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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-KSB



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(Mark One)

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______.

Commission file number 000-30701

OZ COMMUNICATIONS,
INC.

(Name of Small Business Issuer
in Its Charter)


|                                                                                                                           |  |                                                
|-------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|CALIFORNIA
(State or Other Jurisdiction of
Incorporation or Organization)                                                  |  | 95-4560875
(I.R.S. Employer Identification No.)
|                                                                                                                          
|Snorrabraut 54, Reykjavik, Iceland
(Address of Principal Executive Offices)
011 (354) 535-0000
(Issuers Telephone Number) |  | IS-105
(Zip Code)                              

Securities registered under Section 12(b) of the Act: None

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

Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter time that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [   ]

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

The Registrants revenues for the fiscal year ended December 31, 2001 were
$8,435,540.

The aggregate market value of the common stock held by non-affiliates of
Registrant as of February 28, 2002 was $4,536,747.

As of February 28, 2002 85,088,436 shares of Registrants common stock
were outstanding.

Transitional Small Business Disclosure Format: Yes [   ] No [X]



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TABLE OF CONTENTS



|             |                                                                                              |  |  |  |  |  |  | 
|------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Business                                                                            
|             | Item 2. Facilities                                                                          
|             | Item 3. Legal Proceedings                                                                   
|             | Item 4. Submission of Matters to a Vote of Security Holders                                 
|PART II     
|             | Item 5. Market for Registrants Common Equity and Related Shareholder Matters               
|             | Item 6. Managements Discussion and Analysis or Plan of Operation                           
|             | Item 7. Financial Statements and Supplementary Data                                         
|             | Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|PART III    
|             | Item 9. Directors, Executive Officers, Promoters and Control Persons                        
|             | Item 10. Executive Compensation                                                             
|             | Item 11. Security Ownership of Certain Beneficial Owners and Management                     
|             | Item 12. Certain Relationships and Related Transactions                                     
|             | Item 13. Exhibits, Lists, and Reports on Form 8-K                                           
|SIGNATURES  
|EXHIBIT LIST



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Note on Forward-Looking Statements

This Annual Report on Form 10-KSB (Annual Report) contains various
forward-looking statements with respect to our financial condition, results of
operations and business. The words believe, expect, anticipate,
intend, may, will, should, could, potential, continue,
estimate, predict, and plan and similar expressions or the negative of
such expressions, identify forward-looking statements. These forward-looking
statements are subject to numerous assumptions, risks and uncertainties and a
number of factors could cause actual results to differ materially from those
projected or implied in such forward-looking statements. These factors
include, but are not limited to, the risk factors disclosed in this Annual
Report.

Further, certain forward-looking statements are based upon assumptions of
future events that may not prove to be accurate. Due to such uncertainties and
risks, you should not place undue reliance on such forward-looking statements
that speak only as of the date of this Annual Report. We do not undertake to
publicly update, review or revise any forward-looking statements to reflect any
change in our expectations with regard thereto or to reflect events or
circumstances occurring after the date hereof, unless required by the federal
securities laws.

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OZ COMMUNICATIONS, INC.

2001 FORM 10-KSB

TABLE OF CONTENTS

|                                                                                             |  |  |    |      |  | 
|-------------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|                                                                                             |  |  |    | Page
|                                                                                             |  |  |    |     
|PART I                                                                                      
|Item 1. Business                                                                             |  |  | 3  |     
|Item 2. Facilities                                                                           |  |  | 15 |     
|Item 3. Legal Proceedings                                                                    |  |  | 16 |     
|Item 4. Submission of Matters to a Vote of Security Holders                                  |  |  | 16 |     
|PART II                                                                                     
|Item 5. Market for Registrants Common Equity and Related Shareholder Matters                |  |  | 17 |     
|Item 6. Managements Discussion and Analysis or Plan of Operation                            |  |  | 17 |     
|Item 7. Financial Statements and Supplementary Data                                          |  |  | 23 |     
|Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure |  |  | 43 |     
|PART III                                                                                    
|Item 9. Directors, Executive Officers, Promoters and Certain Persons                         |  |  | 43 |     
|Item 10. Executive Compensation                                                              |  |  | 45 |     
|Item 11. Security Ownership of Certain Beneficial Owners and Management                      |  |  | 49 |     
|Item 12. Certain Relationships and Related Transactions                                      |  |  | 51 |     
|Item 13. Exhibits, Lists and Reports on Form 8-K                                             |  |  | 54 |     

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PART I




Item 1. Business

Overview of Business

OZ Communications, Inc. was incorporated in California in December 1995.
On November 28, 2001, we changed our name from OZ.COM. We are a provider of
instant communication software products to mobile network operators. Our
products enable operators to offer presence-enabled instant communication
services to their subscribers, thus increasing the operators revenue streams
on both voice and data services. See Our Products and Services below for
further discussion of our products.

Since we incorporated, we have devoted substantially all of our resources
to developing our multi-user communications platform, first in the context of
three-dimensional (3D) online environments, and since 1997, primarily in the
context of wireless communications networks. In 1998, we began working with
Ericsson Telecom AB and/or its affiliates to develop a wireless Internet
communications platform that Ericsson called iPulse based on this technology.
In February 2002, we terminated our development relationship with Ericsson and
have been granted a fully paid up license for the iPulse technology to develop
our own products. We have combined the iPulse communications platform with the
applications that we used to refer to as mPresence to create an integrated
mobile instant messaging and presence management suite of products, which we
now call the OZ® Instant Communication Solution. We have also developed a
mobile-group collaboration product that we call the OZ® Mobile Communications
Solution.

We own a controlling interest in SmartVR, Inc. (SmartVR), a majority owned
subsidiary we established in 1999 to commercialize our earlier
three-dimensional virtual reality technologies. SmartVR markets its products
as tools for communications, media, e-training, marketing, entertainment and
commerce. The parent company OZ Communications, Inc. is not responsible for
any of the liabilities of SmartVR.

Industry Background

An industry consortium known as the Wireless Village is now working to
define standards that will combine the functionality of PC-based instant
messaging (PC IM), which has been made popular by AOL, ICQ, MSN and Yahoo!, and
Short Message Service (SMS), which is a mobile messaging application that has
been gaining in popularity in the markets in which it is available. SMS
messages typically originate and terminate on mobile phones, and are limited to
concise and sometimes cryptic notes containing 160 text characters or less.
The Wireless Village consortium hopes to make instant communication across
wireless and wireline networks, and between disparate devices, perfectly
seamless. Formed by Nokia, Motorola, and Sony/Ericsson, the consortiums
efforts are intended to lead to a protocol known as Instant Messaging and
Presence Services (IMPS). The IMPS protocol will make it possible for SMS, IM,
and richer multimedia messaging services (MMS) content, including images,
audio, video data and text, to be delivered to anyone, anywhere, connected by
any compliant device, without sacrificing the attractive simplicity that
underlies the success of both SMS and PC IM. We are an active member of the
Wireless Village consortium.

Our Products and Services

We are developing various integrated products that are intended to provide
presence enabled instant communications capabilities across networks for our
customers. These products include:



| |  |  | the OZ® Instant Communication Solution (OZ ICS);                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------
|
| |  |  | the OZ® Mobile Communities Solution (OZ MCS); and                                                                  
|
| |  |  | Professional services, such as customization of products, system integration, maintenance and support, and hosting.

OZ® Instant Communication Solution

The OZ® Instant Communication Solution (OZ ICS) is a carrier-class
software application that builds on the iPulse technology that we jointly
developed and jointly own with Ericsson. OZ ICS combines wireless instant
messaging, presence management and value-added services across a multitude of
devices to enable people to communicate with mobility and freedom.

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We believe that OZ ICS allows mobile network operators to leverage their
existing communications networks while tapping into new forms of voice and data
communications. OZ ICS offers a secure connection to a growing number of
communications services that provide greater convenience for end users and
increased revenues for mobile network operators. OZ ICS provides end users
with one simple, secure way to use and link their communications. OZ ICS
consists of client software that resides on mobile phones, PCs and other
Internet devices and connects to a centralized cluster of servers, where
corresponding server software shares and manages communications. OZ ICS 2.0
became available commercially in March 2002 and has not yet been licensed to
any mobile network operator.



| |  | OZ ICS 2.0 includes the following main features:                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The contact list                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The contact list is at the center of OZ ICS. Users have access to all
communication services from their contact lists, independent of the device
they are using at the time. Initiating communication with another user is
as simple as selecting a contact and then selecting which communication
method to use.                                                                                                                                                                                                    
|
| |  | Wireless instant messaging                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | OZ ICS 2.0 enables users to initiate secure chat sessions easily and
instantly with individual contacts or a group of contacts. A user on a WAP
(Wireless Application Protocol) phone can for example invite a user on a
PDA (Personal Digital Assistant) to a text chat, and then easily invite
another user, who may be on a mobile phone, to the chat by SMS. The
experience is intended to be simple yet powerful, and even enables users
to move between devices in the middle of a chat session.               
|
| |  | Group communications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Initiating a chat with a group of contacts is as easy as chatting with
individuals; users simply select to chat with a contact group and the
system sends multiple chat invitations to all the contacts in the group.
Users can arrange contacts into contact groups on any client device. OZ
ICS even enables users to chat with contact groups using SMS and take part
in multiple chat sessions at the same time.                                                                                                 
|
| |  | Voice calls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Just as users can select to chat with other users, ICS 2.0 enables users
to place phone calls from their contact lists on telephony-enabled
devices. If a user selects a contact who is present on a WAP client
(Wireless Application Protocol for mobile phones) and chooses to call him,
the system sets up the phone call to the receiver using the receivers own
preferred phone number. The same action on the PC (Personal Computer)
client results in the display of the other users preferred phone number.
|
| |  | Presence management and privacy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | We believe that managing ones presence status is the key to instant
communication, as each users presence status on the contact list
advertises their availability for communication. OZ ICS provides users
with control over their own presence information and the persons to whom
they give access to their presence status. Privacy is ensured as users
must request permission to view the presence of others. Users can also at
any time revoke privileges to view their presence information.               
|
| |  | In contrast to many of todays instant communication solutions,
communication between users is encrypted in OZ ICS. This highly secure
system is desirable to business users, for example, who want to ensure
that all communications are confidential.                                                                                                                                                                                                                                                              
|
| |  | Integrated services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Users can access a variety of services from their contact lists; text
messaging is just the beginning. The systems open APIs (Application
Programming Interfaces) give mobile operators the flexibility to add new
communication, information                                                                                                                                                                                                                                                                       

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| |  | and entertainment services to users contact lists. This method of
accessing services is natural for end users and offers a simple way for
mobile operators to introduce new value-added services such as voice
conferencing.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OZ® Mobile Communities Solution

The OZ Mobile Communities Solution (OZ MCS) is a complementary client and
server software application that enables mobile operators to capitalize quickly
on the market opportunity for wireless group communications and tap into the
growing revenue stream from the SMS phenomenon. We think of OZ MCS 1.0 as an
SMS accelerant, providing a rich user experience on existing handsets and
networks, and creating greater demand for and value from a mobile operators
existing SMS implementations. OZ MCS 1.0 is commercially available and as of
April 1, 2002, one virtual mobile operator has agreed to implement it. We
intend to license OZ MCS and to host it for our customers when necessary.

With OZ MCS 1.0, subscribers can easily:



| |  |  | Create a group                                      
| | - |  | ----------------------------------------------------
|
| |  |  | Manage groups                                       
|
| |  |  | Invite others to join a group                       
|
| |  |  | Opt into and out of a group                         
|
| |  |  | Share groups with other people                      
|
| |  |  | Communicate with all group members, at the same time

OZ MCS is designed from the ground up for SMS usage, enabling all
operators subscribers to join or create a community of their own. Virtually
all functions are available to end-users over SMS. Groups are assigned
persistent virtual SMS numbers, allowing users to store group phone numbers
in their phone books next to regular contacts, and initiate group messages in
the same way as sending an SMS message to individuals. Users can choose
whether to send group messages or to respond privately to messages. The OZ MCS
dynamic, 2-way SMS functionality enables users to be members of many groups at
the same time and to take part in multiple discussions at the same time.

With OZ MCS 1.0, mobile operators can offer companies a simple, effective
way to communicate with their customers and establish vibrant, interactive
customer relationships. OZ MCS gives companies the tools to add a mobile
dimension to their marketing communication mix and create innovative direct
marketing campaigns. Companies can also publish their group SMS numbers
openly, allowing subscribers to sign up for these groups from their mobile
phones.

Our Strategy

Our objective is to be a leading developer and vendor of software that
enable mobile network operators to capitalize on the market need for
presence-enabled instant communication services, such as instant messaging,
instant voice conferencing, content sharing and various forms of group
communications. The key elements of our strategy include expansion of our OZ
ICS platform, building strategic partnerships, strengthening our OZ® brand
through sales and marketing efforts and strategic acquisitions.

Sales and Marketing

As of February 28, 2002, we had 4 persons in sales and marketing based in
the United States, 4 persons in sales and marketing based on Canada, and 3
persons in sales and marketing based in Europe. We are currently expanding our
sales efforts by building strategic relationships with marketing and
distribution partners, and may add sales and marketing personnel in the near
future.

Sales

We presently have established sales offices in San Diego and Reykjavik.
The San Diego office works closely with our technical team in Montreal to take
responsibility for sales efforts in North America. The Reykjavik office is
responsible for sales in Europe.

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We believe that our success depends in large part on our ability to
increase sales of our products and services through value-added resellers and
other indirect distribution channels. We will approach potential customers as
partners, introducing them to a business concept with new revenue streams,
increased customer loyalty and increased brand recognition.

We offer our products to customers on a fixed-price per user basis and on
a revenue-sharing basis.

Marketing

Our main marketing objective is to achieve industry and market recognition
for our company as a leading expert and pioneer of presence enabled
communication services. We are a market-driven organization, and know that only
by studying market needs and trends can we succeed in the market.

We did not invest heavily in corporate communication programs during the
year ended December 31, 2001 because of our focus on supporting Ericssons
sales of iPulse. However, we expect to begin dedicating significant
resources to the promotion of OZ ICS and OZ MCS during 2002, as well as future
products.

We participate in selected industry and technology related events and
conferences in order to increase our visibility and our technology, addressing
topics such as Wireless Village, wireless Internet, presence management,
wireless application protocol, intelligence of IP networks and security.

Customers

We are focusing all of our current efforts on mobile operators. Our sales
strategy is to target the established major mobile operators directly and
through reseller relationships. Although we believe that virtual mobile
network operators and Internet businesses such as portals and e-commerce sites
are likely customers of our products and services, we believe our limited
resources are better spent selling to mobile operators.

Competition

The market for our products and services includes a large number of
participants, is subject to rapid changes and is highly competitive. While the
Wireless Village initiative will bring standardization to our target market and
is likely to increase interest in solutions such as ours, it also makes the
competitive landscape clearer and our ability to distinguish ourselves harder.
As a result of our work with Ericsson during the last few years, we believe we
are among the forerunners of Wireless Village development and we believe that
our products will offer more features and be more technically mature than those
of most of our competitors. Some of our current and potential competitors
include the following:



| |  |  | Infrastructure and application providers. Companies such as
Openwave, Messagevine and Followap are competing directly with us,
and are taking part in the Wireless Village initiative for Instant
Messaging and Presence Services along with us.                                                                                                                                                                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Instant messaging providers. AOL, MSN and Yahoo all offer
mobile operators some kind of partnering agreements, whereby mobile
operators provide the wireless network and the IM providers extend
their reach to mobile devices and increase the traffic on the
wireless network. These players represent a threat to mobile
operators who need to maintain control of the end user communication
experience in order to introduce new communication services to their
subscribers.                                                    
|
| |  |  | Mobile equipment manufacturers. Nokia and others are
developing and marketing server, browser and application software
products that may compete with our product and service offering.
These companies are also taking an active part in the Wireless
Village initiative, and may build Wireless Village compliant
solutions themselves. These companies already sell billions of
dollars worth of mobile handsets and other telecommunications
products to mobile network operators, which are our existing and
potential customers.

