>
    <td WIDTH="16%" VALIGN="BOTTOM"><p ALIGN="RIGHT">4,998</td>
    <td WIDTH="3%" VALIGN="BOTTOM"></td>
    <td WIDTH="15%" VALIGN="BOTTOM"><p ALIGN="RIGHT">4,998</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Additional paid-in capital</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">6,398,754</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">6,398,754</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Accumulated deficit</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">(6,402,763)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">( 6,365,670)</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Cumulative adjustment for foreign currency translation</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 178</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 12,508</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total stockholders&#146; equity</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp; 1,167</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 50,590</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 142,101</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 207,493</u></td>
  </tr>
</table>

<p>&nbsp;The accompanying notes are an integral part of these consolidated financial
statements.</p>

<p ALIGN="CENTER">- F2 -</p>

<p align="center">PASW, INC. AND SUBSIDIARIES</p>

<p align="center">CONSOLIDATED STATEMENTS OF OPERATIONS</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="655">
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="33%" VALIGN="TOP" COLSPAN="3"><p ALIGN="CENTER">For the Years Ended</p>
    <p ALIGN="CENTER"><u>December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Revenue</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Product sales</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">$ 289,033</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$ 455,458</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Royalties and other</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">124,606</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">139,895</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">413,639</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">595,353</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Cost of revenue</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Purchases and royalty fees</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">149,533</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">272,219</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Gross profit</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">264,106</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">323,134</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Operating expenses</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Selling, general and administrative</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">301,929</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">387,379</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Depreciation and amortization</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 2,228</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 7,543</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total operating expenses</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">304,157</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">394,922</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Loss from operations</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">40,051</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">71,788</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Other income (expense)</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Interest income</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">2,958</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">1,559</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Loss on sale of securities (Note 2)</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">( 1,215,369)</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Total other (expense)</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp; 2,958</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">( 1,213,810</u>)</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Loss from continuing operations before income taxes</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">37,093</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">1,285,598</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Income tax expense</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Loss from continuing operations</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">37,093</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">1,285,598</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Discontinued operations:</td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Loss from operations of internet and web software divisions
    (net of income taxes of $-0-) (Note 12)</td>
    <td WIDTH="16%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="BOTTOM"></td>
    <td WIDTH="15%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 21,356</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Net loss</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 37,093</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$1,306,954</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP" HEIGHT="24">Net loss per common share - Basic and diluted</td>
    <td WIDTH="16%" VALIGN="TOP" HEIGHT="24"></td>
    <td WIDTH="3%" VALIGN="TOP" HEIGHT="24"></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="24"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Continuing operations</td>
    <td WIDTH="16%" VALIGN="TOP"><p ALIGN="RIGHT">$ ( 0.01)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$( 0.27)</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Discontinued operations</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp; 0.00</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; ( 0.01)</u></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Net loss per share</td>
    <td WIDTH="16%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ ( 0.01</u>)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$( 0.28</u>)</td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP"></td>
    <td WIDTH="16%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="67%" VALIGN="TOP">Weighted average common shares<p>Basic and diluted</td>
    <td WIDTH="16%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT">4,997,400</u></td>
    <td WIDTH="3%" VALIGN="BOTTOM"></td>
    <td WIDTH="15%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT">4,617,400</u></td>
  </tr>
</table>

<p>&nbsp;</p>

<p>The accompanying notes are an integral part of these consolidated financial statements.</p>

<p ALIGN="CENTER">-F3-</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p align="center">PASW, INC. AND SUBSIDIARIES</p>

<p align="center">CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS</p>

<p>&nbsp;</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="661">
  <tr>
    <td WIDTH="68%" VALIGN="TOP"></td>
    <td WIDTH="32%" VALIGN="TOP" COLSPAN="3"><p ALIGN="CENTER">For the Years Ended</p>
    <p ALIGN="CENTER"><u>December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP">COMPREHENSIVE (LOSS)</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP">Net loss</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">$( 37,093)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$(1,306,954)</td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP">Net unrealized loss on available for sale securities</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">1,183,184</td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP">Foreign currency translation adjustment</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">(12,330)</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp; 37,264</u></td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="68%" VALIGN="TOP">Comprehensive loss</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">$( 49,423</u>)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$( 86,506</u>)</td>
  </tr>
</table>

<p>&nbsp;&nbsp;</p>

<p>The accompanying notes are an integral part of these consolidated financial statements.</p>

<p ALIGN="CENTER">- F4 -</p>

<p align="center">PASW, INC. AND SUBSIDIARIES</p>

<p align="center">CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="733">
  <tr>
    <td WIDTH="25%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM" COLSPAN="2"><font SIZE="2"><u><p ALIGN="CENTER">Common
    Stock</u></font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="CENTER">Additional Paid-in</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="CENTER">Accumulated</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="CENTER">Unrealized Loss on</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="CENTER">Cumulative Foreign
    Currency Translation</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="CENTER">Total Stockholders&#146;</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="CENTER">Shares</u></font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="CENTER">Amount</u></font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><u><p ALIGN="CENTER">Capital</u></font></td>
    <td WIDTH="12%" VALIGN="TOP"><font SIZE="2"><u><p ALIGN="CENTER">Deficit</u></font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><u><p ALIGN="CENTER">Securities</u></font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><u><p ALIGN="CENTER">Adjustment</u></font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><u><p ALIGN="CENTER">Equity</u></font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="TOP"></td>
    <td WIDTH="8%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="12%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Balance at January 1, 2001</font></td>
    <td WIDTH="10%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">4,517,400</font></td>
    <td WIDTH="8%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$ 4,518</font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$6,265,653</font></td>
    <td WIDTH="12%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$(5,058,716)</font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$(1,183,184)</font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$ (24,759)</font></td>
    <td WIDTH="11%" VALIGN="TOP"><font SIZE="2"><p ALIGN="RIGHT">$ 3,512</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="TOP"></td>
    <td WIDTH="8%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="12%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
    <td WIDTH="11%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Conversion of preferred<p>to common stock</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">400,000</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">400</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">(400)</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Shares issued as<p>compensation for services</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">80,000</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">80</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">8,720</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">8,800</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Repricing of warrants</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">124,781</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">124,781</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Sale of marketable securities</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">1,183,184</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">1,183,184</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Foreign currency translation<p>adjustment</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">37,267</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">37,267</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Net loss</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"></font><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">(1,306,954</u>)</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">(1,306,954</u>)</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Balance at December 31, 2001</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">4,997,400</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">4,998</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">6,398,754</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">(6,365,670)</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">12,508</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">50,590</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Foreign currency translation<p>adjustment</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">(12,330)</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><p ALIGN="RIGHT">(12,330)</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Net loss</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="12%" VALIGN="bottom"><font SIZE="2"><u><p ALIGN="RIGHT">( 37,093</u>)</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">(37,093</u>)</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"></td>
    <td WIDTH="10%" VALIGN="BOTTOM"></td>
    <td WIDTH="8%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="12%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
    <td WIDTH="11%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="25%" VALIGN="TOP"><font SIZE="2">Balance at December 31, 2002</font></td>
    <td WIDTH="10%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">4,997,400</u></font></td>
    <td WIDTH="8%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">$ 4,998</u></font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">$6,398,754</u></font></td>
    <td WIDTH="12%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">$(6,402,763</u>)</font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><u><p ALIGN="RIGHT"><font SIZE="2">$ </font><font size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</font></u></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">$ 178</u></font></td>
    <td WIDTH="11%" VALIGN="BOTTOM"><font SIZE="2"><u><p ALIGN="RIGHT">$ 1,167</u></font></td>
  </tr>
</table>

