Ariel Way 10QSB 2008 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended December 31, 2007


	ARIEL WAY, INC.
	(Exact name of registrant as specified in charter)

FLORIDA

0-50051

65-0983277

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS Employer

Identification No.)


	8000 TOWERS CRESCENT DRIVE SUITE 1220, VIENNA, VA 22182
	(Address of principal executive offices)


	(703) 918-2420
	(Registrant’s Telephone Number, including Area Code)

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. YesxNoo

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

Ariel Way’s revenue for its most recent fiscal year ending September 30, 2007 was $922,221. For the three month period ended December 31, 2007 the revenue was -$0- with a net loss of $116,707.

As of February 15, 2008, the aggregate market value of the shares of common stock held by non-affiliates (based on the closing price of $0.006 for the common stock as quoted on that date) was approximately $1,313,000.

As of February 18, 2008, the Company had 595,000,000 shares of its common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS


		PAGE
PART I

ITEM 1	FINANCIAL STATEMENTS	F-1

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F-5

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS	2

ITEM 3	CONTROLS AND PROCEDURES	18

PART II

ITEM 1	LEGAL PROCEEDINGS	19

ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	19

ITEM 3	DEFAULTS UPON SENIOR SECURITIES	20

ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20

ITEM 5	OTHER INFORMATION	20

ITEM 6	EXHIBITS AND REPORTS ON FORM 8-K	20

SIGNATURES

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ARIEL WAY, INC. AND SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

(UNAUDITED)


Condensed Consolidated Financial Statements:

Balance Sheet as of December 31, 2007 (Unaudited)	F-2

Statements of Operations for the Three Months
Ended December 31, 2007 and 2006 (Unaudited)	F-3

Statements of Cash Flow for the Three Months
Ended December 31, 2007 and 2006 (Unaudited)	F-4

Notes to Condensed Consolidated Financial Statements
(Unaudited)	F-5

F-1

ARIEL WAY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2007

(UNAUDITED)


	December 31, 2007
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	-
Account receivable, net			-
Prepaid expenses and other current assets			4,392
Total current assets			4,392

PROPERTY AND EQUIPMENT - NET			4,014
Total other assets			-
TOTAL ASSETS		$	8,406
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	1,672,587
Other liabilities			304,577
Promissory notes			101,162
Total current liabilities			2,078,326
Total liabilities			2,078,326
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
143 shares issued and outstanding			-
Series A Convertible Preferred stock, $0.001 par value
165 shares authorized, 143 issued and outstanding			-
Common stock, $.001 par value; 595,000,000 shares authorized;
595,000,000 shares issued and outstanding			595,000
Additional paid-in capital			2,619,321
Accumulated deficit			(5,284,242)
Total stockholders' equity (deficit)			(2,069,921)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	8,406

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-2

ARIEL WAY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006

(UNAUDITED)


	THREE MONTHS ENDED
	December 31,		December 31,
	2007		2006
REVENUES		-	$	410,391
COST OF REVENUES		-		328,853
GROSS PROFIT		-		81,538
OPERATING EXPENSES
Professional fees		112,099		190,735
Salaries		-		34,086
Bank service charges and other		8		806
Travel and entertainment		-		2,093
Marketing		2,470		-
Insurance		-		2,769
Payroll taxes and expenses		-		1,158
Telephone		-		2,442
Depreciation and Amortization		-		4,233
Office supplies		-		325
Rent		-		14,437
Miscellaneous		-		2
Dues and subscriptions		-		1,917
Postage and delivery		-		615
Printing		139		2,086
Bad debt expense		-		(21,461)
Other		10		7,223
Total Operating Expenses		114,727		243,468
NET INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE)		(114,727)		(161,930)
OTHER INCOME (EXPENSE)
Interest income		-		137
Interest expense		(1,980)		(1,935)
Total Other Income (Expense)		(1,980)		(1,798)
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		(116.707)		(163,728)
Provision for income taxes		-		-
NET INCOME (LOSS) PER APPLICABLE TO COMMON SHARES	$	(116,707)	$	(163,728)
NET INCOME (LOSS) PER BASIC AND DILUTED SHARES	$	0.00	$	(0.00)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		363,474,330		38,881,298

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-3

ARIEL WAY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006

(UNAUDITED)


	THREE MONTHS ENDED
	December 31,		December 31,
	2007		2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(116,707)	$	(385,160)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization		-		41,941
Minority interest		-		(110,058)
Changes in assets and liabilities:
(Increase) in accounts receivable		-		(796,798)
Decrease (increase) in prepaid expenses		(21)		(17,632)
Increase in accounts payable and accrued expenses		(437,389)		539,813
Increase in deferred revenue		-		688,916
Total adjustments		(437,410)		346,182
Net cash provided by (used in) operating activities		(554,117)		(38,978)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		-		(40,475)
Net cash provided by (used in) investing activities		-		(40,475)
CASH FLOWS FROM FINANCING ACTIVITIES
(Advances) to related party		-		3,999
Issuance of common stock for settlement of liabilities		-		3,000
Proceeds from long-term debt, net		554,117		-
Net cash provided by (used in) financing activities		554,117		6,999
DECREASE IN CASH AND CASH EQUIVALENTS		-		(72,454)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		-		122,640
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	-	$	50,186

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-4

ARIEL WAY, INC., AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION

Ariel Way, Inc., a Florida corporation (“Ariel Way” or the “Company”), is a technology and services company for highly secure global communications, multimedia and digital signage solutions and technologies. The Company is focused on developing innovative and secure technologies, acquiring and growing profitable advanced technology companies and global communications service providers and creating strategic alliances with companies in complementary product lines and service industries.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash or cash equivalents.

The Company does not maintain cash and cash equivalents with a financial institution that exceeds the limit of insurability under the Federal Deposit Insurance Corporation.

Revenue Recognition

The Company records its transactions under the accrual method of accounting where income is recognized when the services are rendered.