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Research and Development

Our future success depends on a number of factors, including our ability
to identify and respond to emerging technological trends in the target markets,
to develop and maintain competitive products, to enhance existing products by
adding features and functionality that differentiate them from those of our
competitors, and to bring products to market on a timely basis and at
competitive prices. As a result, we intend to continue to invest significantly
in research and product development of applications that further provide us
with a unique position in the market based on the underlying intelligent
functionality of our OZ ICS platform. We are attempting to reduce some of our
risk in the area of research and development by working with key customers to
develop product concepts and then to develop commercial versions of those
concepts with the understanding that the key customers will implement them. We
invested approximately $3.2 million and $2.4 million in research and
development in 2000 and 2001, respectively, none of the cost of which was borne
directly by our customers.

Product Development

Following the strategic approval and key customer validation of research
projects concerning software development, and appropriate preparation by
product marketing and product management, the engineering unit finalizes
software development projects. The engineering unit undertakes system
management, configuration management, implementation and testing. System
management is responsible for keeping total system design both sound and
complete. Configuration management is responsible for identification of
software items, controlling changes to them throughout the software life cycle
and managing releases of the items. Configuration management is also
responsible for defining and implementing company-wide configuration processes
according to international standards and best practices. Implementation is the
writing of the software code. Testing is performed in our test lab in
Montreal. The testing group verifies all requirements against the deliverable
product. Rational® Unified Process, a software engineering process, is applied
to all software development projects. Rational® Unified Process is a
registered trademark of Rational Software Corporation.

Project teams are formed for each software development project, with a
project manager responsible for resource allocation, deadlines and the overall
progress of each project. We may outsource well-defined projects to qualified
and pre-approved partners. In such cases, we also appoint a dedicated team
leader responsible for relations to the partner and project progress. The
delivery of finished products involves system integration that consists of
customer-oriented project teams performing the consulting and custom software
development required by individual customers deploying our products. As such,
each project is typically shorter than a core technology development and makes
use of our rapid development processes. Systems operations concern the
administration of the hosted services, installations and customer support.

Recruiting and Retention

As of February 28, 2002, we had approximately 109 full-time employees, of
whom 6 were located in the United States, 58 were located in Iceland, and 45
were located in Canada. Seven of the employees located in Iceland are members
of trade unions, including the Iceland Commerce Union, the Union of
Electricians and the Union of Engineers.

Our success will largely depend on our ability to attract, identify,
recruit, hire, professionally develop and retain highly qualified employees.
We work to ensure that recruiting efforts do not negatively impact the
nurturing of current employees and their working environment. The Chief
Operating Officer is responsible for developing recruitment strategies and
retention programs, while departmental directors are responsible for filling
open positions in their local departments. Local administration directors are
responsible for surveying job satisfaction levels, employee development and
employee-related services in each office.

We have established a stock option program and a competitive compensation
program to attract new personnel. See Management  Employee Stock Option Plan
and Stock-based Compensation.

Intellectual Property Rights

Our success depends significantly upon our proprietary technology. To
protect our proprietary rights, we rely on a combination of copyright and
trademark laws, patents, trade secrets, confidentiality agreements with
employees and third parties and protective contractual provisions. All of our
employees are subject, either by contract or statute, to confidentiality and
non-use restrictions that transfer particular rights that they may have in
copyrightable works or patentable technologies to us. In addition, prior to
entering into discussions with potential affiliates regarding our business and
technologies, we generally require that such

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parties enter into a nondisclosure agreement with us. If these
discussions result in a license or other business relationship, we also
generally require that a written agreement be made setting forth the parties
respective rights and obligations, including provisions for the protection of
our intellectual property rights.

OZ ICS 2.0 is based in part on the iPulse technology that we co-developed
with Ericsson and that was based on our technology, which we had licensed to
Ericsson. Ericsson granted us an unlimited, fully paid up license to all of
Ericssons technology that had been incorporated into the iPulse product as of
January 24, 2002. Ericsson also transferred to us an equal and undivided share
of its rights in the iPulse trademark. We have registered the trademark OZ
in the United States and we own several domain name registrations including our
company name and related products. Suites of mobile concepts relating to OZ
ICS such as mPresence, mCommerce and mBusiness, are the subjects of pending
trademark registrations. We may seek to register additional service marks and
trademarks, as appropriate. However, we may not be successful in obtaining the
service marks and trademarks for which we have applied.

We have filed several patent applications that are pending and relate to
innovative solutions including server, audio and agent technology relating to
the Internet and multi-user technologies. Additional patent applications are
in preparation on other features of our technology. We have instituted an
employee incentive program for patent filing and anticipate increased patent
application activity in the future. However, patents with respect to our
technology may not be granted, and, if granted, patents may be challenged or
invalidated. In addition, issued patents may not provide us with any
competitive advantages and may be challenged.

Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products or services or obtain and use
information that we regard as proprietary. The laws of some foreign countries
do not protect proprietary rights to as great an extent as do the laws of the
United States.

Risk Factors

See also Note on Forward-Looking Statements regarding the uncertainties
and risks inherent in our forward-looking statements presented under
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Business and elsewhere herein.

Risk Factors Relating to Our Business

We Have A Limited Operating History; History of Net Losses and No Assurance of Future Profitability

We were incorporated in California in 1995. Although communications and
the Internet were central to our operations since our incorporation, we did not
begin developing our core products until 1996. Until January 2002, we were
committed to developing and promoting iPulse, which Ericsson has elected not to
commercialize. Accordingly, we have only a limited operating history upon
which you can base an evaluation of our business. Furthermore, as discussed in
note 1 to our consolidated financial statements, our recurring losses from
operations, negative cash flows, and future need for additional capital raise
substantial doubt about our ability to continue as a going concern, and our
financial statements have been prepared assuming that we will continue as a
going concern. We have incurred significant net losses since inception,
including losses of $13,965,880 and $24,643,372, for the fiscal years 2000 and
2001, respectively and had received no revenue from our core products through
the end of 2001. Over time we intend to increase expenditures in order to fund
the continued expansion of our operations in North America and Europe through
an increase in our sales and marketing force and a higher number of technically
skilled professional staff. To the extent such expenditures are incurred and
revenues do not correspondingly increase, our operating results would be
materially and adversely affected. In addition, future operating results will
depend on many other factors, including the growth of the market for wireless
Internet-based services, competition, and our success in expanding our direct
sales and marketing organizations and in attracting and retaining additional
skilled professional staff, as well as general economic conditions and other
factors. Accordingly, we cannot be sure that we will be profitable in future
periods. See Managements Discussion and Analysis of Financial Condition and
Results of Operation  Overview.

We May Not Be Able to Obtain Additional Needed Capital

We have experienced negative cash flow from operations since our inception
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our existing capital
resources will be

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sufficient to meet our presently anticipated cash requirements for the
next nine months. In addition, we expect that it will be necessary to obtain
additional capital to meet adequately managements growth objectives and to
implement fully our business plan. We may seek additional debt or equity
financing through public or private placements of our securities or through
banks, financial institutions or companies. We cannot be sure that any such
financing will be obtained or, if obtained, will be adequate to meet our needs.
If we are not able to obtain additional financing on satisfactory terms when
needed, our business, operating results and financial condition may be
materially and adversely affected.

We Had a Concentration of Revenues from a Single Customer and May be Dependent on a Limited Number of Customers

In recent years we have derived a significant portion of our revenues from
a single customer, with whom we have terminated our development relationship.
During 2001, Ericsson accounted for approximately 96.5% of our total revenues.
In addition, we believe that a major part of our revenues in the foreseeable
future may be derived from a limited number of customers. The termination of
business relations with Ericsson or any future agreement with a significant
customer could have a material adverse effect on our business, operating
results and financial condition. Furthermore, a decision by any large customer
not to proceed with a project to the stage we anticipate could have a material
adverse effect on our business, operating results and financial condition.

We Have Terminated Two Strategic Relationships and Our Ability to Survive Depends on Securing Additional Sources of Revenues

We have terminated two strategic relationships upon which we had placed
great reliance.

Between June and October 1999 Ericsson acquired 10,052,431 shares of our
Series A Preferred stock. On November 8, 2000, Ericsson acquired 5,069,271
shares of our Common Stock in connection with our acquisition of MCE Holding
Corporation, which was formed as a strategic alliance between Ericsson and
Microcell. MCE Holding Corporation was the parent company of OZ Communications
Co. (formerly known as OZ.COM Canada Company, OZ Canada). As a result of
these acquisitions of our securities, Ericsson holds approximately a 22.15%
ownership interest in us as of December 31, 2001 (assuming conversion by all
holders of Series A Preferred stock).

On January 24, 2002 we entered into an agreement with Ericsson Radio
Systems AB, Ericsson Telecom AB, Ericsson Inc. and Ericsson Canada Inc.
(collectively, Ericsson) ending more than three years of cooperation with
Ericsson to develop and market the iPulse software. Under the terms of the
agreement Ericsson agreed to pay us an aggregate of $6 million prior to the end
of the quarter ending March 31, 2002 and irrevocably (a) assigned to us an
equal and undivided share of its right, title and interest in and to (i) the
iPulse software, including source and object code, (ii) the iPulse trademark,
and (b) granted to us a worldwide and perpetual license for all purposes to all
other intellectual property rights contained in and related to the iPulse
software, including any patent rights, copyrights, rights to photographs,
design rights, technical documentation and any other industrial and
intellectual property rights contained in the source and object code. Under
the terminated agreements, only Ericsson was entitled to accept orders for the
iPulse software, which is a presence and communication platform for mobile
operators. Now we and Ericsson each have the right to exploit the iPulse
software in any way that we each see fit. The agreement expressly terminates
all other contracts with Ericsson except for the shareholder rights agreement
made and entered into as of February 4, 1999 with Ericsson Inc. and certain of
our shareholders.

While we see some advantages to co-owning the iPulse technology and to
being independent from Ericsson in developing our own product and sales
strategy, we are mindful that Ericsson has been our primary source of revenues
for the last three years. Consequently, the termination of the agreements with
Ericsson will result in the loss of the main source of our historical revenues.
If we are unable to secure additional sources of revenue, the termination of
the agreements with Ericsson will have a material, adverse affect on our
business and results of operations. We may not be able to survive the
termination of our agreements with Ericsson.

We also developed a strategic relationship with Microcell through the
acquisition of the shares of MCE Holding Corporation. In connection with the
transaction, Microcell acquired 11,405,860 shares of Common Stock. In
addition, OZ Canada had entered into a general co-operation and development
agreement with Microcell prior to the transaction, under which Microcell agreed
to purchase $9 million of development work and consulting services. The
parties subsequently entered into several specific agreements under which OZ
Canada undertook development projects for Microcell Labs Inc. On February 28,
2002, OZ Canada and we entered into a series of amending agreements with
Microcell Labs Inc. and Microcell Capital II Inc. (collectively, Microcell).
Under the terms of the agreements the parties have terminated all specific
development agreements between the

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parties, terminated Microcells right to require us to redeem Microcells
shares of our common stock, terminated Microcells obligation to pay minimum
quarterly payments of $750,000 for development services, replaced a license of
Ericssons iPulse 1.5 with a license of OZ ICS 2.0 and terminated certain of
Microcells rights under a shareholder agreement. In partial consideration for
our agreement to make the amendments, Microcell has surrendered to us 5,299,160
shares of our common stock for cancellation. As of February 28, 2002,
Microcell Labs Inc. holds 6,106,700 shares of our common stock, which equals
approximately a 5.37% ownership interest (assuming conversion by all holders of
Series A Preferred stock).

We believe that we may establish more strategic business relationships
with other business partners in the future. The inability to develop new
relationships, particularly in the new markets we are seeking to enter, could
have a material adverse effect on our business, operating results and financial
condition.

Our Revenues and Operating Results Are Expected to Vary from Quarter to Quarter

Our revenues and operating results are expected to vary, sometimes
substantially, from quarter to quarter. These fluctuations may result in
volatility in the price at which shares of our stock may trade. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including:



| |  |  | the timing of recognition of long-term agreements, particularly those with investors;                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing of large transactions;                                                                                         
|
| |  |  | our estimated initial sales cycle of six to nine months;                                                                  
|
| |  |  | the proportion of revenues attributable to revenue-sharing or
fixed per end-user fees versus revenues from software sales;
|
| |  |  | changes in the level of operating expenses;                                                                               
|
| |  |  | the utilization rate of our professional services employees;                                                              
|
| |  |  | demand for our products and services;                                                                                     
|
| |  |  | the introduction of new products and product enhancements by us or our competitors;                                       
|
| |  |  | changes in customer budgets;                                                                                              
|
| |  |  | competitive conditions in the industry; and                                                                               
|
| |  |  | general economic conditions.                                                                                              

Further, the purchase of our products and services often involves a
significant commitment of capital by our customers with the attendant delays
frequently associated with large capital expenditures and authorization
procedures within an organization. Accordingly, we expect that the sales
cycles for our products and services will be lengthy, with an estimated initial
sales cycle of six to nine months, and subject to a number of significant risks
over which we have little or no control, including customers budgetary
constraints and internal authorization reviews.

In addition, our quarterly operating results are also subject to seasonal
fluctuations. We do not yet see a pattern in licensing revenues (i.e., from
the sales of licenses of OZ ICS and complementary applications), but we have
observed seasonality in our service businesses. In particular, our third
fiscal quarter includes the months of July and August, when billable service
activity by professional staff, as well as engagement decisions by customers,
are reduced due to summer vacation schedules.

We May Not Be Able to Manage Growth

We are currently either maintaining or reducing our level of personnel and
expenditures. However, as we begin to promote and deliver the OZ ICS and
complementary applications we may experience a period of rapid growth in
personnel and expenditures that we expect will place a strain on our
administrative, financial and operational resources. In 2000, we opened a
Stockholm office, which was subsequently closed in June 2001. We also added a
Montreal office with a staff of 45 employees as of February 28, 2002. Our
total number of employees has decreased from 165 employees as of February 28,
2001 to 109 employees as of February 28, 2002. We intend to maintain or reduce
our present number of employees for the balance of 2002, and then to expand on
a selected basis in North America and Europe and to increase the number of our
professional staff significantly in 2003. Such expansion, if achieved, would
place a further strain on our resources and increase operating costs. Our
ability to manage our growth effectively will require us to continue to improve
our operations, financial and management controls, reporting systems and

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procedures, and to train, motivate and manage our employees and
consultants and, as required, to install new management information and control
systems. We cannot be certain that we will be able to implement improvements
to our management information and control systems in an efficient and timely
manner or that, if implemented, these improvements will be adequate or
sufficient to support our operations. Any inability to manage successfully
future expansion could have a material adverse effect on our business,
operating results or financial condition. We cannot be certain that our
contemplated growth rate will be achieved, or if achieved, be maintained or
that we will be successful in managing our growth.

We Are Exposed to the Risks Associated with Multinational Operations

Subject to financing, we intend to expand our business in North America
and Europe. The expansion of our business to different geographical areas is
subject to risks inherent in traditional multinational business activities,
including, in particular, foreign currency exchange rate fluctuations, overlap
of different tax structures, management of an organization spread over various
countries, different regulatory regimens and unexpected changes in regulatory
requirements, compliance with a variety of foreign laws and regulations,
including employment law and practices, and longer accounts receivables payment
cycles in some countries. Any of the foregoing as well as other risks inherent
in traditional multinational business activities could have a material adverse
effect on our business, operating results and financial condition.