<p>&nbsp;</p>

<p>The accompanying notes are an integral part of these consolidated financial statements.</p>

<p ALIGN="CENTER">- F5 -</p>

<p align="center">PASW, INC. AND SUBSIDIARIES</p>

<p align="center">CONSOLIDATED STATEMENTS OF CASH FLOWS</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="655">
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="31%" VALIGN="TOP" COLSPAN="3"><p ALIGN="CENTER">For the Years Ended<u> December
    31,</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">CASH FLOWS FROM OPERATING ACTIVITIES</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Net loss</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">$ ( 7,093)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">$ 1,306,954)</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Adjustments to reconcile net loss to net</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">cash used in operating activities:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Depreciation and amortization</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">2,228</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">7,543</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Loss on marketable securities (Note 2)</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">1,215,369</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Stock-based compensation (Notes 6 and 7)</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">133,581</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">(Increase) decrease in assets:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Accounts receivable</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">11,013</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">113,526</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Other asset</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">( 473)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">30,867</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Decrease in liabilities:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Accounts payable and accrued expenses</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">( 15,969</u>)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">(532,334)</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Net cash used by operating activities</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">( 40,294</u>)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">( 338,402</u>)</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">CASH FLOWS FROM INVESTING ACTIVITIES:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Acquisition of Fixed Assets</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">( 623)</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Purchase of marketable securities</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">( 136,500)</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Proceeds from sale of marketable securities</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">302,856</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Net cash (used) provided by investing activities</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp; (623</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">166,356</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">CASH FLOWS FROM FINANCING ACTIVITIES:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Related party payable</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">32,075</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Net cash provided by financing activities</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">32,075</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">EXCHANGE RATE CHANGES</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">(12,330)</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">37,750</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">NET DECREASE IN CASH</td>
    <td WIDTH="14%" VALIGN="TOP"><p ALIGN="RIGHT">53,247</td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p ALIGN="RIGHT">102,221</td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">CASH AND CASH EQUIVALENTS &#150; BEGINNING</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">152,148</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">254,369</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">CASH AND CASH EQUIVALENTS - ENDING</td>
    <td WIDTH="14%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 98,901</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 152,148</u></td>
  </tr>
</table>

<p>&nbsp;</p>

<p>The accompanying notes are an integral part of these consolidated financial statements.</p>

<p ALIGN="CENTER">- F6 -</p>

<p>&nbsp;</p>

<p align="center">PASW, INC. AND SUBSIDIARIES</p>

<p align="center">CONSOLIDATED STATEMENTS OF CASH FLOWS</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="655">
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="31%" VALIGN="TOP" COLSPAN="3"><p ALIGN="CENTER">For the Years Ended<u> December
    31,</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP" HEIGHT="22"></td>
    <td WIDTH="14%" VALIGN="TOP" HEIGHT="22"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="3%" VALIGN="TOP" HEIGHT="22"></td>
    <td WIDTH="15%" VALIGN="TOP" HEIGHT="22"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">SUPPLEMENTAL CASH FLOW INFORMATION: <p>Cash paid during the
    year for:</td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Interest paid</td>
    <td WIDTH="14%" VALIGN="TOP"><p align="right"><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nil
    </u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p align="right"><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nil</u></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP"></td>
    <td WIDTH="14%" VALIGN="TOP"></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="69%" VALIGN="TOP">Income taxes paid</td>
    <td WIDTH="14%" VALIGN="TOP"><p align="right"><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nil</u></td>
    <td WIDTH="3%" VALIGN="TOP"></td>
    <td WIDTH="15%" VALIGN="TOP"><p align="right"><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nil</u></td>
  </tr>
</table>

<p>&nbsp;CASH FLOW STATEMENT</p>

<p>SCHEDULE OF NON-CASH ACTIVITIES:</p>

<p>During 2001,</p>

<p>The Company issued 80,000 shares of common stock, valued at $8,800, for services.</p>

<p>The Company issued 400,000 shares of common stock in conversion of subsidiary preferred
stock.</p>

<p>The Company issued warrants as compensation for services. The warrants were recorded at
a value of $124,781.</p>

<p>&nbsp;</p>

<p>The accompanying notes are an integral part of these consolidated financial statements.</p>

<p ALIGN="CENTER">- F7 -</p>

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

<p>PASW, INC. AND SUBSIDIARIES</p>

<p>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</p>

<p>DECEMBER 31, 2002 AND 2001</p>

<p>NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</p>

<p><u>&nbsp;</p>

<p ALIGN="JUSTIFY">Nature of Operations</u></p>

<p ALIGN="JUSTIFY">PASW, Inc., formerly Pacific Softworks, Inc. (the Company),
incorporated in California in November 1992, developed and licensed Internet and Web
related software and software development tools that enable communications, based on a set
of rules known as protocols. The Company&#146;s products were embedded into systems and
developed or manufactured by others. In August 2000, the Company sold all the assets of
its Internet and Web operations. Since that time, the Company&#146;s operations,
consisting of sales of software and licenses, have been conducted principally through an
administrative office in Northern California and a sales office in Japan.</p>
<u>