Fixed Assets

Furniture and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The costs associated with normal maintenance, repair, and refurbishment of equipment are charged to expense as incurred. The capitalized cost of equipment under capital leases is amortized over the lesser of the lease term or the asset’s estimated useful life, and is included in depreciation and amortization expense in the consolidated statements of operations.

When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized as income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deductions are made for retirements resulting from renewals or betterments.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

F-5

Impairment of Long-Lived Assets

The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

The company has determined that the value of the remaining fixed assets in the UK and of dbsXmedia in the US are worthless and have been written off in 2007.

Property and Equipment

Property and equipment are stated at cost and depreciated using straight-line and accelerated methods over the following estimated useful lives of the assets:


Computer equipment	3 - 5 years
Automobile	3 - 5 years
Equipment	5 - 7 years

Differences between the straight-line method of depreciation and the tax-accelerated method of depreciation are immaterial.

Goodwill and Other Intangible Assets

In June 2001, the FASB issued Statement No. 142, “Goodwill and Other Intangible Asset”. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements.

Income Taxes

The Company has adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. The Statement requires an asset and liability approach for financial accounting and reporting of income taxes, and the recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting bases and tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

Use of Estimates

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

F-6

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections, which replaces APB Opinion No. 20,Accounting Changes, and FASB Statement No.3,Reporting Accounting Changes in Interim Financial Statements. This Statement replaces APB Opinion No. 20,Accounting Changes,and FASB Statement No. 3,Reporting Accounting Changes in Interim Financial Statements,and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operati ons or cash flows.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

Marketing and Advertising Costs

The Company expenses the costs associated with marketing and advertising as incurred. Marketing, advertising and promotional expenses were approximately $2,470 and -$0- for the three months period ended December 31, 2007 and 2006, respectively.

Accounts Receivable

The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.

Accounts receivable are generally due within 30 days and collateral is not required. The Company has made no allowance for doubtful accounts as of December 31, 2007.

Policy for Charging Bad Debt

The allowance for doubtful accounts is our estimate of the credit losses related to impaired receivables at the date of the financial statements. This allowance is based on factors including the credit quality of our customers and general economic measures. Additions to the allowance for doubtful accounts are made by recording charges to the bad debt expense account on our statement of income. Accounts receivable balances are charged to the allowance for doubtful accounts when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower, and other factors. Recoveries on accounts receivable balances previously charged off as uncollectible are credited to the allowance for doubtful accounts.

Deferred Financing Fees

On September 30, 2004, Old Ariel Way entered into a 2004 Standby Equity Distribution Agreement with Yorkville Advisors Global Investments, LP (“Yorkville Advisors”, f/k/a Cornell Capital Partners, LLP). This agreement was terminated on July 20, 2005 and the Company entered into a new 2005 Standby Equity Distribution Agreement with Yorkville Advisors on July 21, 2005. In connection with the 2004 Standby Equity Distribution Agreement, Yorkville Advisors received a commitment fee in the form of 1,980,000 shares of Old Ariel Way common stock that were converted into an aggregate of 3,318,876 shares of our common stock as a result of our acquisition of Old Ariel Way on February 2, 2005. These shares were issued as payment for financing fees to Yorkville Advisors for issuing the 2004 Standby Equity Distribution Agreement and was valued at $1,128,600. The 2005 Standby Equity Distribution Agreement runs for a period of 24 months. The 2005 Standby Equity Distribution Agreement was term inated on February 28, 2006 pursuant to an Investment Agreement by and between the Company and Yorkville Advisors and Montgomery Equity Partners, Ltd (“Montgomery Equity”) for the purchase of one hundred sixty (160) Series A Preferred Shares. The prior agreement was terminated and the financing fee was written off against Additional Paid-In Capital. All deferred financing fees were expensed in the year ended September 30, 2006.

F-7

Stock-Based Compensation

Prior to the January 1, 2006 adoption of the Financial Accounting Standards Board ("FASB") Statement No. 123(R), "Share-Based Payment" ("SFAS 123R"), the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), stock-based compensation was included as a pro forma disclosure.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method. Under this transition method, stock-based compensation expense is recognized in the consolidated financial statements for granted, modified, or settled stock options. Compensation expense recognized included the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Results for prior periods have not been restated, as provided for under the modified-prospective method.

The Company measures compensation expense for its non-employee stock-based compensation under the FASB Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

For the three month period ended December 31, 2007 there were no stock options and warrants that were isssued or that vested and no compensation costs were recorded related to issuance of or vested stock options and warrants.

Earnings (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.

The following is a reconciliation of the computation for basic and diluted EPS:


	December 31,
	2007		2006
Net income (loss)	$	(116,707)	$	(163,301)

Weighted-average common shares
Outstanding (Basic)		363,474,330		38,881,298

Weighted-average common stock
Equivalents
Stock options		-		-
Warrants		-		-

Weighted-average common shares
Outstanding (Diluted)		363,474,330		38,881,298

Options and warrants outstanding to purchase stock were not included in the computation of diluted EPS for December 31, 2007 and 2006 because inclusion would have been antidilutive.

F-8

Currency Risk and Foreign Currency Translation

The Company transacts business in currencies other than the U.S. Dollar, primarily the British Sterling Pound and the Euro Dollar. All currency transactions are undertaken in the spot foreign exchange market and the Company does not use currency forward contracts, currency options, currency borrowings interest rate swaps or any other derivative hedging strategy at this point in time. Foreign currency translation losses were immaterial during the three month period ended December 31, 2007.

NOTE 3- EQUIPMENT

Property and equipment at December 31, 2007 is as follows:


		December 31, 2007
Equipment	$	65,823
Computers		8,116
Less: accumulated depreciation		(69,925)
Net equipment	$	4,014

Depreciation expense for the three month period ended December 31, 2007 and 2006 was -$0- and $4,233, respectively.

NOTE 4- DEBENTURE PAYABLE

The Company on September 30, 2004, issued a secured debenture to Yorkville Advisors, whereas the Company would receive $500,000, with a promise to pay to Yorkville Advisors the principal sum of $500,000 together with interest on the unpaid principal of this debenture at the rate of 5% per year from the date of the debenture until paid. The secured debenture was due on September 29, 2006 and was secured by the Company’s stock. The $500,000 secured debenture was on February 28, 2006 converted pursuant to an Investment Agreement by and between the Company and Yorkville Advisors and Montgomery Equity to part of one hundred sixty (160) Series A Preferred Shares.