Our Success Depends in Part on Our Ability to Attract and Retain Technically Skilled Professional Staff Who Are in Great Demand

Our business involves the development of highly technical products and
services and relies on the ability to respond to rapid technological changes.
Accordingly, our success and future growth depend in part upon our ability to
attract, develop, motivate, integrate and retain highly skilled professional
staff, such as engineers, technical support persons, and sales and human
resources staff. Over time we intend to expand significantly our sales and
marketing force and the number of our technically skilled professional staff to
support our expansion. Although we believe that these expenditures will
benefit our business in the long term, we expect that such expenditures could
materially and adversely affect our operating results in the short term.

Technically qualified professional staff is in great demand in Europe and
North America and are likely to remain a limited resource for the foreseeable
future. Competition for qualified personnel in the wireless software industry
is particularly fierce and competitors may in the future seek to recruit our
employees. Although we have successfully recruited skilled professionals in
the past, we cannot be certain that we will be able to attract and retain
sufficient numbers of highly skilled professional staff in the future. The
inability to expand our organization and increase the size of our professional
staff at reasonable costs on a timely basis or the loss of highly skilled
professional staff could have a material adverse effect on our business,
operating results and financial condition.

Our Success Depends on Our Key Executives

Our success is highly dependent upon the efforts and abilities of our
executive officers, in particular: Messrs. Skuli Mogensen, co-founder and Chief
Executive Officer, and Gilles Lapierre, Vice President and Managing Director OZ
Communications Co. (Canada). Although these executives have entered into
employment agreements, these contracts may not be enforceable in their
entirety, and in any event do not guarantee that these individuals will
continue their employment with us. We do not maintain key man insurance with
respect to any of our executive officers. The loss of the services of any of
these key executives, for any reason, could have a material adverse effect upon
our business, operating results and financial condition.

We May Be Adversely Affected by Potential Software Defects or Errors

Our software is complex and must meet the stringent technical requirements
of our customers. We must develop our products quickly to keep pace with the
rapidly changing industry in which we operate. Software products that are as
complex as those that we produce generally contain undetected errors or
defects, particularly when first introduced or when new versions are released.
In addition, our software may not properly operate when integrated with the
systems of our customers, or when used to deliver services to a large number of
a customers subscribers.

While we continually test our products for errors and work with our
customers through our customer support services to identify and correct bugs,
errors in our products may be found in the future. Testing for errors is
complicated in part because it is difficult to simulate or anticipate the
computing environments in which our customers use our products. Our software
may not be

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free from errors or defects even after it has been tested, which could
result in the rejection of our products and damage to our reputation, as well
as lost revenue, diverted development resources, and increased support costs.

We May Incur Risk of Product Liability Claims

We may be subject to claims for damages related to any errors in our
software products. A major product liability claim could have a material
adverse effect on our business because of the costs of defending against these
types of lawsuits, diversion of key employees time and attention from the
business and potential damage to our reputation. In the past, we have
negotiated provisions in our license agreements with our customers that were
designed to limit exposure to potential product liability claims. However,
there is no assurance that similar provisions will be included in any future
agreements. Furthermore, limitation of liability provisions contained in our
license agreements may not be effective under the laws of some jurisdictions if
local laws treat them as unenforceable. As a result, we could be required to
pay substantial amounts of damages in settlement or otherwise upon resolution
of any of these types of claims.

Encryption Technology Restrictions

The United States government generally limits the export of encryption
technology that originates from the United States, and a variety of
cryptographic products generally require export approvals from certain United
States government agencies, such as the Bureau of Export Administration.
Currently, our products and solutions do not incorporate encryption technology
that is subject to United States export restrictions nor do we require export
approvals from United States agencies. We may in the future, however,
incorporate technology requiring export approval into our products and
solutions. If any export approval that is required is refused, if our software
is unlawfully exported or if the United States adopts new legislation or
regulations restricting exports of software and encryption technology, we may
not be able to distribute our solutions to potential customers, which will
cause a decline in our sales. We may need to incur significant costs and
divert resources to develop replacement technologies or may need to adopt
inferior substitute technologies to satisfy these export restrictions. These
replacement or substitute technologies may not be the preferred security
technologies of customers. This could lead to a lack of growth for our
business. In addition, we may suffer similar consequences if the laws of any
other country limit the ability of third parties to sell encryption
technologies to us.

We May Not Be Able to Obtain
Third-Party Software, Technology and Content

We may license or
otherwise obtain access to the intellectual property of third
parties, including third-party software, which may not be available
to us in the future on commercially reasonable terms or at all. The
loss of, or inability to maintain or obtain, any required
intellectual property could require us to use substitute technology, which
could be more expensive or of lower quality or performance, or force
us to cease offering our products. Moreover, we expect that some of
our license agreements in the future may be non-exclusive and,
therefore, competitors may have access to the same technology.

Our Success Depends On Intellectual Property Rights

Our success depends upon the use of patents, trademarks and other
proprietary intellectual property rights related to OZ ICS and OZ MCS.
Although we have applied for trademark registration of our marks and for
patents on our technologies such as those relating to real-time simulations
over networks, no trademark registration or patent has yet been issued except
for the trademark OZ. Further, we cannot be certain that any such trademark
registrations or patents will be issued or if issued will not be challenged or
invalidated. We rely upon a combination of nondisclosure and other contractual
arrangements together with trade secret, copyright and trademark laws to
protect our proprietary rights and the propriety rights of other parties from
whom we license intellectual property. We enter into confidentiality
agreements with our employees and limit distribution of proprietary
information. We cannot be certain that the steps taken by us in this regard
will be adequate to deter misappropriation of proprietary information or that
we will be able to detect unauthorized use and take appropriate steps to
enforce our intellectual property rights or that our competitors will not
independently develop superior technologies.

Although we believe that our services do not infringe on the intellectual
property rights of others and that we will have all rights necessary to utilize
the intellectual property employed in our business, we are subject to the risk
of litigation alleging infringement of third-party intellectual property
rights. Any such claim could require us to spend significant sums in
litigation, pay damages, develop non-infringing intellectual property or
acquire licenses to the intellectual property that is the subject of asserted
infringement.

We Operate in a Highly Competitive Market and May Not Compete Successfully

The wireless Internet software and application service market includes a
large number of participants, is subject to rapid changes and is highly
competitive. Although no competitor offers exactly the same types of wireless
Internet products as we do, our competitors currently offer or have the
potential to offer either a total end-user solution to operators and service
providers or to compete with various components of our Instant Communication
Platform and complementary applications such as OZ MCS. Openwave is an example
of one of our competitors. Many of our competitors have substantially greater
financial, technical and marketing resources than we have. Several of these
competitors also have greater name recognition and more established

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relationships with the same companies that we are targeting. Our
competitors may be able to respond more quickly than we can to new or emerging
technologies and changes in customers requirements or devote greater resources
than we can to the development, promotion and sale of new service offerings.
We cannot be certain that we will be able to compete successfully with these
competitors or that competition may not have a material adverse effect on our
business, operating results and financial condition.

We also expect to face additional competition as other established and
emerging companies enter the wireless Internet software and application service
markets and new service offerings and technologies are introduced. Our current
and potential competitors include:



| |  |  | infrastructure and application providers, such as Openwave, Messagevine and Followap;             
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | mobile equipment manufacturers, such as Ericsson, Motorola or Nokia; and                          
|
| |  |  | instant messaging providers that may team up with operators, such as AOL, Microsoft MSN and Yahoo!

Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their service offerings to address the needs
of our current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Increased competition could result in
lower utilization rates, billing rate reductions, fewer customer engagements,
reduced gross margins and loss of market share, any one of which could
materially and adversely affect our business, operating results and financial
condition. We cannot be certain that we will be able to compete successfully
with existing or new competitors and competition could have a material adverse
effect on our business, operating results and financial condition.

We May Not Respond to Rapid Technological Change

The wireless Internet software and application service market is rapidly
evolving and is characterized by an increasing number of market entrants that
have introduced or developed, or are in the process of introducing or
developing, products and services that facilitate the delivery of
Internet-based services through wireless devices. As a result, the life cycle
of our products is difficult to estimate. We may not be able to develop and
introduce new products, services and enhancements that respond to technological
changes or evolving industry standards on a timely basis, which could have a
material adverse effect on our business operating results and financial
condition.

Our Success Depends on Continued Growth of Mobile Communications

Our future success depends to a large extent on the continued growth of
mobile communications, and the adoption of new communication services such as
multimedia messaging services and those specified by the Wireless Village
initiative. The current trend which indicates significant increases in mobile
communications over the next few years may not continue and therefore adversely
affect our business.

Our Success Depends on the Success of Mobile Network Operators

We believe that a major part of our future revenues will derive from sales
of OZ ICS, OZ MCS and complementary applications to existing and new mobile
network operators. Therefore, our future success depends on the acceptance by
mobile network operators of these new products and services that we may not be
able to achieve. This dependence is compounded by the fact that there are a
relatively small number of mobile network operators worldwide. To date, we
currently have one virtual mobile network operator customer that has acquired a
license to use OZ MCS and complementary applications. We cannot be certain
that mobile network operators will use our products widely. In addition,
historically mobile network operators have been relatively slow in implementing
new complex services such as Internet-based services. We have limited or no
control over the pace at which mobile network operators will implement these
new services. The failure of mobile network operators to introduce and support
services utilizing our products on a timely and effective manner could have a
material adverse effect on our business, operating results and financial
condition.

In addition, the success of our products once they have been implemented
by mobile network operators will depend in significant part on our continuing
ability to develop and introduce new and improved versions of existing products
and service offerings. There can be no assurance that we will be successful in
developing, introducing on a timely basis and marketing such

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products and service offerings. In addition, there can be no assurance
that mobile network operators will not cease to buy our products and to
subscribe to our services, on account of technologies or service offerings
developed by others or the mobile network operators themselves that render our
products and services uncompetitive or obsolete. The failure of mobile network
operators to purchase our products and subscribe to our services could have a
material adverse effect on our business, operating results and financial
condition.

We expect that our pricing model for OZ ICS, OZ MCS and complementary
applications will in many cases be based on a revenue sharing model in which we
take a percentage of revenues resulting from each end user who uses the
services or is exposed to advertisements. Therefore, our future revenues will
be largely dependent on the number of subscribers to the mobile network
operators that utilize our products and services. In addition, we can make no
reasonable estimate as to the rate of adoption by the subscribers of the
particular services offered through our products. It is therefore difficult to
predict the size of our future revenues, and such future revenues will be
largely dependent on the number of subscribers to the mobile network operators,
in general, and the subscription to the services offered through our products,
in particular. In addition, we have difficulty estimating the price that
subscribers will be willing to pay for these services. As a result, it is
difficult to estimate the pricing of these services and consequently the future
size of our revenues.

Our Success Depends on Market Acceptance of Wireless Telephones for Wireless Delivery of Internet-based Services

We have focused our efforts on the convergence of fixed and wireless
Internet-related communication. Our technological solutions are not necessarily
dependent on wireless devices for the conveyance of the communication.
However, we believe that the success of our products is interlinked with the
acceptance by the market of wireless devices as a viable means for
Internet-based services giving more mobile network operators an incentive to
adopt technological solutions supporting such services. We cannot be sure of
such market acceptance. In any event, acceptance may be delayed for a number
of reasons. These reasons could include:



| |  |  | inadequate supply of the required hardware and software;                                  
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | limitations to the performance and functionality of wireless devices;                     
|
| |  |  | conflicting technical standards and lack of interoperability;                             
|
| |  |  | lack of adequate Internet-based applications and content for such Internet-based services;
|
| |  |  | costs; and                                                                                
|
| |  |  | inadequate security arrangements.                                                         

The lack of or delay in market acceptance for wireless devices as means for
wireless delivery of Internet-based services could have a material adverse
effect on our business, operating results and financial condition.

Risks Relating to Our Securities

There is no Public Market for Our Common Stock

Currently, there is no organized public trading market for our common
stock, and we cannot be certain that an active trading market will ever develop
or be sustained. Even if a market should develop there can be no assurance
that all market making activity may not cease at any time. If a market for our
common stock does develop, the market price of the common stock may be highly
volatile. Any securities broker-dealer that makes a market in our securities
may have significant influence over the market, and if any market develops, the
price and liquidity of the common stock may be affected by the degree of
participation of any person in the market. Therefore, purchasers of our common
stock may be unable to liquidate their investment readily or at all.

The Stock Price for our Shares may be Volatile

Should a market for our common stock develop, it will be affected by a number of factors, including:



| |  |  | the announcement of new products or service offerings by us or our competitors;
| | - |  | -------------------------------------------------------------------------------

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| |  |  | quarterly variations in our results of operations or the
results of operations of our competitors or companies in related
industries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in earnings or revenue estimates or recommendations by securities analysts;                                                  
|
| |  |  | developments in our industry;                                                                                                        
|
| |  |  | general market conditions;                                                                                                           
|
| |  |  | future sales of substantial amounts of shares by our shareholders; and                                                               
|
| |  |  | other factors, including factors unrelated to our operating performance or the performance of our competitors.                       

In addition, stock prices for many companies in the technology field have
experienced, and continue to experience, wide fluctuations that have often been
unrelated to the operating performance of such companies. Such factors and
fluctuations, as well as general economic, political and market conditions in
markets where we conduct business, such as recessions, may materially and
adversely affect the market price of our securities.

Our Outstanding Obligations to Issue Additional Shares of Common Stock May
Adversely Affect Our Ability to Obtain Additional Equity Capital

We are obligated to issue 28,541,928 shares of common stock upon the
conversion of the shares of our Series A Preferred stock outstanding as of
February 28, 2002. As of February 28, 2002, 8,116,185 shares of common stock
were available for issuance pursuant to options that may be granted under our
1995 Stock Option Plan and 682,076 shares of common stock were available for
issuance pursuant to grants under our 1998 Incentive Stock Option Plan. As of
the same date, options to purchase a total of 5,858,650 shares of common stock
were outstanding under the 1995 Stock Option Plan. Warrants to purchase an
aggregate of 308,000 shares of common stock were also outstanding as of
February 28, 2002. To the extent that options, warrants or other obligations
for the issuance of common stock are granted or exercised, dilution to the
interests of the existing holders of common stock may occur. Moreover, the
terms upon which we will be able to obtain additional equity capital may be
adversely affected because holders of outstanding options, warrants or other
obligations can be expected to exercise them at a time when we in all
likelihood will be able to obtain any needed capital on terms more favorable to
us than those provided by such outstanding obligations.

We May Issue Additional Stock and This May Have a Dilutive Effect

We are currently authorized to issue two classes of stock, which are
designated Common Stock and Preferred Stock. The authorized number of
shares of Preferred Stock is presently 25,000,000 shares. 20,000,000 shares of
the Preferred Stock are currently designated as Series A Preferred. The
authorized number of shares of Common Stock is 275,000,000. Accordingly, we
may in the future authorize without further shareholder approval the issuance
of additional shares of Common Stock or Preferred Stock. Any such future
issuance of our capital stock could have a dilutive effect on the holders of
our stock.

Current Directors and Officers May Effectively Control the Company

Our directors and officers as a group beneficially owned approximately
62.6% of our Common Stock (prior to any conversion of the Series A Preferred
stock) as of February 28, 2002. As a result, these shareholders, if acting
together, would be able to control effectively matters requiring approval by
our shareholders, including election of at least a majority of our Board of
Directors and approval of significant corporate transactions, except for
certain matters as to which the holders of the Series A Preferred stock vote as
a separate class.