<p ALIGN="JUSTIFY">Basis of Consolidation</u></p>

<p ALIGN="JUSTIFY">The consolidated financial statements include the accounts of PASW,
Inc. (&quot;PSI&quot;) and its wholly owned subsidiaries:</p>

<p ALIGN="JUSTIFY">Network Research Corp. Japan, Ltd. (&quot;NRCJ&quot;);</p>

<p ALIGN="JUSTIFY">Alera Systems, Inc. (&quot;Alera&quot;), formerly iApplianceNet.com
(&quot;iAppliance&quot;), a California Corporation; </p>

<p ALIGN="JUSTIFY">Pacific Acquisition Corporation (&quot;PAC&quot;), a California
Corporation; and</p>

<p ALIGN="JUSTIFY">PASW Europe Limited (&quot;Europe&quot;), a United Kingdom Corporation.</p>

<p ALIGN="JUSTIFY">All references herein to PSI or the &quot;Company&quot; include the
consolidated results of PSI and its subsidiaries. All significant intercompany accounts
and transactions were eliminated in consolidation.</p>

<p ALIGN="JUSTIFY">Alera is a wholly owned subsidiary of PSI and was incorporated in
California in August 1999. Alera began operations in January 2000, and was inactive at
December 31, 2001.</p>

<p ALIGN="JUSTIFY">PAC and Europe were inactive in 2002 and 2001.</p>

<p ALIGN="JUSTIFY"><u>Use of Estimates</u></p>

<p ALIGN="JUSTIFY">Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.</p>
<u>

<p ALIGN="JUSTIFY">Revenue Recognition</u></p>

<p ALIGN="JUSTIFY">PSI is a licensor of software and generates revenue primarily from the
one-time sales of licensed software. Generally, revenue is recognized upon shipment of the
licensed software. For multiple element license arrangements, the license fee is allocated
to the various elements based on fair value. When a multiple element arrangement includes
rights to a post-contract customer support, the portion of the license fee allocated to
each function is recognized ratably over the term of the arrangement.</p>

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

<p ALIGN="CENTER">- F8 -</p>

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

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)</p>
<u>

<p ALIGN="JUSTIFY">Cash and Cash Equivalents </u></p>

<p ALIGN="JUSTIFY">PSI considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.</p>
<u>

<p ALIGN="JUSTIFY">Concentration of Credit Risk</u></p>

<p ALIGN="JUSTIFY">PSI places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC insured levels at various times
during the year.</p>

<p ALIGN="JUSTIFY">Approximately 63% of PSI&#146;s accounts receivable are derived from
one customer.</p>
<u>

<p ALIGN="JUSTIFY">Accounts Receivable</u></p>

<p ALIGN="JUSTIFY">For financial reporting purposes, PSI uses the allowance method of
accounting for doubtful accounts. PSI performs ongoing credit evaluations of its customers
and, if required, maintains an allowance for potential credit losses. The allowance is
based on an experience factor and review of current accounts receivable. Uncollectible
accounts are written off against the allowance accounts when deemed uncollectible. No
accounts were deemed uncollectible at December 31, 2002 or 2001.</p>
<u>

<p ALIGN="JUSTIFY">Property and Equipment</u></p>

<p ALIGN="JUSTIFY">Property and equipment are stated at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations over their
estimated service lives, primarily on a straight-line basis. The estimated lives used in
determining depreciation are five to seven years for furniture, fixtures and computer
equipment. Purchased computer software costs are amortized over five years.</p>

<p ALIGN="JUSTIFY">Maintenance and repairs are expensed as incurred; additions and
betterments are capitalized. Upon retirement or sale, the cost and related accumulated
depreciation of the disposed assets are removed and any resulting gain or loss is
recorded.</p>
<u>

<p ALIGN="JUSTIFY">Fair Value of Financial Instruments</u></p>

<p ALIGN="JUSTIFY">PSI&#146;s financial instruments consist of cash, accounts receivable,
accounts payable and short-term debt. The carrying amounts of cash, accounts receivable,
accounts payable and short-term debt approximate fair value due to the highly liquid
nature of these short-term instruments at December 31, 2002 and 2001.</p>
<u>

<p ALIGN="JUSTIFY">Long-Lived Assets</u></p>

<p ALIGN="JUSTIFY">Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the related carrying amount may not be recoverable.
Recovery of assets to be held and used is measured by comparing the carrying amount of the
assets to the future net cash flows expected to be generated by the asset. If such assets
are considered impaired, the impairment is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less the cost to sell.&nbsp;</p>

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

<p ALIGN="CENTER">-F9-</p>

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

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)</p>
<u>

<p ALIGN="JUSTIFY">Income Taxes</u></p>

<p ALIGN="JUSTIFY">Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets and
liabilities and their reported amounts in the financial statements. Deferred tax assets
and liabilities are included in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed by Statement of Financial Accounting
Standards (&quot;SFAS&quot;) No. 109, &quot;Accounting for Income Taxes.&quot; As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.</p>
<u>

<p ALIGN="JUSTIFY">Advertising Costs</u></p>

<p ALIGN="JUSTIFY">Advertising costs of $1,140 in 2001, except for costs associated with
direct-response advertising, are expensed when incurred. The costs of direct-response
advertising, if any, are capitalized and amortized over the period during which future
benefits are expected to be received.</p>
<u>

<p ALIGN="JUSTIFY">Translation of Foreign Currency</u></p>

<p ALIGN="JUSTIFY">PSI translates foreign currency financial statements of NRCJ in
accordance with SFAS 52, &quot;Foreign Currency Translation.&quot; Assets and liabilities
are translated at current exchange rates and related revenues and expenses are translated
at average exchange rates in effect during the period. Resulting translation adjustments
are recorded as a separate component in stockholders&#146; equity. Foreign currency
transaction gains and losses are included in determining net income.</p>
<u>