NOTE 5- PROMISSORY NOTES

The Company on February 2, 2005, borrowed $400,000 from Yorkville Advisors whereas the Company received the $400,000, with a promise to pay to Yorkville Advisors principal sum of $400,000 together with interest on the unpaid principal at the rate of 12% per annum and was due and payable on May 31, 2005 with an extension to February 28, 2006 and was secured by the Company’s stock. The $400,000 loan was on February 28, 2006 converted pursuant to an Investment Agreement by and between the Company and Yorkville Advisors and Montgomery Equity to part of one hundred sixty (160) Series A Preferred Shares.

The Company on July 28, 2005, borrowed $600,000 from Montgomery Equity whereas the Company received the $600,000, with a promise to pay to Montgomery Equity the principal sum of $600,000 together with interest on the unpaid principal at the rate of 12% per annum and was due and payable on February 28, 2006 and was secured by the Company’s stock. The $600,000 loan was on February 28, 2006 converted pursuant to an Investment Agreement by and between the Company and Yorkville Advisors and Montgomery Equity to part of one hundred sixty (160) Series A Preferred Shares.

F-9

In May 2005 the Company executed a promissory note in favor of a shareholder in the amount of $70,000 with interest at 12% due on May 17, 2006. The loan was not paid when due and is in default. The Company has received a waiver from the shareholder regarding the default interest rate of the loan. The balance of the note as of November 21, 2007 was $70,786 consisting of principal and unpaid interest. On November 21, 2007, this Note was converted into shares of the Company’s common stock. In December 2007 the Company executed another promissory note in favor of the same shareholder in the amount of $35,000 with interest at 12% due on December 21, 2008.

In September, 2005 the Company executed a promissory note in favor of the Company’s Chief Executive Officer in the amount of $42,450 with 5% interest due and payable monthly in arrears, commencing on September 26, 2006 and shall continue on the first day of each calendar month thereafter that any amounts under this Debenture are due and payable. Principal shall be due and payable in 6 equal installments of $7,041.74 each. The installments of principal shall be due and payable commencing on October 1, 2006 and subsequent installments shall be due and payable on the first day of each calendar month thereafter until the outstanding principal balance is paid in full. The loan was not paid when due and is in default. The balance of the note as of November 21, 2007 was $10,863 consisting of principal and unpaid interest. On November 21, 2007, this Note was converted into shares of the Company’s common stock. In December, 2007 the Company executed a new promissory note in favor of th e Company’s Chief Executive Officer in the amount of $3,137 with 12% interest due and payable on December 21, 2008.

The Company on June 13, 2007, borrowed $57,000 from Yorkville Advisors whereas the Company promised to pay to Yorkville Advisors the principal sum of $57,000 together with interest on the unpaid principal at the rate of 11% per annum and was due and payable on June 13, 2008 to pay in full the settlement payment to Loral Skynet pursuant to the Settlement Agreement and General Release dated June 1, 2007.

The Company on August 9, 2007, borrowed $15,000 from Yorkville Advisors whereas the Company promised to pay to Yorkville Advisors the principal sum of $15,000 together with interest on the unpaid principal at the rate of 11% per annum and was due and payable on August 9, 2008.

NOTE 6- COMMITMENTS AND CONTINGENCIES

Commitments

On September 30, 2004, Old Ariel Way entered into a $50 million 2004 Standby Equity Distribution Agreement with Yorkville Advisors. This agreement was terminated on July 20, 2005 and the Company entered into a new 2005 Standby Equity Distribution Agreement with Yorkville Advisors on July 21, 2005. The 2005 Standby Equity Distribution Agreement provides, generally, that Yorkville Advisors will purchase up to $50 million of common stock over a two-year period, with the time and amount of such purchases, if any, at the Company’s discretion. Yorkville Advisors will purchase the shares at a 4% discount to the prevailing market price of the common stock. There are certain conditions applicable to the Company’s ability to draw down on the 2005 Standby Equity Distribution Agreement including the filing and effectiveness of a registration statement covering the resale of all shares of common stock that may be issued to Yorkville Advisors under the 2005 Standby Equity Distribution Agreement and the Company’s adherence with certain covenants. The registration statement has not yet become effective. In the year ended September 30, 2006, the Company has not drawn down any funds under the 2005 Standby Equity Distribution Agreement from Yorkville Advisors. The 2005 Standby Equity Distribution Agreement was terminated on February 28, 2006 pursuant to an Investment Agreement by and between the Company and Yorkville Advisors and Montgomery Equity for the purchase of one hundred sixty (160) Series A Preferred Shares.

Operating Lease

The Company has maintained an office in McLean, Virginia, under a month to month lease obligation basis as a sub-lease. The Company is seeking an alternative location in the same building, since the lease for the sub-lessor has expired.

Total rent expense during the three month period ended December 31, 2007 and 2006 was approximately - $0 - and $14,437, respectively.

F-10

Contingencies

At December 31, 2007, the were no guarantees and indemnifications issued and outstanding.

NOTE 7- STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

The Company has 5,000,000 shares of preferred stock authorized, at $0.001 par value per share, of which 143 shares of Ariel Way Series A Convertible Preferred Stock (“Series A Preferred Shares”) were outstanding as of December 31, 2007.

The Company filed on March 6, 2006 with the Florida Secretary of State a Certificate of Designation providing the terms and conditions of the authorization of 165 shares of Ariel Way Series A Convertible Preferred Stock (“Series A Preferred Shares”).

The Holders of Series A Preferred Shares shall be entitled to receive dividends or distributions on a pro rata basis according to their holdings of shares of Series A Preferred Shares when and if declared by the Board of Directors of the Company in the amount of five (5.0%) percent per year. Dividends shall be paid in cash. Dividends shall be cumulative. No cash dividends or distributions shall be declared or paid or set apart for payment on the Common Stock in any calendar year unless cash dividends or distributions on the Series A Preferred Stock for such calendar year are likewise declared and paid or set apart for payment. No declared and unpaid dividends shall bear or accrue interest.