Item 2. Facilities

We maintain offices at (1) Snorrabraut 54 and Snorrabraut 56, IS-105,
Reykjavik, Iceland, (2) 6455 Lusk Blvd., San Diego, California and (4) Windsor
Station, Room 150, 1100 de La Gauchetière West, Montreal, Canada. We own the
facility at Snorrabraut 54, Iceland and rent all the other offices from
unaffiliated parties. We have pledged the Snorrabraut building as collateral
for outstanding loans. The amount due on these loans was $863,000 at December
31, 2001. Our subsidiary, SmartVR, Inc., maintains an office at Skipholt 50b,
IS-105 Reykjavik, Iceland.

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The rent for the Snorrabraut 56, Iceland office, which consists of 451.7
square meters, is ISK 355,738 per month ($3,433 at December 31, 2001), subject
to monthly adjustment in accordance with the price-index for housing in
Iceland. The lease terminates on November 1, 2004.

The rent for the San Diego office, which consists of approximately 455
square feet, is $1,092 per month on a full service gross basis, including
Internet connectivity. The lease runs from month-to-month and may be
terminated by either the landlord or us upon thirty days notice.

The rent for the Canada office, which consists of approximately 18,500
square feet, is (CAN) $1.25 ($0.78 at December 31, 2001) per square foot per
month on a full service gross basis. The term of the lease expires on April
30, 2011.

The rent for SmartVR, Inc.s office, which consists of approximately
224.17 square meters, is 250,324 ISK per month ($2,416 at December 31, 2001).
The term of this lease expires on September 1, 2007.




Item 3. Legal Proceedings

None.




Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to our shareholders during the fourth quarter of
2001.

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PART II




Item 5. Market for Registrants Common Equity and Related Shareholder Matters

Market Information

Currently there is no organized public trading market for our Common
Stock. No class of our capital stock is quoted on either the National
Quotations Bureau Pink Sheets or the NASD OTC Bulletin Board.

Dividends

We have not paid dividends since our formation and do not anticipate
paying dividends in the foreseeable future. Any future determination to pay
dividends will be at the discretion of the Board of Directors and will be
dependent upon our financial condition, business, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant.

Holders

As of February 28, 2002, there were 1,281 holders of record of Common
Stock and 23 holders of record of Series A Preferred stock.

As of February 28, 2002, 85,088,436 shares of Common Stock and 14,270,964
shares of Series A Preferred stock were outstanding. Shares held by our
affiliates, as defined in Rule 144 of the Securities Act, may be sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144.




Item 6. Managements Discussion and Analysis or Plan of Operation

The following discussion of our financial condition and results of
operations should be read in conjunction with the supplemental consolidated
financial statements and the related notes included elsewhere in this filing.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements.

Overview

Since we were incorporated in December 1995, we have devoted substantially
all of our resources to developing our multi-user communications platform,
first in the context of three-dimensional (3D) online environments, and since
1997, primarily in the context of wireless telecommunications networks. In
1998, we began working with Ericsson to develop a wireless Internet
communications platform that Ericsson called iPulse based on this technology.
We recently terminated our development relationship with Ericsson and have
been granted a fully paid up, nonexclusive and perpetual license to use the
iPulse technology to develop our own products. We have combined the iPulse
communications platform with the applications that we used to refer to as
mPresence to create an integrated mobile instant messaging and presence
management suite of products, which we now call the OZ Instant Communication
Solution. We have also developed a mobile group-collaboration product that we
call the OZ Mobile Communities Solution. We first recognized development
revenues in November 1998, and generated development revenues of approximately
$7.7 million per year in the years ended December 31, 2000 and 2001. We first
recognized license revenues in February 1999, and generated license revenues of
approximately $0.28 million in the year ended December 31, 2000 and
approximately $0.24 million for the year ended December 31, 2001.

We incurred net losses of approximately $24.6 million for the year ended
December 31, 2001 and $14.0 million for the year ended December 31, 2000. As
of December 31, 2001, we had an accumulated deficit of approximately $51.7
million. We are currently operating at a deficit and expect to continue
operating at a deficit over at least the next six months. We believe that our
historical operating results are not indicative of future performance for the
reasons discussed below.

In the year ended December 31, 2001 we generated revenues from the
delivery of development services, hosting and license fees. While in the
quarter ending March 31, 2002 we will recognize revenues from development
contracts that have terminated during the quarter, we do not expect to continue
providing development services or to recognize development revenues in future
quarters. We expect to generate future revenues from license fees and Internet
based services that we will provide to

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mobile network operators. We expect to begin receiving licensing revenues
from customers of the OZ Instant Communication Solution and our value-added
services in late 2002 or early 2003.

Our business strategy relies to a significant extent on the widespread
propagation of OZ ICS (Instant Communication Solution) and OZ MCS (Mobile
Communities Solution) through our relationships with network operators and
integrators and resellers of software solutions to mobile network operators.

Consequently, we expect that our future revenues will be derived from the
following:



| |  |  | Licensing fees and/or revenue sharing payments paid by
customers with respect to sales and licenses of OZ ICS and OZ MCS;
and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fees from client services that we provide to our customers.                                                                  

Our future success depends on our ability to derive revenues from the
sources identified above. If the market for Internet-based services via
wireless telephones fails to develop or develops more slowly than expected,
then our business would be materially and adversely affected. In addition,
because there are a relatively small number of network operators worldwide, any
failure to sell our products to network operator customers successfully could
result in a shortfall in revenues that could not be readily offset by other
revenue sources.

We expect that our gross profit on revenues derived from sales of our
products and services through future channel partners will be less than the
gross profit on revenues from direct sales. Our success, in particular in
international markets, depends in part on our ability to increase sales of our
products and services through value-added resellers and to expand our indirect
distribution channels.

We expect sales in Europe and Canada to account for a significant portion
of our revenues in the foreseeable future. Risks inherent in our international
business activities include:



| |  |  | failure by us and/or third parties to develop localized content and applications that are used with our products;
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| |  |  | costs of localizing our products for foreign markets;                                                            
|
| |  |  | difficulties in staffing and managing foreign operations;                                                        
|
| |  |  | longer accounts receivable collection time;                                                                      
|
| |  |  | political and economic instability;                                                                              
|
| |  |  | fluctuations in foreign currency exchange rates;                                                                 
|
| |  |  | reduced protection of intellectual property rights in some foreign countries;                                    
|
| |  |  | contractual provisions governed by foreign laws;                                                                 
|
| |  |  | export restrictions on encryption and other technologies;                                                        
|
| |  |  | potentially adverse tax consequences; and                                                                        
|
| |  |  | the burden of complying with complex and changing regulatory requirements.                                       

Since early 2000, we have invested substantially in research and
development, marketing, domestic and international sales channels, professional
services and our general and administrative infrastructure. These investments
have significantly increased our operating expenses, contributing to net losses
in each fiscal quarter since our inception. Our limited operating history
makes it difficult to forecast future operating results. Although we believe
that our revenues from sales of OZ ICS will commence by the third quarter of
2002 and grow over the following several quarters, our revenues may not
increase at a rate sufficient to achieve and maintain profitability, if at all.
We anticipate that our operating expenses will continue to decrease in the
short term as we make further reductions in our work force and further reduce
overhead. Even if we were to achieve profitability in any period, we may not
sustain or increase profitability on a quarterly or annual basis.

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Critical Accounting Policies

The Companys accounting policies are fully described in Note 1 of the
notes to the consolidated financial statements. As disclosed in Note 1 to the
consolidated financial statements, the preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements.

The most significant accounting estimates inherent in the preparation of
the Companys financial statements include estimates associated with its
revenue recognition, evaluation of the recoverability of long-lived assets,
collectibility of accounts receivable, valuation of common stock issued in
non-cash transactions, and assumptions used to determine the fair value of the
Companys stock at the date stock options are granted. Various assumptions and
other factors underlie the determination of these significant estimates. The
process of determining significant estimates is fact specific and takes into
account factors such as historical experience, current and expected economic
conditions, and in some cases valuation techniques used by valuation
specialists. The Company constantly re-evaluates these significant factors and
makes adjustments where facts and circumstances dictate. Historically, actual
results have not significantly deviated from those determined using the
estimates described above.

Results of Operations

The following table sets forth certain consolidated income statement data,
expressed as a percentage of revenues, for the years ended December 31, 2000
and 2001.

|                                         |                                      |                                   |        |              |      |      |        |       |      | 
|---------------------------------------- | ------------------------------------ | --------------------------------- | ------ | ------------ | ---- | ---- | ------ | ----- | ---- | 
|                                         |                                      |                                   |        | Years ended 
|                                         |                                      |                                   |        | December 31,
|                                         |                                      |                                   |        |             
|                                         |                                      |                                   |        | 2000         |      | 2001
|                                         |                                      |                                   |        |              |      |     
|Income Statement Data:                   |                                      |                                   |        |              |      |      |        |      
|Revenues                                 |                                      |                                   | 100.0  | %            |      |      | 100.0  | %    
|Cost of revenues                         |                                      |                                   | 61.7   |              |      |      | 82.2   |      
|Operating expenses:                      |                                      |                                   |        |              |      |      |        |      
|                                         | Sales and marketing expenses         |                                   |        | 59.9         |      |      |        | 29.2  |     
|                                         | General and administrative expenses: |                                   |        |              |      |      |        |       |     
|                                         |                                      | Amortization of intangible assets |        |              | 5.8  |      |        |       | 39.8 | 
|                                         |                                      | Stock-based compensation          |        |              | 15.8 |      |        |       | 20.5 | 
|                                         |                                      | Other                             |        |              | 75.6 |      |        |       | 85.2 | 
|                                         | Research and development             |                                   |        | 38.5         |      |      |        | 28.4  |     
|                                         | Impairment of intangible assets      |                                   |        |             |      |      |        | 104.7 |     
|Total operating expenses                 |                                      |                                   | 195.6  |              |      |      | 307.8  |      
|Operating loss                           |                                      |                                   | (157.3 | )            |      |      | (290.0 | )    
|Interest and other income (expense), net |                                      |                                   | (11.2  | )            |      |      | (2.3   | )    
|Net loss                                 |                                      |                                   | (168.2 | )            |      |      | (292.1 | )    

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues. Our revenues increased 1.6% to $8.4 million in 2001 from $8.3
million in 2000. The increase is primarily the result of an increase in the
volume of client services. Revenues from Ericsson increased 4.7% to $8.1
million in 2001 from $7.8 million in 2000. In the year ended December 31,
2001, 96.5% of our revenues were earned from Ericsson under the terms of a
single development contract and a license of our core technology. Ericsson
acquired the license because this technology was considered incidental to the
development work as it was expected to be integrated to some extent into most,
if not all, applications developed under our original general co-operation and
development agreement with Ericsson. In the year ended December 31, 2001, we
performed services under a second development contract with Ericsson and a new
development agreement with Microcell, although, as mentioned above, we received
payments totaling $5.25 million for consulting and development work performed
for Microcell and Ericsson that are not recognized as revenues under U.S.
generally accepted accounting principles. These payments were classified as
deferred revenues and will be recognized as revenues in the quarter ended March
31, 2002 as a result of the

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termination of the development agreements under which the services were
performed. Neither Ericsson nor Microcell is expected to be a significant
source of revenue in subsequent quarters of 2002.

Cost of Revenues. Cost of revenues consists of compensation and
independent consultant costs for personnel engaged in our developing services
operations and related overhead. We have had no significant cost of revenues
associated with our historical licensing revenues, which relate to a single
license of our core technology to Ericsson in 1999. Cost of revenues increased
to $6.9 million for the year ended December 31, 2001 from $5.1 million for the
year ended December 31, 2000. As a percentage of revenues, cost of revenues
for the years ended December 31, 2000 and 2001 was 61.7% and 82.2%
respectively. We anticipate that the cost of revenues will decrease as we
cease performing development services for Ericsson and Microcell. As we shift
our sales focus to sales and licenses of our own services, we expect to incur
the cost of third-party license and support fees, as well as the costs
associated with operating and maintaining our hosting center and network
operating center in Montreal.

Research and Development Expenses. Our research and development expenses
decreased 25.0% from $3.2 million in 2000 to $2.4 million in 2001. The
decrease is primarily the result of increased customer demand for specific
development work, leaving less room for independent research and development.
We expect to increase our investments in research and development and
anticipate that research expenses will increase in absolute dollars, although
we will try to control these expenses by performing development work only in
response to specific customer demand.

Sales and Marketing Expenses. Our sales and marketing expenses decreased
50.5% to $2.5 million in 2001 from $5.0 million in 2000. The decrease is
primarily the result of the elimination of the European sales organization
during 2001, including the closing of the sales office in Stockholm, Sweden and
the reduction of sales and marketing positions in the U.S. and Icelandic
offices.

General and Administrative Expenses. Our general and administrative
expenses, including stock-based compensation, depreciation and amortization of
intangible assets, increased 52.0% to $12.3 million in 2001 from $8.1 million
in 2000. The increases are due primarily to amortization of intangible assets
associated with the acquisition of MCE Holding Corporation in November 2000,
increased amortization of stock-based compensation and an impairment of
property and equipment. This was partially offset by the reduction of the
number of personnel performing general and administrative functions and the
closing of certain international operations. We expect general and
administrative expenses to decline in the short-term as the write down of the
intangible assets associated with the acquisition of shares of MCE Holding
Corporation, which will significantly reduce our amortization expenses and as
the effects of our continued reductions in general and administrative personnel
begin to impact our expenses.

Impairment of intangible assets. Our impairment of intangible assets was
$8.8 million in 2001 primarily as a result of the cancellation of the Ericsson
and Microcell development contracts in January and February of 2002.

Operating
Loss. Our operating loss increased 87.2% to $24.5 million in
2001 from $13.1 million in 2000. The increase is primarily the result of the
increase in General and Administrative Expenses, due to the impairment and
amortization of intangible assets associated with the acquisition of the shares
of MCE Holding Corporation, which was partly offset by a decrease in other
operating expense categories.

Interest Income (Expense), net. Our interest income, net was $0.001
million in 2001 compared to interest income, net of $0.3 million in 2000. The
decrease is primarily the result of the decrease of cash and cash equivalents
from 2000 to 2001 and an increase in cash paid for interest.

Other Income (Expense), net. Our other expense, net was $0.2 million in
2001 compared to other expense, net of $1.3 million in 2000. The decrease is
primarily the result of a foreign currency exchange losses in 2000.

Liquidity and Capital Resources

From December 31, 2000 to December 31, 2001, our total assets decreased
from $27.4 million to $10.7 million, total liabilities increased from $4.9
million to $11.1 million and total shareholders equity decreased from $18
million to a shareholders deficit of $4.9 million. The decreases in total
assets and total shareholders equity resulted primarily from the write down of
the intangibles acquired in connection with the acquisition of shares of MCE
Holding Corporation, and the increase in total liabilities resulted from the
increase in deferred revenues, resulting from consulting and development work
performed for Microcell and

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Ericsson that are not recognized as revenues under U.S. generally accepted
accounting principles. These payments will be recognized as revenues in the
quarter ended March 31, 2002 as a result of the termination of the development
agreements under which the services were performed.

Our primary liquidity needs are for working capital, capital expenditures,
acquisitions and investments, and, to a lesser extent, debt service. Our
primary sources of liquidity are cash flows from operations and issuances of
stock.

Net cash used in operating activities was $2.6 million for the year ended
December 31, 2001, compared to $10.4 million for the year ended December 31,
2000. The decrease in net cash used in operating activities in 2001 was due
primarily to the decrease in accounts receivable and increase in deferred
revenue.