<p ALIGN="JUSTIFY">Stock-Based Compensation</u></p>

<p ALIGN="JUSTIFY">PSI uses the intrinsic value method of accounting for stock-based
compensation for employees in accordance with Accounting Principles Board Opinion
(&quot;APB&quot;) No. 25. See Note 6 for proforma disclosure of net income and earnings
per share under the fair value method of accounting for stock-based compensation as
proscribed by SFAS No. 123.</p>
<u>

<p ALIGN="JUSTIFY">Earnings Per Share</u></p>

<p ALIGN="JUSTIFY">SFAS No. 128, &quot;Earnings Per Share&quot; requires presentation of
basic earnings per share (&quot;Basic EPS&quot;) and diluted earnings per share
(&quot;Diluted EPS&quot;).</p>

<p ALIGN="JUSTIFY">Basic earnings per share is computed by dividing earnings available to
common stockholders by the weighted average number of outstanding common shares during the
period. Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on losses.</p>

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

<p ALIGN="CENTER">- F10 -</p>

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)</p>
<u>

<p ALIGN="JUSTIFY">Investment in Equity Securities</u></p>

<p ALIGN="JUSTIFY">PSI accounts for its investments in equity securities under the
provisions of SFAS No. 115, &quot;Accounting for Certain Investments in Debt and Equity
Securities&quot;. This standard provides that available-for-sale investments in securities
that have readily determinable fair values be measured at fair value in the balance sheet
and that unrealized holding gains and losses for these investments be reported in a
separate component of stockholders&#146; equity until realized.</p>

<p ALIGN="JUSTIFY">NOTE 2 - INVESTMENT IN EQUITY SECURITIES</p>

<p ALIGN="JUSTIFY">During 2001, PSI recognized losses as follows:</p>
<div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="426">
  <tr>
    <td WIDTH="73%" VALIGN="TOP"><p ALIGN="JUSTIFY">Proceeds from sale</td>
    <td WIDTH="27%" VALIGN="TOP"><p ALIGN="RIGHT">$ 302,856</td>
  </tr>
  <tr>
    <td WIDTH="73%" VALIGN="TOP"><p ALIGN="JUSTIFY">Cost</td>
    <td WIDTH="27%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 1,518,225</u></td>
  </tr>
  <tr>
    <td WIDTH="73%" VALIGN="TOP"><p ALIGN="JUSTIFY">Realized loss</td>
    <td WIDTH="27%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ ( 1,215,369</u>)</td>
  </tr>
</table>
</center></div>

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

<p ALIGN="JUSTIFY">The Company uses the average cost method in computing realized gains
and losses. </p>

<p ALIGN="JUSTIFY">NOTE 3 - PROPERTY AND EQUIPMENT</p>

<p ALIGN="JUSTIFY">Property and equipment consisted of the following:</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="546">
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="36%" VALIGN="TOP" COLSPAN="2"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Furniture, fixtures and equipment</td>
    <td WIDTH="19%" VALIGN="TOP"><p ALIGN="RIGHT">$ 22,227</td>
    <td WIDTH="18%" VALIGN="TOP"><p ALIGN="RIGHT">$ 31,431</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Computer software</td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    0</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="RIGHT">25,000</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"><p ALIGN="RIGHT">22,227</td>
    <td WIDTH="18%" VALIGN="TOP"><p ALIGN="RIGHT">56,431</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Less: accumulated depreciation and
    amortization</td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp; 17,985</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="RIGHT">50,584</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Fixed assets &#150; net</td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 4,242</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="RIGHT">$ 5,847</u></td>
  </tr>
</table>

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

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

<p ALIGN="JUSTIFY">NOTE 4 - COMMITMENTS AND CONTINGENCIES</p>

<p ALIGN="JUSTIFY">PSI occupies facilities in Japan on a month-to-month basis with a
monthly rent of approximately $2,000. Rent expense included in the statement of operations
totaled $17,040 and $21,260 in 2002 and 2001, respectively.</p>

<p ALIGN="JUSTIFY">NOTE 5 - CAPITAL STOCK</p>

<p ALIGN="JUSTIFY">PSI is authorized to issue 10,000,000 shares of Preferred Stock, par
value $.01. Preferred shares may be issued from time to time in one or more series. The
number of shares in each series and the designation of each series to be issued shall be
determined from time to time by the board of directors of PSI.</p>

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

<p ALIGN="center">- F11 -</p>

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 5 &#150; CAPITAL STOCK (Continued)</p>

<p ALIGN="JUSTIFY">In March 2000, Alera completed a private placement of 140,000 shares of
its Series A redeemable convertible preferred stock for net proceeds of $350,000. On
August 17, 2000, an additional 20,000 shares were issued for net proceeds of $50,000. The
preferred shares carry a 5% dividend payable semi-annually in common shares of Alera
valued at $2.50 per share.</p>

<p ALIGN="JUSTIFY">The preferred shares were converted into 400,000 shares of the
Company&#146;s common stock during 2001 at a conversion value of $1.00 per share.</p>

<p ALIGN="JUSTIFY">NOTE 6 - STOCK-BASED COMPENSATION</p>

<p ALIGN="JUSTIFY">On April 17, 1998, PSI adopted the 1998 Equity Incentive Program (the
&quot;Plan&quot;). The Plan provides for granting of the following Stock Awards: (i)
Incentive Stock Options, (ii) Non-Statutory Stock Options, (iii) Stock Appreciation
Rights, (iv) Stock Bonuses, and (v) Rights to acquire Restricted Stock. Persons eligible
to receive Stock Awards are the employees, directors and consultants of the Company and
its Affiliates, as defined. Incentive Stock Options may be granted only to employees.
Stock awards other than Incentive Stock Options may be granted to all eligible persons.</p>

<p ALIGN="JUSTIFY">The maximum term of any options granted is ten years. Vesting
requirements may vary, and will be determined by the board of directors.</p>

<p ALIGN="JUSTIFY">The number of shares reserved for issuance under the Plan is 451,740
shares.</p>

<p ALIGN="JUSTIFY">In 1998, PSI granted certain non-statutory options to purchase shares
of common stock to two employees. Each option is for 70,000 shares at an exercise price of
$1.25 per share. The options vested in 1999 and expire December 31, 2003.</p>

<p ALIGN="JUSTIFY">In 1999, PSI granted certain non-statutory options to purchase shares
of common stock to three directors. Each option is for 15,000 shares at an exercise price
of $5.00 per share, vested immediately, and expire in 2003.</p>