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (collectively, a “Liquidation”), before any distribution or payment shall be made to any of the holders of Common Stock or any series of Preferred Shares, the holders of Series A Preferred Shares shall be entitled to receive out of the assets of the Company, whether such assets are capital, surplus or earnings, an amount equal to $10,031 per share of Series A Preferred Shares (the “Liquidation Amount”) plus all declared and unpaid dividends thereon, for each share of Series A Preferred Shares held by them.

If, upon any Liquidation, the assets of the Company shall be insufficient to pay the Liquidation Amount, together with declared and unpaid dividends thereon, in full to all holders of Series A Preferred Shares, then the entire net assets of the Corporation shall be distributed among the holders of the Series A Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled and such distributions may be made in cash or in property taken at its fair value (as determined in good faith by the Company’s Board of Directors), or both, at the election of the Company’s Board of Directors.

The Series A Preferred Shares shall have registration rights pursuant to a certain Investor’s Registration Rights Agreement dated the February 28, 2006.

In lieu of payment on the Maturity Date as outlined herein the Holders of Series A Preferred Shares shall have sole right and in their discretion to elect conversion pursuant to the conversion rights, at any time and from time to time at their sole discretion, as follow (the "Conversion Rights"):

(a)

Each share of Series A Preferred Shares shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Company’s transfer agent, pursuant to the Irrevocable Transfer Agent Instructions dated the date hereof, for the Series A Preferred Stock into such number of fully paid and non-assessable shares of Common Stock equal to the quotient of the Liquidation Amount divided by the Conversion Price. The Conversion Price shall be equal to, the lesser of at the option of the Buyers either: i) Ten Cents ($0.10) or ii) ninety five percent (95%) of the lowest volume weighted average price of the Common Stock for the twenty (20) trading days immediately preceding the date of conversion, as quoted Bloomberg LP.

F-11

(b)

At the Option of the Holders, if there are outstanding Series A Preferred Shares on February 28, 2008, each share of Series A Preferred Stock shall convert into shares of Common Stock at the Conversion Price then in effect on February 28, 2008.

(c)

Each share of Series A Preferred Shares automatically shall convert into shares of Common Stock at the Conversion Price then in effect immediately upon the consummation of the occurrence of a stock acquisition, merger, consolidation or reorganization of the Company into or with another entity through one or a series of related transactions, or the sale, transfer or lease (but not including a transfer by pledge or mortgage to a bona fide lender) of all or substantially all of the assets of the Company.

The Conversion Price of the Series A Preferred Shares as described above shall be adjusted from time to time pursuant to the terms and conditions of the Ariel Way Series A Convertible Preferred Stock. No holder of the shares of Series A Preferred Shares shall be entitled to convert the Series A Preferred Shares to the extent, but only to the extent, that such conversion would, upon giving effect to such conversion, cause the aggregate number of shares of Common Stock beneficially owned by such holder to exceed 4.99% of the outstanding shares of Common Stock following such conversion (which provision may be waived by such Holder by written notice from such holder to the Company, which notice shall be effective sixty one (61) days after the date of such notice).

On February 28, 2006, the Company pursuant to an Investment Agreement by and between Ariel Way, Inc. and Yorkville Advisors and Montgomery Equity (collectively referred to as the “Buyers”), Ariel Way sold and issued to the Buyers one hundred sixty (160) Series A Preferred Shares for a consideration consisting solely of the surrender of certain Prior Securities.

During the period October 1, 2007 through November 20, 2007, the Company received a total of 18 conversion notices from Yorkville Advisors requesting the conversion of an aggregate 6.25 Series A Convertible Preferred Shares, corresponding to an aggregate conversion amount of $62,694, representing the conversion under the terms of the Certificate of Designation dated February 28, 2006, into an aggregate of 110,814,396 shares of its common stock at an average conversion price of $0.00057 per share.

The following table sets forth a summary of all conversion requests by Yorkville Advisors for the three month period October 1, 2007 through December 31, 2007:


Conversion request date	No. of Shares		Conversion Share Price		Converted Amount		Amount of Series A Converted

10/23/2007		5,224,500	$	0.00048	$	2,507.76		0.25
10/24/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/25/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/26/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/29/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/31/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/2/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/6/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/9/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/13/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/16/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/19/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/19/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/20/2007		8,799,158	$	0.00057	$	5,015.52		0.50

F-12

Common Stock

As of December 31, 2007, the Company had 595,000,000 shares of common stock authorized at $0.001 par value per share, and 595,000,000 issued and outstanding.

The following describes the common stock transactions for the three month period ended December 31, 2007:

On December 27, 2007, the Company issued pursuant to a Board of Director’s resolution on November 21, 2007, an aggregate 349,886,779 shares of restricted common stock to several parties in exchange for canceling an aggregate of $597,115.37 in debt and liabilities. The aggregate per share conversion price was $0.0016 which was 100% higher than the prevailing closing price at $0.0008 as of November 20, 2007, the day prior to the Board of Director’s resolution on November 21, 2007. The debt and liabilities canceled and converted to shares of restricted common stock included outstanding short term loans in default and outstanding since 2005 and compensation for services outstanding for the period 2004 through 2007.

The table below sets forth a summary of the debt and liability canceled and converted to shares of restricted common stock pursuant to the Board of Director’s resolution on November 21, 2007:


Name	Debt and Liability Canceled and Converted		Amount		Conversion per Share Price		Shares Issued
Arne and Eva Dunhem		Repayment of short term loans in default Compensation for services 2004 - 2007	$	474,115.37	$	0.0016		273,011,779
Magdy Battikha		Compensation for services 2006 - 2007	$	68,000.00	$	0.0016		42,500,000
Leif T. Carlsson		Compensation for services 2006 - 2007	$	20,000.00	$	0.0016		12,500,000
Chivas Capital, Inc.		Compensation for services 2007	$	15,000.00	$	0.0016		9,375,000
Rainer Gonzalez		Compensation for services 2007	$	20,000.00	$	0.0016		12,500,000
Total			$	597,115.37	$	0.0016		349,886,779

Except as otherwise noted, the securities described in this Item were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933. Each such issuance was made pursuant to individual contracts, which are discrete from one another and are made only with persons who were sophisticated in such transactions and who had knowledge of and access to sufficient information about us to make an informed investment decision. Among this information was the fact that the securities were restricted securities.