Our deficiency in working capital at December 31, 2001, including current
portion of deferred revenue of $8.3 million and a convertible loan in our
SmartVR, Inc. subsidiary of $0.8 million, was $6.8 million compared to working
capital of $4.1 million at December 31, 2000. The deficiency in working
capital as of December 31, 2001 was comprised of $0.7 million in cash, $3.1
million in accounts receivable, and $0.2 million in prepaid expenses and other
current assets, net of $2.4 million in current liabilities and $8.3 million in
deferred revenue. As of December 31, 2000, our working capital was comprised
of $3.6 million in cash, $3.5 million in accounts receivable, and $0.5 million
in other current assets, net of $1.7 million in current liabilities and $1.8
million of deferred revenue.

During the year ended December 31, 2001, we invested $1 million primarily
in computer systems for employees and office facilities in relation to our
establishment of operations in Montreal and in out network operating center and
hosting facilities.

Through our Icelandic subsidiary, OZ hf., we have outstanding long-term
notes payable to Búnadarbanki Íslands, an Icelandic bank, and to the seller of
our building at Snorrabraut 54 in Reykjavik, Iceland. We have pledged our
building as collateral for these loans. The amount due on these loans at
December 31, 2001, was approximately $363,000. The loans accrue interest at
rates between 6.0% and 7.35% per annum.

We do not believe that our operating requirements for the next 12 months
can be funded from cash provided by operations and cash reserves. Therefore,
we intend to seek additional debt or equity financing through public or private
placements of our securities. We cannot be sure that any such financing will
be obtained or, if obtained, will be adequate to meet our needs. Our
consolidated financial statements for the year ended December 31, 2001 have
been prepared assuming that we will continue as a going concern. Our recurring
losses from operations, negative cash flows, and future need for additional
capital raise substantial doubts about our ability to continue as a going
concern. We may revise our plans in response to future changes in the mobile
communications industry in general and the demand for our services in
particular, our results of operations, our other capital requirements and other
relevant factors. We believe there may be some attractive opportunities to
expand by making strategic acquisitions of businesses or assets in the current
economic environment. We believe that we will likely fund any such acquisition
through the issuance of debt or additional equity securities.

Market Risk Disclosure

During the year ended December 31, 2001, we billed and collected in U.S.
dollars. To the extent possible, cash is held in interest bearing U.S. dollar
accounts. Funds are transferred from these accounts and converted to local
currencies (primarily Icelandic and Canadian dollars) as necessary to pay local
operating expenses. Accordingly, we are exposed to risks in changes in foreign
currency exchange rates. For financial reporting purposes, assets and
liabilities of our foreign subsidiaries, whose functional currency is the local
currency, are translated at exchanges rates prevailing at the end of the
period. Adjustments resulting from translating the financial statements of
foreign subsidiaries ($667,810 and $704,149 at December 31, 2000 and December
31, 2001, respectively) are included in accumulated other comprehensive income,
which is reflected as a separate component of shareholders equity.

We have borrowed funds in Iceland, which are secured by our facility at
Snorrabraut 54, Reykjavik. While the interest rates on these loans are fixed,
the original principal balance is adjusted monthly for fluctuations in the
Icelandic consumer price index, in accordance with the terms of the note
agreement. Accordingly, we are exposed to risks in changes in the Icelandic
consumer price index, which tends to rise quickly in inflationary economic
conditions. The change in the consumer price index during 2000 and 2001 was
4.2% and 8.6%, respectively.

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Income Taxes

At December 31, 2001 we had net operating loss carryforwards of
approximately $34.8 million, $19.0 million, and $5.1 million for federal, state
and foreign income tax purposes, respectively. Unless we utilize these
beforehand to offset future taxable income, if any, these carryforwards will
expire from year 2002 through 2021.

Impact of Pricing, Inflation and Seasonality

The pricing of our products and services is primarily a function of the
perceived need for our products and services, the availability of competitive
products or services, the presence of competition for end users within a
particular market and the degree of acceptance of the mobile phone as an
entertainment and commercial transaction device. Our pricing model for OZ ICS
and OZ MCS will in many cases be based on a fixed price per user per month
and/or on a revenue sharing model in which we will take a percentage of
revenues resulting from each end user using the various services or being
exposed to advertisements. Our future revenues are therefore largely dependent
on the number of subscribers to the mobile network operators or Internet
businesses that utilize our products and services. We are not able to make
reliable estimates as to the rate of adoption by the subscribers of the
particular services offered through our products. It is therefore difficult to
predict the size of our future revenues and these future revenues will be
largely dependent on the number of subscribers to the mobile network operators
or Internet businesses, in general, and the subscription to the services
offered through our products, in particular. The price that subscribers will
be willing to pay for these services is also difficult to estimate.

We believe that inflationary trends had no material impact on the results
of our operations during the year ended December 31, 2001.

Our revenues and operating results are expected to vary, sometimes
substantially, from quarter to quarter. Quarterly revenues and operating
results may fluctuate as a result of a variety of factors, including:



| |  |  | the timing and recognition of long-term agreements, particularly those with investors,                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing of large transactions,                                                                                         
|
| |  |  | an estimated initial sales cycle of six to nine months,                                                                   
|
| |  |  | the proportion of revenues attributable to revenue-sharing or
fixed per end-user fees versus revenues from software sales,
|
| |  |  | changes in the level of operating expenses,                                                                               
|
| |  |  | the utilization rate of our development services employees,                                                               
|
| |  |  | demand for our products and services,                                                                                     
|
| |  |  | the introduction of new products and product enhancements by us or our competitors,                                       
|
| |  |  | changes in customer budgets,                                                                                              
|
| |  |  | competitive conditions in the industry, and                                                                               
|
| |  |  | general economic conditions.                                                                                              

Further, the purchase and commercial launch of our products and services
often involves a significant commitment of capital by our customers with the
attendant delays frequently associated with large capital expenditures and
implementation of marketing campaigns, and authorization procedures within an
organization. Accordingly, the sales cycles for our products and services are
typically lengthy, with an estimated initial sales cycle of six to nine months,
and subject to a number of significant risks over which we have little or no
control, including our customers budgetary constraints and internal
authorization reviews.

In addition, we expect our quarterly operating results to be subject to
certain seasonal fluctuations. We do not yet see a pattern in licensing
revenues (i.e., from the sales of licenses of the OZ ICS and complementary
applications), but we have observed seasonality in our historical software
development business, which we believe may apply generally to our proposed
services businesses. In particular, our third fiscal quarter includes the
months of July and August, when billable service activity by professional
staff, as well as engagement decisions by customers, are reduced due to summer
vacation schedules.

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Item 7. Financial Statements and Supplementary Data

OZ.COM

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                    |  |       |    | 
|------------------------------------------------------------------------------------------------------------------- |  | ----- | -- | 
|                                                                                                                    |  | Pages
|                                                                                                                    |  |      
|Independent Auditors Report                                                                                        |  |       | 24 | 
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                        |  |       | 25 | 
|Consolidated Statements of Operations for the years ended December 31, 2000 and 2001                                |  |       | 26 | 
|Consolidated Statements of Changes in Shareholders Equity (Deficit) for the years
ended December 31, 2000 and 2001 |  |       | 27 | 
|Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2000 and 2001               |  |       | 28 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 2001                                |  |       | 29 | 
|Notes to Consolidated Financial Statements                                                                          |  |       | 30 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and
Shareholders of OZ Communications, Inc.
Reykjavik, Iceland

We have audited the accompanying consolidated balance sheets of OZ
Communications, Inc. and subsidiaries (the Company), formerly OZ.COM, as of
December 31, 2000 and 2001, and the related consolidated statements of
operations, shareholders equity (deficit), comprehensive income (loss) and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2000 and 2001, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements for the year ended December
31, 2001 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Companys recurring losses from operations, negative cash flows, and future
need for additional capital, raise substantial doubt about its ability to
continue as a going concern. Managements plans concerning these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/   LÁRUS FINNBOGASON
Deloitte & Touche hf.
Lárus Finnbogason
State Authorized Public Accountant
Reykjavik, Iceland
March 22, 2002

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OZ COMMUNICATIONS, INC.

(FORMERLY OZ.COM)

CONSOLIDATED BALANCE SHEETS

|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |             |           |            |            |  
|------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------- | ------------ | ---------- | ----------- | --------- | ---------- | ---------- | -
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           | December 31,
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |             
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           | 2000         |            | 2001       
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|Assets                                            |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|Current assets:                                   |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            | Cash and cash equivalents                                                                  |                                                                                         | $                                                    | 3,559,559 |              |            | $           | 651,265   |           
|                                                  |                                                                            | Trade accounts receivable, net of allowance for doubtful
accounts of $104,546 and $197,250 |                                                                                         |                                                      | 98,235    |              |            |             | 58,894    |           
|                                                  |                                                                            | Accounts receivable from shareholders (Note 2)                                             |                                                                                         |                                                      | 3,413,433 |              |            |             | 3,033,953 |           
|                                                  |                                                                            | Prepaid expenses and other current assets                                                  |                                                                                         |                                                      | 530,777   |              |            |             | 215,995   |           
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total current assets                                 |           |              | 7,602,004  |             |           |            | 3,960,107  |  
|Property and equipment, net (Note 3)              |                                                                            |                                                                                            | 3,879,161                                                                               |                                                      |           |              | 2,883,093  |            
|Intangibles, net (Note 4)                         |                                                                            |                                                                                            | 15,928,873                                                                              |                                                      |           |              | 3,739,582  |            
|Other assets                                      |                                                                            |                                                                                            |                                                                                        |                                                      |           |              | 161,595    |            
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total assets                                         |           | $            | 27,410,038 |             |           | $          | 10,744,377 |  
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|Liabilities and Shareholders Equity (Deficit)    |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|Current liabilities:                              |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            | Trade accounts payable                                                                     |                                                                                         | $                                                    | 558,483   |              |            | $           | 764,966   |           
|                                                  |                                                                            | Accrued liabilities (Note 5)                                                               |                                                                                         |                                                      | 1,111,304 |              |            |             | 860,685   |           
|                                                  |                                                                            | Current portion of deferred revenue                                                        |                                                                                         |                                                      | 1,767,107 |              |            |             | 8,348,974 |           
|                                                  |                                                                            | Current portion of notes payable (Note 6)                                                  |                                                                                         |                                                      | 21,476    |              |            |             | 775,941   |           
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total current liabilities                            |           |              | 3,458,370  |             |           |            | 10,750,566 |  
|Notes payable (Note 6)                            |                                                                            |                                                                                            | 429,521                                                                                 |                                                      |           |              | 363,624    |            
|Deferred revenue                                  |                                                                            |                                                                                            | 1,011,957                                                                               |                                                      |           |              |           |            
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total liabilities                                    |           |              | 4,899,848  |             |           |            | 11,114,190 |  
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|Minority interest                                 |                                                                            |                                                                                            | 8,489                                                                                   |                                                      |           |              |           |            
|Redeemable common stock, $0.01 par value (Note 2) |                                                                            |                                                                                            | 4,500,000                                                                               |                                                      |           |              | 4,500,000  |            
|Commitments and contingencies (Note 15)           |                                                                            |                                                                                            |                                                                                        |                                                      |           |              |           |            
|Shareholders equity (deficit): (Note 7)         
|                                                  | Convertible preferred stock, $0.01 par value:                              |                                                                                            |                                                                                         |                                                      |           |              |            |             |          
|                                                  |                                                                            |                                                                                            | 14,680,964 and 14,270,964 shares issued and outstanding
(liquidation value $14,270,964) |                                                      |           | 17,079,446   |            |             |           | 16,546,446 |           
|                                                  | Common stock, $0.01 par value:                                             |                                                                                            |                                                                                         |                                                      |           |              |            |             |          
|                                                  |                                                                            |                                                                                            | 275,000,000 shares authorized:                                                          |                                                      |           |              |            |             |           |            |           
|                                                  |                                                                            |                                                                                            | 89,479,596 and 90,387,596 shares issued and outstanding                                 |                                                      |           | 894,796      |            |             |           | 903,876    |           
|                                                  | Additional paid-in capital                                                 |                                                                                            |                                                                                         | 30,834,321                                           |           |              |            | 31,367,041  |          
|                                                  | Notes receivable from shareholders (Note 11)                               |                                                                                            |                                                                                         | (353,900                                             | )         |              |            | (353,900    | )        
|                                                  | Deferred compensation (Note 9)                                             |                                                                                            |                                                                                         | (4,032,567                                           | )         |              |            | (2,305,848  | )        
|                                                  | Accumulated other comprehensive income  cumulative
translation adjustment |                                                                                            |                                                                                         | 667,810                                              |           |              |            | (51,731,577 | )        
|                                                  | Accumulated deficit                                                        |                                                                                            |                                                                                         | (27,088,205                                          | )         |              |            | 704,149     |          
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total shareholders equity (deficit)                 |           |              | 18,001,701 |             |           |            | (4,869,813 | )
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            
|                                                  |                                                                            |                                                                                            |                                                                                         | Total liabilities and shareholders equity (deficit) |           | $            | 27,410,038 |             |           | $          | 10,744,377 |  
|                                                  |                                                                            |                                                                                            |                                                                                         |                                                      |           |              |            |            

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

-25-



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##### Table of Contents



OZ COMMUNICATIONS, INC.

(FORMERLY OZ.COM)

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                              |                                                                                              |                      |                                                |           |              |             |            |            |           |             |  
|--------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------- | ---------------------------------------------- | --------- | ------------ | ----------- | ---------- | ---------- | --------- | ----------- | -
|                                              |                                                                                              |                      |                                                |           | Years Ended 
|                                              |                                                                                              |                      |                                                |           | December 31,
|                                              |                                                                                              |                      |                                                |           |             
|                                              |                                                                                              |                      |                                                |           | 2000         |             | 2001      
|                                              |                                                                                              |                      |                                                |           |              |             |           
|Revenues                                      |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              | Development services |                                                | $         | 7,724,249    |             |            | $          | 7,734,316 |            
|                                              |                                                                                              | Client services      |                                                |           | 299,756      |             |            |            | 464,652   |            
|                                              |                                                                                              | License fees         |                                                |           | 279,880      |             |            |            | 236,572   |            
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Total revenues                                 |           |              | 8,303,885   |            |            |           | 8,435,540   |  
|Cost of revenues                              |                                                                                              |                      | 5,122,179                                      |           |              |             | 6,930,793  |           
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Gross profit                                   |           |              | 3,181,706   |            |            |           | 1,504,747   |  
|Operating expenses                            |                                                                                              |                      |                                                |           |              |             |            |           
|                                              | Sales and marketing                                                                          |                      |                                                | 4,974,366 |              |             |            | 2,463,288  |          
|                                              | General and administrative (including stock-based
compensation of $1,314,101 and $1,726,719) |                      |                                                | 8,078,198 |              |             |            | 12,276,476 |          
|                                              | Research and development                                                                     |                      |                                                | 3,193,882 |              |             |            | 2,395,971  |          
|                                              | Impairment loss on intangible assets                                                         |                      |                                                |          |              |             |            | 8,830,285  |          
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Total operating expenses                       |           |              | 16,246,446  |            |            |           | 25,966,020  |  
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Operating loss                                 |           |              | (13,064,740 | )          |            |           | (24,461,273 | )
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|Interest income                               |                                                                                              |                      | 441,466                                        |           |              |             | 133,109    |           
|Interest expense                              |                                                                                              |                      | (109,333                                       | )         |              |             | (132,536   | )         
|Foreign currency exchange gain (loss)         |                                                                                              |                      | (1,243,969                                     | )         |              |             | (93,617    | )         
|Other income (expense), net                   |                                                                                              |                      | (14,588                                        | )         |              |             | (103,146   | )         
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Loss before income taxes and minority interest |           |              | (13,991,164 | )          |            |           | (24,657,463 | )
|Income taxes                                  |                                                                                              |                      |                                               |           |              |             |           |           
|Minority interest                             |                                                                                              |                      | 25,284                                         |           |              |             | 14,091     |           
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|                                              |                                                                                              |                      | Net loss                                       |           | $            | (13,965,880 | )          |            | $         | (24,643,372 | )
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|Basic and diluted net loss per share (Note 8) |                                                                                              | $                    | (0.19                                          | )         |              | $           | (0.27      | )         
|                                              |                                                                                              |                      |                                                |           |              |             |            |           
|Weighted average number of shares outstanding |                                                                                              |                      | 72,904,841                                     |           |              |             | 90,121,470 |           
|                                              |                                                                                              |                      |                                                |           |              |             |            |           

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

-26-



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##### Table of Contents



OZ COMMUNICATIONS, INC.