<p ALIGN="JUSTIFY">On May 1, 1999, PSI granted stock options to certain employees, for
283,000 shares. The options are exercisable for five years at a price of $5.00 per share
for 253,000 shares and $5.50 per share for 30,000 shares. The options are fully vested.</p>

<p ALIGN="JUSTIFY">On December 1, 1999, PSI&#146;s president and chief financial officer
was granted options to purchase 300,000 shares of common stock of the Company at an
exercise price of $5.75 per share. These options expire on November 30, 2004. On October
5, 2000, these options were cancelled and 75,000 options were issued to the same
individual. The options provide for an exercise price of $2.50 and expire on October 4,
2004.</p>

<p ALIGN="CENTER">- F12 -</p>

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 6 &#150; STOCK BASED COMPENSATION (Continued)</p>

<p ALIGN="JUSTIFY">On April 19, 2000, PSI issued 87,000 options with an exercise price of
$3.13 per share. The market price of the stock on the date of issuance was $3.69. Deferred
compensation expense related to these options at the date of grant was $48,720. At
December 31, 2000, 69,500 of these options had been cancelled. Deferred compensation
relation to these options at December 31, 2000 was $7,350.</p>

<p ALIGN="JUSTIFY">Alera, issued employees 520,000 options to acquire Alera common stock
with an exercise price of $2.50 per share. The options expire in three years. The fair
value of these options, using the Black Sholes option pricing model with a risk-free
interest rate of 5.5%, a life of 3 years, volatility of 0% and a dividend rate of 0%, is
$195,280. This amount has been included in the proforma net loss presented below.</p>

<p ALIGN="JUSTIFY">During 2001, PSI effectively cancelled all of its outstanding options
by modifying the terms and issuing warrants, since the option holders are no longer
employees of PSI (see Note 7 &#150; Warrants).</p>

<p ALIGN="JUSTIFY">Plan and non-plan stock option activity is summarized as follows:</p>

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

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="546">
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="36%" VALIGN="TOP" COLSPAN="2"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Outstanding at beginning of period</td>
    <td WIDTH="19%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="18%" VALIGN="TOP"><p ALIGN="RIGHT">320,000</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Options cancelled</td>
    <td WIDTH="19%" VALIGN="TOP"><p ALIGN="RIGHT">-</td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="RIGHT">(320,000)</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Outstanding at end of period</td>
    <td WIDTH="19%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="18%" VALIGN="TOP"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP"><p ALIGN="JUSTIFY">Weighted average exercise price of</p>
    <p ALIGN="JUSTIFY">options outstanding:</p>
    <p ALIGN="JUSTIFY">January 1</td>
    <td WIDTH="19%" VALIGN="BOTTOM"><p ALIGN="RIGHT">-</td>
    <td WIDTH="18%" VALIGN="BOTTOM"><p ALIGN="RIGHT">$ 2.86</td>
  </tr>
</table>

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

<p ALIGN="JUSTIFY">&nbsp;PSI&#146;s proforma net loss per share assuming compensation cost
was determined under SFAS No. 123 would have been the following:</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="564">
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"></td>
    <td WIDTH="38%" VALIGN="TOP" COLSPAN="2" HEIGHT="21"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net loss from continuing
    operations</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="21"><p ALIGN="RIGHT">$ (37,093)</td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="21"><p ALIGN="RIGHT">$(1,285,598)</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net income (loss) from
    discontinued operations</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">( 21,356)</u></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net loss</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">$ (37,093)</u></td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">$(1,306,954)</u></td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net loss per share &#150;
    continuing operations</td>
    <td WIDTH="18%" VALIGN="BOTTOM" HEIGHT="21"><p ALIGN="RIGHT">$ ( 0.01 )</td>
    <td WIDTH="20%" VALIGN="BOTTOM" HEIGHT="21"><p ALIGN="RIGHT">$ ( 0.27)</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net loss per share &#150;
    discontinued operations</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">&nbsp; ( 0.00</u>)</td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="21"><u><p ALIGN="RIGHT">&nbsp; ( 0.01</u>)</td>
  </tr>
  <tr>
    <td WIDTH="62%" VALIGN="TOP" HEIGHT="21"><p ALIGN="JUSTIFY">Net loss per share</td>
    <td WIDTH="18%" VALIGN="BOTTOM" HEIGHT="21"><u><p ALIGN="RIGHT">$ ( 0.01</u>)</td>
    <td WIDTH="20%" VALIGN="BOTTOM" HEIGHT="21"><u><p ALIGN="RIGHT">$ ( 0.28</u>)</td>
  </tr>
</table>

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

<p ALIGN="CENTER">- F13 -</p>

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 7 - WARRANTS</p>

<p ALIGN="JUSTIFY">In connection with its initial public offering in 1999, PSI issued
common stock purchase warrants. At December 31, 2001, 1,134,100 warrants were outstanding.
None were exercised during 2002. During 2001, PSI extended the life of the warrants to
November 30, 2002 and reduced the exercise price to $0.25 per share. The warrants expired
on November 30, 2002.</p>

<p ALIGN="JUSTIFY">On September 18, 2001 PSI issued 560,000 fully vested common stock
purchase warrants as compensation for services by professionals and consultants. The
warrants have an exercise price of $0.25 per share and expire September 18, 2006.</p>

<p ALIGN="JUSTIFY">PSI also canceled its outstanding employee options and other warrants,
and on September 18, 2001 issued 642,674 new fully vested warrants, with an exercise price
of $0.25 per share expiring on September 18, 2006.</p>

<p ALIGN="JUSTIFY">PSI valued the 1,202,674 warrants issued in 2001 using the Black Sholes
option pricing model with the following assumptions: interest rate of 4.5%, life of 5
years, volatility of 145% and expected dividend yield of -0-%. The per warrant fair value
is $0.10 and a total expense of $124,781 was recorded during 2001.</p>

<p ALIGN="JUSTIFY">Warrants to purchase 20,000 shares were issued on October 5, 2000 for
services. These warrants may be exercised at $2.50 per share until October 5, 2004. </p>