NOTE 8- LITIGATION/ LEGAL PROCEEDINGS

None known to the Management.

NOTE 9- PROVISION FOR INCOME TAXES

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes related to differences between the basis of assets and liabilities for financial and income tax reporting will either be taxable or deductible when the assets or liabilities are recovered or settled. The difference between the basis of assets and liabilities for financial and income tax reporting are not material therefore, the provision for income taxes from operations consist of income taxes currently payable.

There were no provisions for income taxes for the three month period ended December 31, 2007. Due to substantial financial constraints, the Company has not completed the filing of its corporate income tax returns for the years ended September 30, 2007, 2006, 2005 and 2004. The Company intends to complete the filing of these returns upon receipt of funding. Management believes there is no tax liability due to the losses incurred for the period of non-filing.

F-13

NOTE 10- GOING CONCERN

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

The Company reported for the three month period ended December 31, 2007 net loss of ($116,707) and a net loss of ($163,301) for the three month period ended December 31, 2006, respectively.

Net cash used by the Company's operating activities was $554,117 and $38,978 for the three month period ended December 31, 2007 and 2006, respectively.

At December 31, 2007, stockholder's deficit was ($2,069,921) compared with a stockholder's deficit of ($3,318,353) at December 31, 2006 and included an accumulated deficit at December 31, 2007 of ($5,284,242) compared with an accumulated deficit of ($5,284,242) at December 31, 2006.

At December 31, 2007 there was working capital deficit of ($2,073,934) compared with a working capital deficit of ($3,505,082) at December 31, 2006. This is an improvement for the three month period ended December 31, 2007 compared with prior year 2006, however, the Company is still unable to satisfy its current debt obligations and is in default on its notes payable. The intends to actively attempt to improve the deficit.

The Company had a gross profit of -$0- and $103,426 for the three month period ended December 31, 2007 and 2006, respectively.

Unless the Company can acquire new profitable operation that can provide adequate cash flow, it will require additional funding to cover expected negative cash flows until end fiscal year 2008.

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

Raise additional capital.

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

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

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

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

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

Negotiate with creditors to convert current debt to equity to significantly improve the Company’s working capital deficit.

F-14

Although the results of these actions cannot be predicted with certainty, management believes that if the Company can acquire new profitable operations with adequate revenues and to continue to increase its revenues and gross profit margins, reduce expenses, and can obtain additional debt or equity financing to fund any negative cash flow from operations in 2008, the Company has the ability ultimately to return to profitability.

NOTE 11- SUBSEQUENT EVENTS

On February 14, 2008 the Company announced that the Company on February 13, 2008 has completed and signed the definitive Agreement and Plan of Merger to acquire Syrei Holding UK, Ltd, a UK and Sweden based telecom-consulting firm comprised of senior specialists and experts in the evolving global telecommunications market (www.syrei.com). The transaction has a two-step closing process with a first expected closing on or around February 19, 2008.

F-15

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following is a discussion and analysis of the results of operations and financial position as of and for the three-month period ended December 31, 2007 and 2006 and the factors that could affect our future financial condition and results of operations. Historical results may not be indicative of future performance.

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

Forward Looking Statements

This Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding our expectations, beliefs, intentions or strategies regarding our business. This Quarterly Report on Form 10-QSB includes forward-looking statements about our business including, but not limited to, the level of our expenditures and savings for various expense items and our liquidity in future periods. We may identify these statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” &# 147;potential,” “predict,” “project,” “should,” “will,” “would” and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law. Our actual results could differ materially from those anticipated in these forward-looking statements.

Overview of the Company

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

Until June, 2007, we marketed and sold our multimedia communications solutions services to clients who are leading finance-oriented services companies primarily in United Kingdom. We also provided services to leading technology and manufacturing companies throughout the United States but in 2006 we closed this operation. As part of our multimedia communications solutions services, we were focused on growing the current customer bases, developing and deploying solutions for Business Television (BTV), digital signage and interactive media delivered over a combination of satellite, terrestrial and wireless local networks. Our wholly-owned subsidiary Ariel Way Media, Inc. (“Ariel Way Media”) provided a select set of services previously provided by dbsXmedia to include services for leading finance-oriented services companies, primarily in the United Kingdom.

We were incorporated under the laws of Florida in January, 2000. Our principal executive offices have been located at 8000 Towers Crescent Drive, Suite 1220, Vienna, VA 22182 and our telephone number at that address is (703) 918-2420. We maintain a corporate web site atwww.arielway.com. We make available free of charge through our web site our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such material with or to the SEC. The contents of our web site are not a part of this report. The SEC also maintains a web site atwww.sec.govthat contains reports, proxy statements and other information regarding various companies including Ariel Way, Inc.

Recent Developments

In January, 2007, dbsXmedia, Ltd, a UK subsidiary, initiated the process of filing for a liquidation of its operations with the United Kingdom Courts. Upon the formal liquidiation, this would conclude the operation of this subsidiary in the UK.

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

Revenue and Expenses

Overall Operating Results:

Revenue was -$0- and $431,848 for the three month period ended December 31, 2007 and 2006 respectively. The reduced revenue resulted from the ceasing of the operation of dbsXmedia in both the US and the UK in August 2006, and our reduced Business TV operation in the UK through Ariel Way Media. This operation was terminated in June 2007. Gross profit for the three month period ended December 31, 2007 was -$0-, compared to a gross profit of $103,426 for the three month period ended December 31, 2006.