(FORMERLY OZ.COM)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)

|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |            |             |             |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------- | ------------------------------------ | ---------- | ------------------------ |  | ------ | ---------- | ----------- | ----------- | ------ | ---------- | ---------- |  | - | ---------- | ----------- | ----------- | -
|                                                                            |                                                              |                             |                                      |            | Years Ended December 31,
|                                                                            |                                                              |                             |                                      |            |                         
|                                                                            |                                                              |                             |                                      |            | 2000                     |  | 2001  
|                                                                            |                                                              |                             |                                      |            |                          |  |       
|                                                                            |                                                              |                             |                                      |            | Shares                   |  | Amount |            | Shares      |             | Amount
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |       
|Preferred Stock:                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, beginning of year                                   |                             |                                      | 5,685,218  |                          |  | $      | 5,384,976  |             |             |        | 14,680,964 |            |  | $ | 17,079,466 |            
|                                                                            | Redeemable preferred shares reclassified to permanent equity |                             |                                      | 10,052,431 |                          |  |        | 13,068,160 |             |             |        |           |            |  |   |           |            
|                                                                            | Conversion of preferred
stock to common stock                |                             |                                      | (1,056,685 | )                        |  |        | (1,373,691 | )           |             |        | (410,000   | )          |  |   | (533,000   | )          
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            |                                                              | Balance, end of year        |                                      |            | 14,680,964               |  |        | $          | 17,079,446  |             |        |            | 14,270,964 |  |   | $          | 16,546,446  |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|Common Stock and Additional Paid in
Capital:                                |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, beginning of year                                   |                             |                                      | 68,359,078 |                          |  | $      | 11,123,829 |             |             |        | 89,479,596 |            |  | $ | 31,729,117 |            
|                                                                            | Common stock issued                                          |                             |                                      | 16,475,131 |                          |  |        | 13,787,395 |             |             |        |           |            |  |   |           |            
|                                                                            | Employee stock options exercised                             |                             |                                      | 2,372,017  |                          |  |        | 286,202    |             |             |        | 88,000     |            |  |   | 8,800      |            
|                                                                            | Common stock issued for notes payable                        |                             |                                      | 160,000    |                          |  |        | 188,000    |             |             |        |           |            |  |   |           |            
|                                                                            | Deferred compensation from stock
option grants               |                             |                                      |           |                          |  |        | 4,970,000  |             |             |        |           |            |  |   |           |            
|                                                                            | Conversion of preferred stock
to common stock                |                             |                                      | 2,113,370  |                          |  |        | 1,373,691  |             |             |        | 820,000    |            |  |   | 533,000    |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, end of year                                         |                             |                                      | 89,479,596 |                          |  | $      | 31,729,117 |             |             |        | 90,387,596 |            |  | $ | 32,270,917 |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|Notes Receivable from Shareholders
(Note 11):                               |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, beginning of year                                   |                             |                                      |            |                          |  | $      | (200,200   | )           |             |        |            |            |  | $ | (353,900   | )          
|                                                                            | Notes receivable issued                                      |                             |                                      |            |                          |  |        | (189,500   | )           |             |        |            |            |  |   |           |            
|                                                                            | Payments received                                            |                             |                                      |            |                          |  |        | 35,800     |             |             |        |            |            |  |   |           |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, end of year                                         |                             |                                      |            |                          |  | $      | (353,900   | )           |             |        |            |            |  | $ | (353,900   | )          
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|Deferred Compensation:                                                      |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, beginning of year                                   |                             |                                      |            |                          |  | $      | (376,668   | )           |             |        |            |            |  | $ | (4,032,567 | )          
|                                                                            | Deferred compensation arising from
option grants             |                             |                                      |            |                          |  |        | (4,970,000 | )           |             |        |            |            |  |   |           |            
|                                                                            | Amortization of deferred
compensation                        |                             |                                      |            |                          |  |        | 1,314,101  |             |             |        |            |            |  |   | 1,726,719  |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, end of year                                         |                             |                                      |            |                          |  | $      | (4,032,567 | )           |             |        |            |            |  | $ | (2,305,848 | )          
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|Accumulated Other Comprehensive Income  Cumulative
Translation Adjustment: |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Balance, beginning of year                                   |                             |                                      |            |                          |  | $      | 56,886     |             |             |        |            |            |  | $ | 667,810    |            
|                                                                            |                                                              | Other comprehensive income: |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |            |             |            
|                                                                            |                                                              | Translation adjustments     |                                      |            |                          |  |        |            | 610,924     |             |        |            |            |  |   |            | 36,339      |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            |                                                              | Balance, end of year        |                                      |            |                          |  |        | $          | 667,810     |             |        |            |            |  |   | $          | 704,149     |            
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            | Accumulated Deficit:                                         |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |            |            
|                                                                            |                                                              | Balance, beginning of year  |                                      |            |                          |  |        | $          | (13,122,325 | )           |        |            |            |  |   | $          | (27,088,205 | )          
|                                                                            |                                                              |                             | Net loss                             |            |                          |  |        |            |             | (13,965,880 | )      |            |            |  |   |            |             | (24,643,372 | )
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            |                                                              |                             | Balance, end of year                 |            |                          |  |        |            | $           | (27,088,205 | )      |            |            |  |   |            | $           | (51,731,577 | )
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           
|                                                                            |                                                              |                             | Total shareholders equity (deficit) |            |                          |  |        |            | $           | 18,001,701  |        |            |            |  |   |            | $           | (4,869,813  | )
|                                                                            |                                                              |                             |                                      |            |                          |  |        |            |             |             |        |            |            |  |   |           

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

-27-



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##### Table of Contents



OZ COMMUNICATIONS, INC.

(FORMERLY OZ.COM)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

|                                 |  |                          |             |      |  |   |             |  
|-------------------------------- |  | ------------------------ | ----------- | ---- |  | - | ----------- | -
|                                 |  | Years Ended December 31,
|                                 |  |                         
|                                 |  | 2000                     |             | 2001
|                                 |  |                          |             |     
|Net loss                         |  | $                        | (13,965,880 | )    |  | $ | (24,643,372 | )
|Other comprehensive income:      |  |                          |             |      |  |   |             |  
|Currency translation adjustments |  |                          | 610,924     |      |  |   | 36,399      |  
|                                 |  |                          |             |      |  |   |             |  
|Comprehensive loss               |  | $                        | (13,354,956 | )    |  | $ | (24,606,973 | )
|                                 |  |                          |             |      |  |   |             |  

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

-28-



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##### Table of Contents



OZ COMMUNICATIONS, INC.

(FORMERLY OZ.COM)

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                          |                                                                                           |                                                            |            |                          |             |      |           |            |             |  
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------- | ------------------------ | ----------- | ---- | --------- | ---------- | ----------- | -
|                                                          |                                                                                           |                                                            |            | Years Ended December 31,
|                                                          |                                                                                           |                                                            |            |                         
|                                                          |                                                                                           |                                                            |            | 2000                     |             | 2001
|                                                          |                                                                                           |                                                            |            |                          |             |     
|Cash flows from operating activities:                     |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          |                                                                                           | Net loss                                                   |            | $                        | (13,965,880 | )    |           | $          | (24,643,372 | )
|                                                          | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |                                                            |            |                          |             |      |           |            |            
|                                                          |                                                                                           | Depreciation and amortization                              |            |                          | 1,196,888   |      |           |            | 4,517,707   |  
|                                                          |                                                                                           | Impairment loss on intangible assets                       |            |                          |            |      |           |            | 8,830,285   |  
|                                                          |                                                                                           | Impairment loss on property and equipment                  |            |                          |            |      |           |            | 603,243     |  
|                                                          |                                                                                           | Minority interest                                          |            |                          | (25,284     | )    |           |            | (14,091     | )
|                                                          |                                                                                           | Provision for doubtful accounts                            |            |                          | 103,170     |      |           |            | 121,780     |  
|                                                          |                                                                                           | Loss on disposal of property and equipment                 |            |                          |            |      |           |            | 174,543     |  
|                                                          |                                                                                           | Amortization of deferred stock-based
compensation          |            |                          | 1,314,101   |      |           |            | 1,726,719   |  
|                                                          |                                                                                           | Issuance of notes payable for employment services
rendered |            |                          |            |      |           |            | 106,803     |  
|Changes in operating assets and liabilities:              |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Accounts receivable                                                                       |                                                            |            | (2,200,567               | )           |      |           | 297,041    |            
|                                                          | Prepaid expenses and other assets                                                         |                                                            |            | 38,238                   |             |      |           | 153,187    |            
|                                                          | Trade accounts payable                                                                    |                                                            |            | 370,178                  |             |      |           | 206,483    |            
|                                                          |                                                                                           | Accrued liabilities                                        |            |                          | 479,505     |      |           |            | (250,619    | )
|                                                          |                                                                                           | Deferred revenue                                           |            |                          | 2,305,922   |      |           |            | 5,569,910   |  
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Net cash used in operating activities                                                     |                                                            |            | (10,383,729              | )           |      |           | (2,600,381 | )          
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Cash flows from investing activities:                     |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Purchases of property and equipment                                                       |                                                            |            | (2,511,329               | )           |      |           | (1,026,549 | )          
|                                                          | Proceeds from sales of property and equipment                                             |                                                            |            |                         |             |      |           | 44,973     |            
|                                                          | Cash acquired in acquisition of shares of MCE
Holding Corporation                         |                                                            |            | 2,000,000                |             |      |           |           |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Net cash used in investing activities                                                     |                                                            |            | (511,329                 | )           |      |           | (981,576   | )          
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Cash flows from financing activities:                     |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Issuance of convertible notes payable                                                     |                                                            |            |                         |             |      |           | 650,000    |            
|                                                          | Exercise of employee stock options                                                        |                                                            |            | 286,202                  |             |      |           | 8,800      |            
|                                                          | Collection of notes receivable                                                            |                                                            |            | 35,800                   |             |      |           |           |            
|                                                          | Repayments of notes payable                                                               |                                                            |            | (78,517                  | )           |      |           | (21,476    | )          
|                                                          | Payment of capital lease obligation                                                       |                                                            |            | (3,384                   | )           |      |           |           |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Net cash provided by financing activities                                                 |                                                            |            | 240,101                  |             |      |           | 637,324    |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Effect of currency exchange rates on cash                 |                                                                                           |                                                            | 610,924    |                          |             |      | 36,339    |           
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Net decrease in cash                                                                      |                                                            |            | (10,044,033              | )           |      |           | (2,908,294 | )          
|Cash and cash equivalents at beginning of year            |                                                                                           |                                                            | 13,603,592 |                          |             |      | 3,559,559 |           
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Cash and cash equivalents at end of year                  |                                                                                           | $                                                          | 3,559,559  |                          |             | $    | 651,265   |           
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Supplemental cash flow information:                       |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Interest paid                                                                             |                                                            | $          | 48,135                   |             |      | $         | 57,017     |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Conversion of preferred stock to common stock                                             |                                                            | $          | 1,373,691                |             |      | $         | 533,000    |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|Supplemental non-cash investing and
financing activities: |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Common stock issued to acquire shares of MCE
Holding Corporation                          |                                                            | $          | 18,287,395               |             |      |           |           |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           
|                                                          | Common stock issued for notes                                                             |                                                            | $          | 189,500                  |             |      |           |           |            
|                                                          |                                                                                           |                                                            |            |                          |             |      |           |           

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

-29-



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##### Table of Contents



OZ COMMUNICATIONS, INC.

(FORMERLY
OZ.COM)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization

OZ Communications, Inc. was incorporated in California in 1995. In
November 2001, OZ Communications, Inc. changed its name from OZ.COM. OZ
Communications, Inc. and its subsidiaries (the Company or OZ) are
developers and vendors of software and services, including hosting services,
that enable the delivery of wireless and Internet-based services over multiple
communications networks, including wireless networks, the public fixed
telephone network and the Internet. The Company conducts its marketing and
sales in North America and Northern Europe, while design and development
activities are primarily conducted in Iceland and Canada. Through December 31,
2001, the Companys business has primarily been in the development of customer
specific software products.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
OZ Communications, Inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated.

Going Concern

The Companys consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has devoted
substantial efforts to developing new products and has incurred losses and
negative cash flows from operations since inception. In January and February
of 2002, the Company terminated all commercial agreements with Ericsson, and
amended several contracts with Microcell. Before their termination or
amendment, as the case may be, these agreements provided consistent cash
payments in consideration for development and other services. As a result of
the termination or amendment of the agreements, the Company now owns all of its
own technology and is not dependent upon the sales and marketing efforts of
either Ericsson or Microcell. The Company now has a completed product that it
must sell either directly or through channel partners. This new business is
considerably different and riskier than its prior business as a developer of
software solutions for Ericsson and Microcell. The Company does not believe
that its operating requirements for the next 12 months can be funded from cash
provided by operations and cash reserves. As of February 28, 2002, cash
reserves were $1.3 million and of the $6 million due from Ericsson pursuant to
the termination agreements entered into on January 24, 2002, $3.65 million
remains unpaid. These factors raise substantial doubt about the Companys
ability to continue as a going concern. The Company is seeking to raise
additional capital through the offering of debt or equity securities. The
Company is also limiting discretionary expenses in all categories and plans to
halt its growth. However, there can be no assurance that the Companys efforts
to achieve profitable operations or raise additional capital will be
successful. These consolidated financial statements do not include any
adjustment that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments, which are readily
convertible into cash or have maturities of three months or less on the date of
purchase.

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Financial Instruments

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and cash equivalents,
accounts receivable, accounts payable and notes payable. Cash and cash
equivalents are held with financial institutions with high credit standings.

Through December 31, 2001 the customer base consisted of two large related
party customers. The concentration of credit risk with these customers is not
considered significant due to their size and credit standing. See the
discussion of related parties in Note 2. The carrying value approximates fair
value for all financial instruments.

Property and Equipment

Property and equipment is recorded at cost. The Company uses the
straight-line method in computing depreciation based on the estimated useful
lives of the assets. The annual provisions for depreciation have been computed
principally in accordance with the following ranges of asset lives: buildings 
50 years; computer equipment and software  2 to 3 years; furniture and
leasehold improvements  5 years or the life of the lease, whichever is
shorter; and other equipment  5 years.

Maintenance and repairs are expensed as incurred, while capital
improvements to assets are recorded as an addition to the original cost of the
asset and depreciated over the remaining useful life of the related asset. When
assets are retired or otherwise disposed of, the assets and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is
reflected in the statement of operations.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for potential impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets held for use is
measured by comparing the carrying amount of an asset to the undiscounted
estimated future cash flows expected to be generated by the asset. In
estimating expected future cash flows for determining whether an asset is
impaired, assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. If any such assets are considered to be impaired, the
impairment to be recognized is the amount by which the carrying amount of the
assets exceeds its fair value.