<p ALIGN="JUSTIFY">Warrants to purchase 1,180,000 shares were issued to professionals who
rendered consulting services in connection with PSI&#146;s restructuring. Each of these
warrants could be exercised at $5.75 per unit until November 2004. On October 5, 2000,
these warrants were canceled. PSI issued 220,000 repriced warrants at an exercise price of
$2.50, expiring on October 5, 2004. The fair value of the repriced options was less than
the remaining fair value of the original warrants on the date of repricing.</p>

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

<p ALIGN="JUSTIFY">NOTE 8 - RELATED PARTY TRANSACTIONS</p>

<p ALIGN="JUSTIFY">During 2001, a company controlled by the spouse of the principal
shareholder of PSI advanced $32,075 to PSI. The advances bear no interest and are due on
demand.</p>

<p ALIGN="JUSTIFY">One officer of PSI also manages the Company and receives management
fees. Management fee expense included in the statement of operations totaled $30,000 and
$15,000 in 2002 and 2001, respectively. </p>

<p ALIGN="JUSTIFY">PSI occupies facilities in California provided by one of the officers
of the Company at no charge. </p>

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

<p ALIGN="center">- F14 -</p>

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 9 - SEGMENT INFORMATION</p>

<p ALIGN="JUSTIFY">The Company&#146;s assets are located principally in Japan. All of the
Company&#146;s 2002 and 2001 sales were in Asia and Japan. </p>

<p ALIGN="JUSTIFY">NOTE 10 - INCOME TAXES </p>

<p ALIGN="JUSTIFY">There was no income tax provision in 2002 or 2001. </p>

<p ALIGN="JUSTIFY">The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="546">
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="36%" VALIGN="TOP" COLSPAN="2" HEIGHT="18"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Federal income tax rate</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><p ALIGN="CENTER">( 34.0)%</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><p ALIGN="CENTER">( 34.0)%</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Effect of valuation allowance</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">34.0</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">34.0</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Effective income tax rate</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">0.0 </u>%</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">0.0 </u>%</td>
  </tr>
</table>

<p ALIGN="JUSTIFY">At December 31, 2002, PSI had a net carryforward operating loss of
approximately $1,449,000. It also has a capital loss carryforward of approximately
$2,750,000 at December 31, 2002. A valuation allowance equal to the tax benefit for
deferred taxes was established due to the uncertainty of realizing the benefits of the tax
carryforward.</p>

<p ALIGN="JUSTIFY">Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant components
PSI&#146;s deferred tax assets (liabilities) are as follows:</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="546">
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="36%" VALIGN="TOP" COLSPAN="2" HEIGHT="18"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Non-current deferred tax
    assets (liabilities):</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Loss carryforwards</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><p ALIGN="RIGHT">$ 492,660</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><p ALIGN="RIGHT">$ 481,100</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Less: valuation allowance</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">( 492,660</u>)</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">(481,100</u>)</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Net deferred tax assets
    (liabilities)</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">$
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">$
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -</u></td>
  </tr>
</table>

<p ALIGN="JUSTIFY">The net operating loss carryforward expires in 2020.</p>

<p ALIGN="JUSTIFY">NOTE 11 - EARNINGS PER SHARE</p>

<p ALIGN="JUSTIFY">Securities that could potentially dilute basic earnings per share in
the future, were not included in the computation of diluted earnings per share because
their effect would have been antidilutive, are as follows:</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="546">
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="36%" VALIGN="TOP" COLSPAN="2" HEIGHT="18"><u><p ALIGN="CENTER">December 31,</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2002</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="CENTER">2001</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Warrants</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><p ALIGN="RIGHT">1,202,674</td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><p ALIGN="RIGHT">2,336,774</td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Options</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
  </tr>
  <tr>
    <td WIDTH="64%" VALIGN="TOP" HEIGHT="18"><p ALIGN="JUSTIFY">Total shares</td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">1,202,674</u></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="18"><u><p ALIGN="RIGHT">2,336,774</u></td>
  </tr>
</table>

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

<p ALIGN="center">&nbsp;- F15 -</p>

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

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

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

<p ALIGN="JUSTIFY">NOTE 12 - DISCONTINUED OPERATIONS</p>

<p ALIGN="JUSTIFY">On August 31, 2000, PSI and NETsilicon, Inc. (&quot;NSI&quot;) entered
into an agreement whereby PSI sold the assets of its PSI Softworks Technology subsidiary
(&quot;PSIT&quot;) to NSI. The assets primarily consisted of PSIT&#146;s Internet and Web
software. The purchase price for the assets was 90,000 shares of NSI&#146;s common stock,
valued at $2,328,750 (fair value on date of sale). In addition, NSI granted a
non-exclusive, royalty-free license for the acquired technology to PSI and its affiliates,
subject to certain limitations. NSI is expected to retain substantially all of PSIT&#146;s
personnel as part of a newly formed operating group. The operations sold are accounted for
as discontinued operations for financial reporting purposes. Revenue attributable to
discontinued operations was $21,356 in 2001. </p>

<p ALIGN="JUSTIFY">NOTE 13 - GOING CONCERN</p>

<p ALIGN="JUSTIFY">The accompanying financial statements were prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the PSI as a
going concern. However, PSI had net operating losses of $6,402,490 since inception and a
negative cash flow from operations. These factors raise substantial doubt about PSI&#146;s
ability to continue as a going concern. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon PSI&#146;s ability to raise sufficient capital to fund its
working capital requirements until the Company can generate sufficient sales volume to
cover its operating expenses. As of December 31, 2002, the Company is actively seeking a
reverse merger candidate.</p>

<p ALIGN="JUSTIFY">NOTE 14 - SUBSEQUENT EVENT AND PROFORMA DISCLOSURES </p>

<p ALIGN="JUSTIFY">NRCJ is a distributor for products supplied by NSI. Revenue from
licenses of the suite of Internet and Web products and sales of services accounted for
substantially all of its revenue in 2002 and 2001. In July 2002 NSI ceased producing
products used by NRCJ<b>. </b>During the remainder of 2002 the sales of licenses of the
subsidiary decreased to a point where operations became unprofitable. On January 31, 2003
the Company sold the operating assets and certain liabilities of the NRCJ distribution
business to Network Technology, Inc., a new company formed by the former employees of
NRCJ, for 1.0 million Japanese Yen (US $8,400). NRCJ will continue to receive royalty
income from former NRCJ customers. </p>