Total operating expenses were $114,727 and $264,929 for the three month period ended December 31, 2007 and 2006. The significantly reduced operating expenses from 2006 to 2007 were due to an overall reduction of the operational organization. Salaries decreased from $34,086 to -$0- in 2006 to 2007 respectively, professional fees decreased from $190,735 to $112,099 in 2006 to 2007 respectively, and rent decreased from $14,437 to -$0- in 2006 to 2007 respectively. Further, during the three month period ended December 31, 2007, there were no expenses for the issuance of options or warrants, since none were issued during the period.

As of December 31, 2007 cash and cash equivalents was -$0- compared to $96,709 as of December 31, 2006. Cash balances decreased as the company worked to satisfy substantial outstanding debts. As of December 31, 2007, accounts payable and accrued expenses were $1,672,587, compared to December 31, 2006 balances of $3,244,467. This reduction was due to substantial effort in reducing liabilities and debt during the fiscal year ended September 30, 2007 as a result of a settlement with Loral Skynet, the initial steps of liquidation of dbsXmedia, Ltd (UK), the initial ceasing of operation of dbsXmedia (US), and the cancellation of other debt and liabilities. During the three month period ended December 31, 2007, we had a significant reduction of other debt and liabilities by converting debt and liabilities into common stock. We intend to continue to significantly reduce our liabilities and debt including a significant reduction upon formal liquidation of dbsXmedia, Ltd (UK) a nd final and formal ceasing of operation of dbsXmedia (US).

Operations and Net Income

The net loss for the three month period ended December 31, 2007 was ($116,707) compared to a net loss of ($163,301) for the three month period ended December 31, 2006. The reduced loss compared with previous year’s losses were the result of significant debt and liability reductions to include a conversion into common stock of debt and liability to various creditors, the initial steps of the liquidation of dbsXmedia, Ltd (UK), the ceasing of operation of dbsXmedia (US), and the cancellation of other accrued debt and liabilities. We intend to continue to significantly reduce our liabilities and debt including a significant reduction upon formal liquidation of dbsXmedia, Ltd (UK) and final and formal ceasing of operation of dbsXmedia (US).

As of December 31, 2007 the accumulated deficit was reduced to ($5,284,242) compared with ($5,827,658) as of December 31, 2006. This accumulated deficit may, on a limited basis, be offset against future taxable income. There are limitations on the amount of net operating loss carryforwards that can be used due to the change in the control of the ownership as a result of our stock exchange transaction on February 2, 2005 of the now wholly-owned Old Ariel Way subsidiary.

Application of Critical Accounting Policies

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

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

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

Goodwill

We had no recorded goodwill and we reported no goodwill impairment during the three month period ended December 31, 2007.

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

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

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

Property, Plant and Equipment

Annually, property, plant and equipment lives are reviewed to ensure that the estimated useful lives are appropriate. The estimated useful lives of property, plant and equipment is a critical accounting estimate because changing the lives of assets can result in larger or smaller charges for depreciation expense. Factors used in determining useful lives include technology changes, regulatory requirements, obsolescence and type of use. We did not change the useful lives of any property, plant and equipment in the three month period ended December 31, 2007.

We review long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be fully recoverable. During the year ended September 30, 2007 the Company wrote off approximately $24,249 in fixed assets due to the impairment of the value and the ceasing of operation of dbsXmedia.

Liquidity and Capital Resources

As of December 31, 2007, the Company had cash and cash equivalents of -$0-. Financial support has been provided by the Chief Executive Officer of the Company and a shareholder in the form of various short-term loans. The Company was unable to satisfy current debts, and is in default in its prior loan obligations. The focus of the Company during the three month period ended December 31, 2007 has been to significantly reduce accrued and outstanding liabilities and debt and to find new profitable potential acquisition opportunities.

Net cash used in operating activities was $554,117 for the three month period ended December 31, 2007 compared with $38,978 for the three month period ended December 31, 2006.

As of December 31, 2007 the Stockholders’ Deficit was ($2,069,921) compared with December 31, 2006, of ($3,318,354). At December 31, 2007, we had a negative working capital (current assets minus current liabilities) of approximately ($2,073,934) compared with negative working capital of approximately ($3,505,082) at December 31, 2006. The improvement is the result of the focus of the Company during the fiscal year ending December 31, 2007 to significantly reduce accrued and outstanding liabilities and debt.

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

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

Going concern

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

The current default of its loans from some shareholders.

The inability to fund acquisition opportunities that could provide operational cash flow for the operation going forward.

The Company's ability to continue as a going concern is dependent upon acquiring new profitable business and increasing its revenues and gross profit margins to cover cost of services and other operating expenses, generating positive cash flows from operations, obtaining debt or equity capital to fund any negative operating cash flows and returning the Company to profitable operations. In this connection, the Company has adopted the

following operating and management plans in order to provide positive cash flow from operations and fiscal year 2008:

Raise additional capital or secure funding from credit sources.

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

Continue to develop, roll-out and expand its digital signage business through targeted marketing initiatives in both the US and Europe.

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

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

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

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

Although the results of these actions cannot be predicted with any degree of certainty, management believes that if the Company can acquire new profitable operation and continue to increase its revenues and gross profit margins, reduce expenses, and can obtain additional debt or equity financing to fund any negative cash flow from operations in 2008, the Company has the ability ultimately to return to profitability.

Off-Balance Sheet Arrangements

At December 31, 2007, there were none issued and outstanding.

Plan of Operation

Ariel Way, Inc. is a technology and services company for highly secure global communications and digital signage solutions and technologies. We are focused on developing innovative and secure technologies, acquiring and growing profitable advanced technology companies and global communications service providers and creating strategic alliances with companies in complementary product lines and service industries.

During fiscal year 2007, our communications solutions were provided by our subsidiary Ariel Way Media, Inc., a Delaware corporation and its subsidiary Ariel Way Media, Ltd., a U.K. corporation, that provided solutions for Business Television (BTV) delivered over satellite networks. As of June 2007, we discontinued our BTV services to focus entirely on the development and operation of a network for advanced digital signage solutions and services. Our planned digital signage network includes technologies using LCD and plasma flat screen displays as a new platform for companies to promote and advertise products and services to targeted audiences as they shop, work and play in malls, banks and other strategic locations. This network that is based on transmission over satellite, wireless and the Internet, is also intended to be used for corporate communications and training activities based on our previous experience in the operation of Business Television.