Capitalized Software Development Costs

Software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized
until the product is available for general release to customers. To date, the
establishment of technological feasibility of products and general release of
such software have substantially coincided. As a result, software development
costs qualifying for capitalization have been insignificant and, therefore, the
Company has not capitalized any such costs.

Research and Development

The Company expenses all research and development costs as incurred.

Revenue Recognition

The Companys revenues consist primarily of fees for software development
received from contracted research and development agreements with Ericsson and
Microcell. Revenues from contracted research and development agreements are
deferred and recognized at the completion of the project upon acceptance by the
customer or upon termination of the contracted research and development
agreement. The Company also has software license revenue, which consists of
software technology licensed to Ericsson. License revenue is recognized over
the period beginning upon acceptance of the software and ending on December 31,
2001, the minimum term of the general co-operation and development agreement.

The Company earns revenue from client services including the delivery of
software applications and value-added services that are hosted on the Companys
network. Because these applications can also be run on the Companys
customers networks, the Company refers to this as a hosted service when it
is delivered from the Companys network.

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Maintenance and support is included in a hosted solution, but would be
charged separately if a customer chose to purchase a value added service or an
application that it would deliver from its own network. Client services also
include consulting, customization and implementation services of Internet
platform products the Company has developed under a General Co-Operation and
Development Agreement with Ericsson. Revenues from all of these services will
be recognized in the month in which the service is performed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable.

Deferred revenue is comprised of software technology license fees received
in advance of satisfying revenue recognition criteria related to the 1999
development agreements with Ericsson. Payments for certain development work for
Ericsson and Microcell in connection with the 2000 development agreements with
Ericsson and Microcell are recorded as deferred revenue and will be recognized
as revenue upon completion or termination of such agreements. See Note 2.

The Company generally warrants that its products will function
substantially in accordance with documentation provided to customers for
approximately twelve months following initial shipment to the customer. As of
December 31, 2001, the Company had not incurred any significant expenses
related to warranty claims.

Network Costs

Internet based services include expenses incurred by the Company to
maintain, monitor and manage the Companys network. The Company recognizes
network costs in accordance with Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Development or Obtained for
Internal Use. As such, the Company expenses all costs incurred that relate to
the planning and post implementation phases of development. Costs incurred in
the development phase are capitalized and recognized over the products
estimated useful life if the product is expected to have a useful life beyond
one year. Costs associated with repair or maintenance of the existing network
are included in internet based services expense in the accompanying
consolidated statement of income.

Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities using enacted statutory rates in the
relevant tax jurisdictions. A valuation allowance against net deferred tax
assets is established if, based on the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized. No
provision is made for U.S. income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely invested in foreign operations.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries, whose functional currency
is the local currency, are translated at the year-end exchange rates. Revenues
and expenses are translated at the average rates of exchange prevailing during
the year. The adjustments resulting from translating the financial statements
of such foreign subsidiaries are included in accumulated other comprehensive
income, which is reflected as a separate component of shareholders equity.

Earnings Per Share

Basic earnings per share are based upon the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed on the basis of the weighted average number of common shares
outstanding during the year plus the effect of common stock issuable upon the
exercise of employee stock options and common stock warrants using the treasury
stock method and the effect of convertible debt and convertible preferred
shares using the if converted method.

Employee Stock-Based Compensation

The Company accounts for stock-based compensation under the intrinsic
value method as set forth in Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. The alternative fair value
accounting provided for under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based Compensation, is discussed in
Note 9.

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Stock-Based Compensation for Non-Employees

The Company periodically settles fees incurred for professional services
through the issuance of common stock. The fair value of the common stock issued
is determined based upon the fair value of the professional services rendered.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. The adoption of SFAS 133 in the first
quarter of 2001 did not have a material effect on the Companys results of
operations or financial condition.

In June 2001, the FASB issued SFAS No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles
will be evaluated against these new criteria and may result in an intangible
asset being reclassified as goodwill, or alternatively, amounts initially
recorded as goodwill may be separately identified and recognized apart from
goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a
non-amortization approach, goodwill and certain intangibles are not amortized
into results of operations, but instead are reviewed for impairment and written
down and charged to results of operations only in the periods in which the
recorded value of goodwill and certain intangibles is more than its fair value.
The provisions of each statement that apply to goodwill and intangible assets
acquired prior to June 30, 2001 will be adopted by the Company on January 1,
2002. The adoption of SFAS No. 141 and 142 on January 1, 2002 did not have a
material effect on the Companys consolidated financial position or results of
operations.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 will be effective January 1, 2003.
Management does not expect that the adoption of the statement will have a
material effect on the Companys consolidated financial position or results of
operations.

In August 2001, the FASB issued SFAS No. 144, Accounting of the
Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 144 on
January 1, 2002 did not have a material effect on the Companys consolidated
financial position or results of operations.

Reclassifications

Certain 2000 amounts have been reclassified to conform with the 2001
presentation.

2. Related Party Transactions

In February 1999, the Company entered into a stock and warrant purchase
agreement with Ericsson, Inc. pursuant to which Ericsson received a warrant and
other purchase rights to purchase up to 10,052,431 shares of the Companys
Series A Preferred stock at $1.30 per share, at the time equal to approximately
20% of the capital stock of the Company on an as-converted basis. In June
1999, Ericsson exercised its warrant by purchasing 4,769,231 shares of the
Companys Series A Preferred stock for total cash consideration of $6,200,000.
In October 1999, Ericsson exercised the balance of its purchase rights by
purchasing 5,283,200 shares of the Companys Series A Preferred stock for total
cash consideration of $6,868,160.

In February 1999, Ericsson and the Company entered into two agreements,
which formed the basis for a strategic alliance between the two companies.
Pursuant to these agreements, the companies agreed to cooperate in the area of
Internet-based technologies, applications and services, including, but not
limited to, development, testing, integration, marketing, sales, distribution,
support and maintenance of solutions based on the technologies and services of
each company.

On November 8, 2000, the Company completed its acquisition of all the
outstanding voting capital stock of MCE Holding Corporation. MCE Holding
Corporation was a strategic alliance (the Strategic Alliance) of Microcell
Capital II, Inc. (Microcell) and Ericsson Canada Inc. (Ericsson Canada)
formed to hold all of the issued and outstanding capital stock of 3044016 Nova
Scotia Company, a company based in Montreal, Canada, which was formed to
develop mobile Internet applications

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for network operators in Canada. The name of 3044016 Nova Scotia Company
was changed to OZ.COM Canada Company following the closing of the transaction
and subsequently to OZ Communications Co. (OZ Canada).

The transaction was closed pursuant to two Share Exchange Agreements (the
Acquisition Agreements) dated November 8, 2000 by and between the Company and
each of Microcell and Ericsson Canada as the former stockholders of MCE Holding
Corporation. The transaction was structured as a stock-for-stock exchange in
which the Company issued an aggregate of 16,475,131 shares of its common stock
to Microcell and Ericsson Canada in exchange for all of the issued and
outstanding stock of MCE Holding Corporation. Total consideration given,
including direct acquisition costs, aggregated approximately $18.4 million.
The Company has accounted for the transaction using the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the tangible net assets acquired amounted to approximately $16.4 million, with
$15.5 million attributable to goodwill and $0.9 million attributable to a fully
paid-up iPulse 1.5 license for the benefit of Microcell and its affiliates.
The acquired assets consist of cash and licensed technology to be used in the
business of developing and marketing Internet application technology for
wireless service providers.

Assuming MCE Holding Corporation was acquired on January 1, 2000 the
unaudited pro forma revenues, loss before income taxes and net loss, and net
loss per share for the year ended December 31, 2000 would have been $8,303,885,
$16,750,000 and $(0.19), respectively.

In connection with the transaction, the Company entered into a shareholder
agreement with Microcell and two of the Companys directors and officers, Skuli
Mogensen and Gudjon Mar Gudjonsson. This agreement gives Microcell the right to
participate in any sales of the Companys shares by either Mr. Mogensen or Mr.
Gudjonsson and, with some exceptions, to purchase pro rata shares of the
Companys securities offered by the Company. In addition, Messrs. Mogensen and
Gudjonsson have agreed to vote a sufficient number of the Companys shares to
enable a nominee of Microcell to sit on the board of directors of the Company
at the next annual meeting of the shareholders.

The Acquisition Agreement with Microcell granted Microcell the right,
during the period from February 15, 2002 until April 15, 2002, to require the
Company to repurchase the 11,405,860 shares delivered to Microcell in
connection with the acquisition at the price of $4,500,000, if prior to
February 15, 2002 the Company fails to complete a firmly underwritten public
offering pursuant to a registration statement under the Securities Act of 1933
(Securities Act), or a public offering in which the Companys shares are
listed or designated for trading on any designated offshore securities market
as such term is defined in Regulation S under the Securities Act, which
offering, in either case, results in a market capitalization of not less than
$225 million. The 11,405,860 shares that are subject to this right have an
issue value of $12.7 million, which has been allocated to shareholders equity
in the Companys consolidated balance sheet less the amount related to the
redemption value of $4.5 million. The redemption value of $4.5 million is
allocated to temporary equity on the balance sheet. On February 28, 2002 the
Company amended the Acquisition Agreement with Microcell to eliminate the
redemption right. In the quarter ending March 31, 2002 the Company will
eliminate the $4.5 million currently allocated to temporary equity on the
balance sheet and increase paid-in capital by a like amount.

In connection with the transaction, OZ Canada entered into a General
Co-Operation Development Agreement (Microcell GCDA) with Microcell Labs, Inc.
(Microcell Labs) on November 8, 2000, pursuant to which Microcell Labs agreed
to use OZ Canada as its preferred development resource for development work and
consulting services in the field of wireless Internet applications under the
terms and conditions of the Microcell GCDA. Under the terms of the Microcell
GCDA, Microcell Labs has committed to purchasing $9 million in consulting and
development services and technology licenses during the term of the Microcell
GCDA.

Also in connection with the transaction, OZ Canada entered into a Specific
Co-Operation and Development Agreement with Ericsson Canada on November 8, 2000
(Ericsson SCDA) in connection with the transaction pursuant to which OZ
Canada would provide consulting and development services in the areas of mobile
Internet applications for third generation (3G) mobile telephony platforms.
The Ericsson SCDA is an agreement under the General Co-Operation and
Development Agreement entered into on November 1, 2000 between an affiliate of
Ericsson Canada, Ericsson Radio Systems AB (Ericsson Radio Systems), and the
Company. Under the terms of the Ericsson SCDA, Ericsson Canada was to advance
to OZ Canada a total of $6 million in quarterly installments over the Ericsson
SCDAs two-year term, which installments were to be applied by Ericsson Canada
against amounts due for development work performed under the Ericsson SCDA.

Ericsson Canada is a subsidiary of LM Ericsson, Sweden. Another subsidiary
of LM Ericsson, Ericsson, Inc., owns 10,052,431 shares of the Companys Series
A Preferred stock, which is currently convertible into the Companys common
stock on

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a two-for-one basis. Under the terms of a shareholders agreement entered
into in February 1999 among Ericsson, Inc., the Company and Messrs. Skuli
Mogensen and Gudjon Mar Gudjonsson, Messrs. Skuli Mogensen and Gudjon Mar
Gudjonsson have agreed to vote a sufficient number of shares to elect a nominee
of Ericsson Inc. to the Companys board of directors.

For the years ended December 31, 2000 and 2001, the Company recognized
revenue from Ericsson in the amounts of $7,778,505 and $8,143,141,
respectively. At December 31, 2000 and 2001, all amounts classified as
accounts receivable from shareholders in the accompanying consolidated balance
sheets are due from Ericsson and Microcell in connection with development
agreements.

On January 24, 2002 OZ entered into an agreement with Ericsson Radio
Systems AB, Ericsson Telecom AB, Ericsson Inc. and Ericsson Canada Inc. ending
more than three years of cooperation between OZ and Ericsson to develop and
market the iPulse software. Under the terms of the agreement Ericsson agreed
to pay OZ an aggregate of $6 million prior to the end of the quarter ending
March 31, 2002 and irrevocably (a) assigned to OZ an equal and undivided share
of its right, title and interest in and to (i) the iPulse software, including
source and object code, (ii) the iPulse trademark, and (b) granted to OZ a
worldwide and perpetual license for all purposes to all other intellectual
property rights contained in and related to the iPulse software, including any
patent rights, copyrights, rights to photographs, design rights, technical
documentation and any other industrial and intellectual property rights
contained in the source and object code. OZ and Ericsson each have the right
to exploit the iPulse software in any way that they see fit. The agreement
expressly terminates all other contracts between OZ and Ericsson except for the
shareholder rights agreement made and entered into as of February 4, 1999 by
and between OZ and Ericsson Inc. and certain shareholders of OZ.

As a result of the termination of the Ericsson agreements, OZ will
recognize contract termination fees, revenues from the Ericsson Canada, Inc.
development agreement, and an impairment loss on the related intangibles that
OZ recorded in connection with the acquisition of the shares of MCE Holdings
Inc. in November 2000. During the quarter ended December 31, 2001 OZ recorded
a $8,830,285 non-cash impairment loss on intangible assets as an operating
expense (see Note 4). In the quarter ending March 31, 2002, OZ will recognize
a portion of the $6 million to be paid by Ericsson as a contract termination
fee (other non-operating revenue) and $3.7 million in revenues from the
development agreement with Ericsson Canada Inc. that is currently reflected on
the balance sheet as deferred revenue.

On February 28, 2002 OZ Canada and OZ entered into a series of amending
agreements with Microcell Labs and Microcell Capital II Inc. Under the terms
of the agreements the parties have terminated all specific development
agreements between the parties, terminated Microcells agreement to use OZ as
its preferred development resource in the field of wireless Internet messaging
services, terminated Microcells right to require OZ to redeem Microcells
shares of OZ common stock, terminated Microcells obligation to pay minimum
quarterly payments of $750,000 for development services, and replaced a license
of Ericssons iPulse 1.5 with a license of the OZ Instant Communications
Platform. The license is conditioned upon the purchase by Microcell Labs Inc.
of annual support and maintenance contracts from OZ, but is otherwise
royalty-free for the first three years and incremental capacity required after
the initial three-year period will be purchased separately at competitive
prices and terms. In addition, the parties modified a shareholder agreement to
change certain participation rights of Microcell and to provide that the
obligation of certain of OZs shareholders to vote a sufficient number of
shares to elect Microcells designee as a director is applicable only to the
election of directors held at OZs 2002 annual shareholders meeting. In partial
consideration for OZs agreement to make the amendments, Microcell has
surrendered to OZ 5,299,160 shares of OZs common stock for cancellation.

As a result of the termination of the agreements, OZ will recognize
revenues from several Microcell Labs specific development agreements, eliminate
redeemable common stock with a corresponding increase in additional paid-in
capital, record a reduction in common stock and paid-in capital, a bad debt
expense and record an impairment loss on the related intangibles that OZ
recorded in connection with the acquisition of the shares of MCE Holding
Corporation in November 2000. In the quarter ended December 31, 2001, OZ
recorded an $8,830,285 non-cash impairment loss on intangible assets as an
operating expense in connection with both the cancellation of the Microcell
agreements and the cancellation of the Ericsson development agreements in
January 2002. In the quarter ending March 31, 2002, OZ will
recognize $4.6 million in revenue from various specific development agreements with Microcell
Labs Inc. that is currently reflected on the balance sheet as deferred
revenue, record a $3.1 million non-cash impairment loss on intangible assets
as an operating expense, eliminate $4.5 million of redeemable common stock and
increase additional paid-in capital by a like amount, and allocate among common
stock, paid-in capital and bad debt expense $750,000 that was due in November
2001 from Microcell Labs Inc. under the general co-operation and development
agreement, but which was forgiven in connection with the return of 5,299,160
common shares of OZ as part of the amendments.