<p ALIGN="JUSTIFY">PSI&#146;s unaudited proforma financial statements are presented below
and reflect the December 31, 2002 consolidated balance sheet and the sale of NRCJ as if
the transaction occurred on December 31, 2002 and statement of operations as if NRCJ were
disposed of on January 1, 2002.</p>

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

<p ALIGN="CENTER">- F16 -</p>

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

<p ALIGN="JUSTIFY">PASW, INC. AND SUBSIDIARIES</p>

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

<p ALIGN="JUSTIFY">DECEMBER 31, 2002 AND 2001</p>

<p ALIGN="JUSTIFY">NOTE 14 &#150; SUBSEQUENT EVENT AND PROFORMA DISCLOSURES (Continued)</p>

<p><u>&nbsp;</p>

<p ALIGN="JUSTIFY">Unaudited Proforma Consolidated Balance Sheet</u></p>

<p ALIGN="JUSTIFY">December 31, 2002</p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="577">
  <tr>
    <td WIDTH="36%" VALIGN="TOP"></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">As Reported</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">Adjustments</u></font></td>
    <td WIDTH="7%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="CENTER">Proforma</u></font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Current Assets</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 131,743</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ (32,842)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(a)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 107,301</font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"></td>
    <td WIDTH="21%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">8,400</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(c)</font></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="JUSTIFY">Prop &amp;
    Equip, Net</font></td>
    <td WIDTH="21%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="RIGHT">4,242</font></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="RIGHT">( 4,242)</font></td>
    <td WIDTH="7%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="JUSTIFY">(a)</font></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="RIGHT">-</font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Other Asset</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;
    6,116</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp; (
    6,116)</u></font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(a)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Total</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ 142,101</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ ( 34,800</u>)</font></td>
    <td WIDTH="7%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ 107,301</u></font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"></td>
    <td WIDTH="21%" VALIGN="TOP"></td>
    <td WIDTH="19%" VALIGN="TOP"></td>
    <td WIDTH="7%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Current Liabilities</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 140,934</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ (28,647)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(a)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 112,287</font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Stockholders&#146; Equity</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">1,167</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">(14,553)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(c)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">(4,986)</font></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"></td>
    <td WIDTH="21%" VALIGN="TOP"><u><font SIZE="3"><p ALIGN="RIGHT"></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">8,400</u></font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(c)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><u><font SIZE="3"><p ALIGN="RIGHT"></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
  </tr>
  <tr>
    <td WIDTH="36%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Total</font></td>
    <td WIDTH="21%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ 142,101</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ ( 34,800</u>)</font></td>
    <td WIDTH="7%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">$ 107,301</u></font></td>
  </tr>
</table>

<p ALIGN="JUSTIFY">Unaudited Proforma Consolidated Operations Statement</p>
<u>

<p ALIGN="JUSTIFY">December 31, 2002</p>
</u>

<table CELLSPACING="0" BORDER="0" CELLPADDING="7" WIDTH="577">
  <tr>
    <td WIDTH="37%" VALIGN="TOP"></td>
    <td WIDTH="20%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">As Reported</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">Adjustments</u></font></td>
    <td WIDTH="7%" VALIGN="TOP"></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="JUSTIFY">Proforma</u></font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Revenues</font></td>
    <td WIDTH="20%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 413,639</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ ( 289,033)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">$ 124,606</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Cost of Revenues</font></td>
    <td WIDTH="20%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">149,533</u></font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">( 146,060</u>)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><u><p ALIGN="RIGHT">3,473</u></font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Gross Profit </font></td>
    <td WIDTH="20%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">264,106</font></td>
    <td WIDTH="19%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">( 142,973)</font></td>
    <td WIDTH="7%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="TOP"><font SIZE="3"><p ALIGN="RIGHT">121,133</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="JUSTIFY">Operating
    Expenses</font></td>
    <td WIDTH="20%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><u><p ALIGN="RIGHT">304,157</u></font></td>
    <td WIDTH="19%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><u><p ALIGN="RIGHT">( 224,090</u>)</font></td>
    <td WIDTH="7%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="TOP" HEIGHT="6"><font SIZE="3"><u><p ALIGN="RIGHT">80,067</u></font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Income (Loss) from </p>
    <p ALIGN="JUSTIFY">Operations</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">( 40,051)</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">81,117</font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">41,066</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Other Income</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp; &nbsp;
    2,958</u></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">&nbsp;&nbsp; 2,958</u></font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Income (Loss) from </p>
    <p ALIGN="JUSTIFY">Continuing Operations</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">(37,093)</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">81,117</font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">44,024</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Discontinued Operations:</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"></td>
    <td WIDTH="19%" VALIGN="BOTTOM"></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Income (Loss) from
    Operations</p>
    <p ALIGN="JUSTIFY">of Discontinued Division</p>
    <p ALIGN="JUSTIFY">NRCJ (less applicable</p>
    <p ALIGN="JUSTIFY">Income taxes of $0) </font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">-</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">( 81,117)</font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="JUSTIFY">(b)</font></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="RIGHT">( 81,117)</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Loss on Disposal of
    Division</p>
    <p ALIGN="JUSTIFY">NRCJ (less applicable</p>
    <p ALIGN="JUSTIFY">Income taxes of $0) </font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><u><font SIZE="3"><p ALIGN="RIGHT"></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    -</u></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">( 6,153</u>)</font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"><font SIZE="3"><p ALIGN="JUSTIFY">(c)</font></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">( 6,153</u>)</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Net Income (Loss)</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ ( 37,093</u>)</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ ( 6,153</u>)</font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ ( 43,246</u>)</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"></td>
    <td WIDTH="20%" VALIGN="BOTTOM"></td>
    <td WIDTH="19%" VALIGN="BOTTOM"></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Income (Loss) per Share</p>
    <p ALIGN="JUSTIFY">from Continuing Operations</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ (.01</u>)</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ Nil</u></font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ .01</u></font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"></td>
    <td WIDTH="20%" VALIGN="BOTTOM"></td>
    <td WIDTH="19%" VALIGN="BOTTOM"></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Income (Loss) per Share</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ (.01</u>)</font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ Nil</u></font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">$ (.01</u>)</font></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"></td>
    <td WIDTH="20%" VALIGN="BOTTOM"></td>
    <td WIDTH="19%" VALIGN="BOTTOM"></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"></td>
  </tr>
  <tr>
    <td WIDTH="37%" VALIGN="TOP"><font SIZE="3"><p ALIGN="JUSTIFY">Number of Shares</p>
    <p ALIGN="JUSTIFY">Used in EPS</font></td>
    <td WIDTH="20%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">4,997,400</u></font></td>
    <td WIDTH="19%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">4,997,400</u></font></td>
    <td WIDTH="7%" VALIGN="BOTTOM"></td>
    <td WIDTH="18%" VALIGN="BOTTOM"><font SIZE="3"><u><p ALIGN="RIGHT">4,997,400</u></font></td>
  </tr>
  <tr>
    <td VALIGN="TOP" COLSPAN="5"><font SIZE="3"><p ALIGN="JUSTIFY">(a) Elimination of NRCJ
    assets and liabilities.</p>
    <p ALIGN="JUSTIFY">(b) Elimination of NRCJ sales and related costs.</p>
    <p ALIGN="JUSTIFY">(c) Loss on sale of NRCJ.</font></td>
  </tr>
</table>