We have embarked on building on the experience gained from the previous BTV operation and expanding into the dynamic digital signage business through our subsidiary company Ariel Way Media. However, if revenue and cash provided by operations do not outpace our expenses, if economic conditions weaken or if competitive pressures increase, our ability to meet our debt obligations and our financial condition could be materially and adversely affected, thereby potentially adversely affecting our credit ratings, our ability to access the capital markets and our compliance with debt covenants.

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

visible role in providing next generation highly secure communications digital signage solutions, products, services and technologies.

In order to implement our overall business plan including both the full development of a digital signage business, we intend to attempt to raise at least $10,000,000 over the next 12 months in order to fund:

Expenses associated with acquisitions of companies;

Acquisition or licensing of certain intellectual property related to the development of a nationwide digital signage network and highly secure communications technology and software development technology;

Compensation for employees and consultants;

Legal and accounting fees and other general administrative overhead;

General working capital purposes

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

New Accounting Pronouncements

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

Inflation

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

RISK FACTORS

Investing in our securities involves a high degree of risk. Before investing in our securities, you should consider the following discussion of risk factors, other information contained in this Quarterly Report on Form 10-QSB, and the extensive discussion of “Risks Related to Our Business” contained in our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007. Our future results may also be impacted by other risk factors listed from time to time in our future filings with the SEC, including, but not limited to, our Quarterly Reports on Form 10-QSB and our Annual Report on Form 10-KSB.

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

Risks Related To Our Business

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

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

our revised and new and unproven business and technology model;

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

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

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

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

a loss or breach of confidentiality of customer data;

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

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

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

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

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

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

We have previous years lost money and we may again experience losses in the near term, which means that we may not be able to continue to operate as a going concern unless we obtain additional funding

We have previous years lost money. For the three month period ended December 31, 2007 we had a net loss of ($116,707) and for the three month period ended December 31, 2006 we had a net loss of ($163,301). Future losses may occur. Accordingly, we are experiencing liquidity and cash flow problems and we may not be able to raise additional capital as needed and on acceptable terms. No assurances can be given that we will be successful in reaching or maintaining profitable operations; or that we will be able to raise or borrow adequate funds to execute our business plan and consummate any future acquisitions.

There is substantial doubt about our ability to continue as a going concern.

As of December 31, 2007, the Company’s independent public accounting firm issued a “going concern opinion” wherein they stated that the accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 10 to the financial statements as of December 31, 2007, the Company did not generate sufficient cash flows from revenues during the year ended December 31, 2007, to fund its operations. Also at December 31, 2007, the Company had negative net working capital of ($2,073,934). These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is discussed in Note 10 to the accompanying financial statements as of December 31, 2007. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Unless the Company is successful in generating additional sources of revenue, or obtaining additional capital, or restructuring its business, the Company is at risk of ceasing operations or filing bankruptcy.

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

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. During the year ended September 30, 2007, we reduced our staffing in order to conserve cash, as our level of business activity declined. As a result, there is very limited segregation of duties, this is a material weakness in internal controls. However, we have implemented procedures to both limit access to bank accounts and to segregate the approval of invoices from disbursements of cash. However, with only five employees and consultants at the Company, segregation of duties is not practicable.

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

We have generated revenue from operations; however, if we do not begin generating more revenue we may have to cease operations. As of December 31, 2007, we had an accumulated deficit of ($5,284,242). In order to become profitable, we will need to generate revenues to offset our cost of operations and general and administrative expenses. We may not achieve or sustain our revenue or profit objectives and our losses may increase in the future and ultimately, we may have to cease operations.

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

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

We have relied on external financing to fund our operations and acquisitions to date. Such financing has historically come from a combination of borrowings from and sale of common stock to, third parties and funds provided by certain officers and directors. Over the next two years we need to raise additional capital to fund additional acquisitions and/or to fund operations. We anticipate that these additional funds will be in the range of $10 million to $20 million, depending on the pace and size of our acquisitions. We cannot assure you that financing, whether from external sources or related parties, will be available if needed or on favorable terms. The sale of our common stock to raise capital may cause dilution to our existing shareholders. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our operations and expansion, successfully promote our brand name, products or services, develop or enhance our technology, take advantage of business opportunities or respond to competitive market pressures, any of which could make it more difficult for us to continue operations. Any reduction in our operations may result in a lower stock price.

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

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

We have relied on significant external financing to fund our operations. As of December 31, 2007, we had -$0- cash on hand and our total current assets were $4,392 as of December 31, 2007. We have a negative net working capital of ($2,073,934).

We will need to raise additional capital to fund our working capital deficit, our anticipated operating expenses and our strategic business plan. Among other things, external financing will be required to cover our operating costs. Unless we obtain profitable operations, it is unlikely that we will be able to secure additional financing from external sources. If we are unable to secure additional financing, we may be forced to curtail or cease our business operations. We estimate that we will require $10,000,000 to fund our anticipated operating expenses for the next twelve months. The sale of our common stock to raise capital may cause dilution to our existing shareholders. Our inability to obtain adequate financing will result in the need to curtail business operations. Any of these events would be materially harmful to our business, may result in a lower stock price and you could lose your entire investment. Our financial statements do not include any adjustments th at might result from the outcome of this uncertainty.

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

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

With a price of less than $5.00 per share;

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

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

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

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

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

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

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

As of February 18, 2008, there were 595,000,000 shares of our common stock outstanding, at a closing market price of $0.006 for a total market valuation of approximately $3,570,000. As a group, our officers, directors and all other persons who beneficially own more than 10% of our total outstanding shares, beneficially own approximately 314,173,258 shares of our common stock, including vested options and vested warrants. Our common stock has a public float of approximately 230.0 million shares, which shares in the hands of public investors, and which, as the term "public float" is defined by NASDAQ, excludes shares that are held directly or indirectly by any of our officers or directors or any other person who is the beneficial owner of more than 10% of our total shares outstanding. These shares are held by approximately 375 stockholders of record, not including holders of our common stock in “street name” or beneficial holders, whose shares are hel d of record by banks, brokers and other financial institutions. We cannot predict the effect, if any, that future sales of shares of our common stock into the market will have on the market price of our common stock. However, sales of substantial amounts of common stock, including future shares issued upon the exercise of warrants, or stock options (of which 15,922,320 are presently outstanding; see Item 5 of this report) and/or conversion of preferred stock into common stock, or the perception that such transactions could occur, may materially and adversely affect prevailing market prices for our common stock.

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

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

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

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

Our business revenue generation model is unproven and could fail

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

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

During year 2006 we had experienced significant growth in revenues and related expenses. Our increase in revenues was due primarily to our acquisition of dbsXmedia and its Business TV operation. However, due to dbsXmedia not achieving anticipated profitability and cash flow, failing its financial business plan, and mounting debt to Loral Skynet for satellite services, its management team departing dbsXmedia, we were obligated to wind-up the activities by and services provided by dbsXmedia. Subsequently, we have embarked on building on the experience gained from the Business TV operation and expanding into the dynamic digital signage business through our subsidiary company Ariel Way Media. In addition, we are taking a number of measures designed to improve our financial condition such as looking into potential acquisitions, cost reductions, expansion of the Business TV multimedia experience and the integration of various new acquisitions. However, if revenue and cash pr ovided by operations do not exceed expenses, if economic conditions weaken or if competitive pressures increase, our ability to meet our debt obligations and our financial condition could be materially and adversely affected, and the company could be forced to cease operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If we are unable to successfully develop the technology necessary for our solutions, products and processes, we will not be able to bring our products to market and may be forced to reduce or cease operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

laws and business practices favoring local competitors;

more established competitors with greater resources;

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

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

different pricing environments;

difficulties in staffing and managing foreign operations;

longer accounts receivable payment cycles and other collection difficulties; and

regional economic and political conditions.

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

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

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

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

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

We may not successfully execute or integrate acquisitions

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

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

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

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

Initial dependence on unfamiliar partners;

Insufficient revenues to offset increased expenses associated with acquisitions; and

The potential loss of key employees of the acquired companies.

Acquisitions may also cause us to:

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

Assume liabilities;

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

Incur amortization expenses related to certain intangible assets;

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

Become subject to litigation.

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

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

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

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

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

ITEM 3.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, they are designed to provide reasonable assurance of achieving the objectives.

As of December 31, 2007 we completed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures had not been effective at the reasonable assurance level.

This material weakness consisted primarily of inadequate staffing and supervision that could lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews. However, the size of the Company prevents us from being able to employ sufficient resources to enable us to have adequate segregation of duties within its internal control system. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management intends to allocate additional resources in addition to reassigning tasks and duties within the Company such that the identified deficiencies will be mitigated with priority.

PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None known to the Management.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following provides information concerning all sales of our securities during the three-month period ended December 31, 2007 that were not registered under the Securities Act of 1933.

The following table sets forth a summary of all conversion requests by Yorkville Advisors for the three month period October 1, 2007 through December 31, 2007:


Conversion request date	No. of Shares		Conversion Share Price		Converted Amount		Amount of Series A Converted

10/23/2007		5,224,500	$	0.00048	$	2,507.76		0.25
10/24/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/25/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/26/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/29/2007		4,399,579	$	0.00057	$	2,507.76		0.25
10/31/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/2/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/6/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/9/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/13/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/16/2007		4,399,579	$	0.00057	$	2,507.76		0.25
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/16/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/19/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/19/2007		8,799,158	$	0.00057	$	5,015.52		0.50
11/20/2007		8,799,158	$	0.00057	$	5,015.52		0.50

The table below sets forth a summary of the debt and liability canceled and converted to shares of restricted common stock pursuant to the Board of Director’s resolution on November 21, 2007:


Name	Debt and Liability Canceled and Converted		Amount		Conversion per Share Price		Shares Issued
Arne and Eva Dunhem		Repayment of short term loans in default Compensation for services 2004 - 2007	$	474,115.37	$	0.0016		273,011,779
Magdy Battikha		Compensation for services 2006 - 2007	$	68,000.00	$	0.0016		42,500,000
Leif T. Carlsson		Compensation for services 2006 - 2007	$	20,000.00	$	0.0016		12,500,000
Chivas Capital, Inc.		Compensation for services 2007	$	15,000.00	$	0.0016		9,375,000
Rainer Gonzalez		Compensation for services 2007	$	20,000.00	$	0.0016		12,500,000
Total			$	597,115.37	$	0.0016		349,886,779

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the quarterly period ended December 31, 2007.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our stockholders for their approval during the quarterly period ended December 31, 2007.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits:


21.1	Subsidiaries of Registrant.


31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.


31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.


32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

* These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

B. Report on Form 8-K:

During the three-month period ended December 31, 2007, we filed with the Securities and Exchange Commission the following reports on Form 8- K:

On December 4, 2007, we reported in a current report on Form 8-K that our Chairman, CEO and President, Arne Dunhem issued a Letter to its Shareholders.

On December 31, 2007, we reported in a current report on Form 8-K that the Company issued pursuant to a Board of Director’s resolution on November 21, 2007, an aggregate 349,886,779 shares of restricted common stock to several parties in exchange for canceling an aggregate of $597,115.37 in debt and liabilities.

Subsequent to the quarterly period ended December 31, 2007, we filed with the Securities and Exchange Commission the following reports on Form 8-K:

None.

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ARIEL WAY, INC.


Date: February 18, 2008	By:	/s/ Arne Dunhem
		Arne Dunhem
		Chief Executive Officer, Acting Chief Financial Officer, Acting Chief Accounting Officer

Ariel Way (NFDV) Inactive 10QSB2008 Q1 Quarterly report (small business)