<p><u>&nbsp;</p>

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

<p ALIGN="CENTER">- F17 -</p>

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

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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>exhibit211.htm
<TEXT>
<html>

<head>
<title></title>
</head>

<body>

<p ALIGN="left">EXHIBIT 21.1</p>

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

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

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

<blockquote>
  <blockquote>
    <blockquote>
      <p>(1) Network Research Corp. Japan, Ltd.</p>
      <p>(2) Alera Systems, Inc. (formerly iApplianceNet.com), a California Corporation</p>
      <p>(3) Pacific Acquisition Corporation, a California Corporation and</p>
      <p>(4) PASW Europe Limited, a United Kingdom Corporation</p>
      <p>&nbsp;</p>
    </blockquote>
  </blockquote>
</blockquote>
</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.17 (AS APPROP)
<SEQUENCE>4
<FILENAME>certifications1.htm
<TEXT>
<html>

<head>
<title></title>
</head>

<body>

<p>EXHIBIT 99.1 </p>

<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <blockquote>
          <blockquote>
            <font SIZE="3"><p>&nbsp;</p>
            <p>&nbsp;</p>
            <font face="Times New Roman"><p align="center">CERTIFICATION PURSUANT TO </font></p>
            <p align="center"><font face="Times New Roman">18 U.S.C. SECTION 1350, AS ADOPTED</font></p>
            <p align="center"><font face="Times New Roman">PURSUANT TO SECTION 906</font></p>
            <p align="center"><font face="Times New Roman">OF THE SARBANES-OXLEY ACT OF 2002</font></p>
          </blockquote>
        </blockquote>
      </blockquote>
    </blockquote>
  </blockquote>
</blockquote>

<p>The undersigned, in his capacity as the Chief Executive Officer, Director and Chairman
of the Board of PASW, Inc., provides the following certifications required by 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and 17
C.F.R. section 240.13a-14. </p>

<p>Certification of Chairman: </p>

<p>I, Glenn P. Russell, Chief Executive Officer, Director and Chairman of the Board of
PASW, Inc., certify that: </font></p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="1" WIDTH="582">
  <tr>
    <td VALIGN="MIDDLE"><font SIZE="3">1. &nbsp;&nbsp; I have reviewed this annual report on
    Form&nbsp;10-K of PASW, Inc.; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <p>2.
    &nbsp;&nbsp; Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual report; and
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
    <p>3. &nbsp;&nbsp; Based on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the registrant as of, and
    for, the periods presented in this annual report. </font></td>
  </tr>
  <tr>
    <td VALIGN="MIDDLE"></td>
  </tr>
</table>

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

<p>Date: March&nbsp;31, 2003 </font></p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="1" WIDTH="582">
  <tr>
    <td VALIGN="MIDDLE"><font SIZE="3">/s/ GLENN P. RUSSELL <p>Glenn P. Russell Chief
    Executive Officer, Director and Chairman of the Board </font></td>
  </tr>
</table>
</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.17 (AS APPROP)
<SEQUENCE>5
<FILENAME>certification2.htm
<TEXT>
<html>

<head>
<title>CERTIFICATION PURSUANT TO</title>
</head>

<body>
<font SIZE="3">

<p></font>EXHIBIT 99.2<font SIZE="3"><font face="Times New Roman"></p>

<p align="center">CERTIFICATION PURSUANT TO </font></p>

<p align="center"><font face="Times New Roman">18 U.S.C. SECTION 1350, AS ADOPTED</font></p>

<p align="center"><font face="Times New Roman">PURSUANT TO SECTION 906</font></p>

<p align="center"><font face="Times New Roman">OF THE SARBANES-OXLEY ACT OF 2002</font></p>

<p>&nbsp;</p>

<p>I, William E. Sliney, President, Chief Financial Officer and Director of PASWS, Inc.,
certify that: </font></p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="1" WIDTH="582">
  <tr>
    <td VALIGN="MIDDLE"><font SIZE="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.
    &nbsp;&nbsp; I have reviewed this annual report on Form&nbsp;10-K of PASWS, Inc.;
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<p>2. Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by this annual
    report; and &nbsp;&nbsp;&nbsp;</p>
    <p>&nbsp;&nbsp;&nbsp;&nbsp; 3. &nbsp;&nbsp; Based on my knowledge, the financial
    statements, and other financial information included in this annual report, fairly present
    in all material respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the periods presented in this annual report. </font></td>
  </tr>
  <tr>
    <td VALIGN="MIDDLE"></td>
  </tr>
  <tr>
    <td VALIGN="MIDDLE"></td>
  </tr>
</table>

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

<p>Date: March&nbsp;31, 2003 </font></p>

<table CELLSPACING="0" BORDER="0" CELLPADDING="1" WIDTH="582">
  <tr>
    <td VALIGN="MIDDLE"><font SIZE="3">/s/ WILLIAM E. SLINEY <p>William E. Sliney President,
    Chief Financial Officer and Director </font></td>
  </tr>
</table>
</body>
</html>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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