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3. Property and Equipment

Property and equipment at December 31 are comprised of:

|                                     |  |      |            |      |  |   |            |  
|------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                     |  | 2000 |            | 2001
|                                     |  |      |            |     
|Buildings                            |  | $    | 1,405,851  |      |  | $ | 1,049,521  |  
|Computer equipment and software      |  |      | 3,130,158  |      |  |   | 2,353,249  |  
|Furniture and leasehold improvements |  |      | 1,006,539  |      |  |   | 1,291,765  |  
|Other equipment                      |  |      | 84,225     |      |  |   | 287,497    |  
|                                     |  |      |            |      |  |   |            |  
|                                     |  |      | 5,626,773  |      |  |   | 4,982,032  |  
|Less: accumulated depreciation       |  |      | (1,747,612 | )    |  |   | (2,098,939 | )
|                                     |  |      |            |      |  |   |            |  
|                                     |  | $    | 3,879,161  |      |  | $ | 2,883,093  |  
|                                     |  |      |            |      |  |   |            |  

For the years ended December 31, 2000 and 2001 depreciation expense was
$711,699 and $1,158,704, respectively. As a result of the Companys recurring
losses from operations and the termination of its development agreements with
Ericsson and Microcell in January and February of 2002, respectively (see Note
2), during the fourth quarter of 2001 the Company recorded an impairment loss
on property and equipment of $603,243 which is included in general and
administrative expenses. The fair value of the impaired assets was determined
based on quoted market prices and other valuation techniques.

4. Intangibles

Intangible assets at December 31 are comprised of:

|                               |  |      |            |      |  |   |            |  
|------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | -
|                               |  | 2000 |            | 2001
|                               |  |      |            |     
|Goodwill                       |  | $    | 15,525,173 |      |  | $ | 6,694,888  |  
|License                        |  |      | 888,889    |      |  |   | 888,889    |  
|                               |  |      |            |      |  |   |            |  
|                               |  |      | 16,414,062 |      |  |   | 7,583,777  |  
|Less: accumulated amortization |  |      | (485,189   | )    |  |   | (3,844,195 | )
|                               |  |      |            |      |  |   |            |  
|                               |  | $    | 15,928,873 |      |  | $ | 3,739,582  |  
|                               |  |      |            |      |  |   |            |  

As a result of the termination of development agreements with Ericsson and
Microcell in January and February of 2002, respectively (see Note 2), the
goodwill was considered to be partially impaired at December 31, 2001, and
accordingly, the Company recorded a $8,830,285 impairment loss in the fourth
quarter of 2001. The amount of the impairment loss was determined by comparing
the carrying value of the intangible assets to their fair value at December 31,
2001. The fair value of the intangible assets was determined based on the net
present value of the related cash flows expected to be received in the first
quarter of 2002. The remaining balances of the goodwill and the license will
be written off in the first quarter of 2002.

5. Accrued Liabilities

Accrued liabilities are comprised of the following at December 31, 2000
and 2001:

|                          |  |      |           |      |  |   |         | 
|------------------------- |  | ---- | --------- | ---- |  | - | ------- | 
|                          |  | 2000 |           | 2001
|                          |  |      |           |     
|Accrued vacation          |  | $    | 439,326   |      |  | $ | 392,898 | 
|Other payroll liabilities |  |      | 489,101   |      |  |   | 382,190 | 
|Other accrued liabilities |  |      | 182,877   |      |  |   | 85,597  | 
|                          |  |      |           |      |  |   |         | 
|                          |  | $    | 1,111,304 |      |  | $ | 860,685 | 
|                          |  |      |           |      |  |   |         | 

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6. Notes Payable

The Company has entered into several long-term borrowing agreements with
Icelandic lenders. At December 31, 2000 and 2001 the following borrowings were
outstanding:

|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           |  | 
|-------------------------------- | ----------------------------------------------------------- | ------------- | ------ | ------------- | - | ---- | ------------- | ---- | - | ------- | --------------------- |  | - | ------- | --------- |  | 
|                                 |                                                             |               |        |               |   |      |               |      |   |         | Principal Outstanding
|                                 |                                                             |               |        |               |   |      |               |      |   |         | at December 31,      
|                                 |                                                             |               | Annual |               |   |      |               |      |  
|Lender                           |                                                             | Interest Rate |        | Maturity Date |   | 2000 |               | 2001
|                                 |                                                             |               |        |               |   |      |               |     
|OZ Communications, Inc.:         |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|                                 | Bunadarbanki Íslands hf(1)                                  |               |        | 6.85          | % |      | Dec. 15, 2021 |      | $ | 134,037 |                       |  | $ | 119,446 |          
|                                 | Bunadarbanki Íslands hf(2)                                  |               |        | 7.35          | % |      | June 15, 2009 |      |   | 91,145  |                       |  |   | 71,667  |          
|                                 | Osta-og smjorsalan sf(3)                                    |               |        | 6.00          | % |      | Oct. 1, 2022  |      |   | 225,815 |                       |  |   | 191,649 |          
|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|OZ Communications, Inc. subtotal |                                                             |               |        |               |   |      |               |      |   |         | 450,997               |  |   |         | 382,762   | 
|SmartVR, Inc. subsidiary:        |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|                                 | Gilding Fjarfestingarfelag (4)                              |               |        | 8.00          | % |      | June 30, 2002 |      |   |        |                       |  |   | 325,000 |          
|                                 | Talenta  Internet (4)                                      |               |        | 8.00          | % |      | June 30, 2002 |      |   |        |                       |  |   | 325,000 |          
|                                 | John Drury, Chief Executive
Officer of SmartVR, Inc. (4)(5) |               |        | 8.00          | % |      | June 30, 2002 |      |   |        |                       |  |   | 106,803 |          
|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|SmartVR, Inc. subtotal           |                                                             |               |        |               |   |      |               |      |   |         |                      |  |   |         | 756,803   | 
|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|Total notes payable              |                                                             |               |        |               |   |      |               |      |   |         | 450,997               |  |   |         | 1,139,565 | 
|Current portion                  |                                                             |               |        |               |   |      |               |      |   |         | 21,476                |  |   |         | 775,941   | 
|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 
|Long-term portion                |                                                             |               |        |               |   |      |               |      |   | $       | 429,521               |  |   | $       | 363,624   | 
|                                 |                                                             |               |        |               |   |      |               |      |   |         |                       |  |   |         |           | 



---

|(1) |  | The bank note payable is denominated in Icelandic Krona (ISK) with an
original principal balance of ISK 10 million. The original principal
balance is adjusted monthly for fluctuations in the Icelandic consumer
price index, in accordance with the terms of the note agreement. The year
end exchange rate between the ISK and the US dollar was 84.47 and 102.95
at December 31, 2000 and 2001, respectively. At December 31, 2000 and
2001, the adjusted principal balances are ISK 11,322,129 and ISK
12,296,918, respectively. Principal payments commence on July 15, 2009.
Interest payments are made on a monthly basis.                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The bank note payable is denominated in Icelandic Krona with an original
principal balance of ISK 10 million. The original principal balance is
adjusted annually for fluctuations in the Icelandic consumer price index,
in accordance with the terms of the note agreement. At December 31, 2000
and 2001 the adjusted principal balances are ISK 7,699,045 and ISK
7,378,149, respectively. Principal and interest payments are made monthly
on a pro-rata basis of the remaining principal plus accrued interest
balance.                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(3) |  | Note payable is denominated in Icelandic Krona with an original principal
balance of ISK 20 million. The original principal balance is adjusted
annually for fluctuations in the Icelandic consumer price index, in
accordance with the terms of the note agreement. At December 31, 2000 and
2001, the adjusted principal balances are ISK 19,074,607 and ISK
19,730,337, respectively. Principal and interest payments are made
annually on a pro-rata basis of the remaining principal plus accrued
interest balance.                                                                                                                                                                                                                                      
|   
|   
|   
|   
|(4) |  | Original note dated February 12, 2001 was issued by the Companys
SmartVR, Inc. Subsidiary (SmartVR) and was contingently convertible to
SmartVR preferred stock through February 28, 2002 in the event that
SmartVR raised additional capital in a preferred stock financing. This
did not occur. In November 2001, the note was amended whereby the holders
may elect commencing March 1, 2002 to accrue interest at 10%, or to
convert the unpaid principal amount of the note into common stock of
SmartVR at $0.19 per share through June 30, 2002. The holders of the
three notes have committed to provide up to a total of $950,000 in
financing. The parent company, OZ Communications, Inc., is not liable for
the repayment of these three notes.
|   
|   
|   
|   
|(5) |  | Note was issued for employment services rendered at a prevailing market
rate of compensation pursuant to an employment agreement. Maximum of
$200,000 of services are to be provided in exchange for notes payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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Principal maturities of notes payable at December 31, 2001 are as follows:

|                          |  |   |           |  
|------------------------- |  | - | --------- | -
|Years ending December 31: |  |   |           |  
|2002                      |  | $ | 775,941   |  
|2003                      |  |   | 19,138    |  
|2004                      |  |   | 19,138    |  
|2005                      |  |   | 19,138    |  
|2006                      |  |   | 19,138    |  
|Thereafter                |  |   | 287,072   |  
|                          |  |   |           |  
|Total                     |  |   | 1,139,565 |  
|Current portion           |  |   | (19,138   | )
|                          |  |   |           |  
|Long-term portion         |  | $ | 1,120,427 |  
|                          |  |   |           |  

Pursuant to the note agreements, the Company has pledged its buildings as
collateral for several loans with Búnadarbanki Íslands hf. and Osta- og
smjörsalan sf. The amount pledged at December 31, 2000 and 2001 approximates
$687,000 and $863,000, respectively.

7. Preferred and Common Stock

The Company is authorized to issue 275 million shares of $0.01 par value
common stock and 25 million shares of $0.01 par value preferred stock. Twenty
million shares of preferred stock are designated as Series A Preferred. The
remaining five million shares of preferred stock have not yet been designated.

Series A Preferred Shares

The Company is authorized to issue 20 million shares of Series A Preferred
stock. On December 31, 2000 and 2001, 14,680,964 and 14,270,964 shares of
Series A Preferred were issued and outstanding. In the event of liquidation,
dissolution, winding up or merger of the Company, either voluntary or
involuntary, the holders of the Series A Preferred shares retain liquidation
preference over the common shareholders equal to $1.00 per share, as adjusted
for stock splits, stock dividends and other recapitalizations. If there are
sufficient proceeds to pay the holders of the Series A Preferred stock their
liquidation preference in full, then the holders of common stock are entitled
to be paid an amount equal to $0.50 per share (as adjusted). Thereafter,
holders of preferred and common stock share equally in any remaining assets.

Holders of the Series A Preferred stock are entitled to vote on the basis
of the number of shares of common stock into which the preferred stock could be
converted on the record date for the vote.

The Series A Preferred stock is convertible at any time into common stock
at a ratio of one to two. All preferred stock will be converted into shares of
common stock upon the closing of the sale of shares pursuant to a registration
statement under the Securities Act of 1933 at an offering price of not less
than $0.50 per share (adjusted to reflect any stock splits, recapitalizations,
or combinations), and $5 million in the aggregate.

8. Net Loss Per Share

Diluted net loss per share does not differ from basic net loss per share
since potential common stock from the conversion of preferred stock, stock
options and warrants are antidilutive for all periods presented and are,
therefore, excluded from the calculation. Potentially dilutive securities not
included in the diluted net loss per share calculation equivalent to 34.9
million and 30.4 million for the years ended December 31, 2000 and 2001,
respectively, included preferred stock, stock options and warrants.

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9. Employee Stock Option Plans

1995 Stock Option Plan

In December 1995, the Company adopted the 1995 Stock Option Plan (the
1995 Plan), under which the Company has now reserved up to 18,000,000 shares
of common stock for issuance to all employees, except employees of the
Companys Swedish subsidiary, outside directors and certain consultants, as
determined on a case-by-case basis. The Company has the ability to grant both
incentive and supplemental stock options. Incentive stock options are issuable
at an exercise price at least equal to the fair value of the Companys shares
of common stock at the date of grant. Supplemental stock options may be issued
at prices as low as 85% of fair market value. Compensation expense is recorded
for options granted at prices below fair market value on the date of grant.
Both incentive and supplemental stock options have a maximum term of ten years.

At December 31, 2001, the Company had 8,116,185 available shares to be
granted under the 1995 Plan.

1998 Incentive Stock Option Plan

In May 1998, the Company adopted the 1998 Incentive Stock Plan (the 1998
Plan), under which the Company has reserved up to 2,000,000 shares of common
stock. The 1998 Plan provides for grants to directors, executive officers and
selected employees and consultants (Participants). Under this plan the
Company may grant stock to Participants for which the Participant is not
obligated to pay additional consideration (Stock Award) and may grant
Participants the right to purchase a specified number of shares of common stock
pursuant to a written agreement issued under the 1998 Plan (Stock Purchase
Offer). Shares of common stock that Participants may receive as a Stock Award
or under a Stock Purchase Offer may include restrictions on transfer,
repurchase rights, rights of first refusal and forfeiture provisions. There is
no restriction to the term of exercisability unless the employee terminates his
employment. At December 31, 2001, there were 682,076 shares available to be
granted under the 1998 Plan.

A summary of options outstanding and activity under the 1995 and 1998
stock option plans is as follows:

|                                 |  |           |            |           |  |          |              |  |  |          |      | 
|-------------------------------- |  | --------- | ---------- | --------- |  | -------- | ------------ |  |  | -------- | ---- | 
|                                 |  |           |            |           |  |          |              |  |  | Weighted
|                                 |  |           |            |           |  |          |              |  |  | Average 
|                                 |  | Number of |            | Price per |  | Exercise
|                                 |  | Shares    |            | Share     |  | Price   
|                                 |  |           |            |           |  |         
|Outstanding at January 1, 1999   |  |           | 7,999,000  |           |  | $        | 0.10         |  |  | $        | 0.10 | 
|Options granted                  |  |           | 2,736,000  |           |  |          | 0.10  1.20  |  |  |          | 0.93 | 
|Options exercised                |  |           | (1,636,298 | )         |  |          | 0.10  1.18  |  |  |          | 0.22 | 
|Options forfeited                |  |           | (1,721,436 | )         |  |          | 0.10  1.20  |  |  |          | 0.35 | 
|                                 |  |           |            |           |  |          |              |  |  |          |      | 
|Outstanding at December 31, 1999 |  |           | 7,377,266  |           |  |          | 0.10  1.20  |  |  |          | 0.33 | 
|Options granted                  |  |           | 2,240,000  |           |  |          | 1.175  1.25 |  |  |          | 1.21 | 
|Options exercised                |  |           | (2,532,017 | )         |  |          | 0.10  1.20  |  |  |          | 0.18 | 
|Options forfeited                |  |           | (859,417   | )         |  |          | 0.10  1.20  |  |  |          | 0.31 | 
|                                 |  |           |            |           |  |          |              |  |  |          |      | 
|Outstanding at December 31, 2000 |  |           | 6,225,832  |           |  |          | 0.10  1.25  |  |  |          | 0.75 | 
|Options granted                  |  |           | 1,371,250  |           |  |          | 0.50  2.30  |  |  |          | 0.85 | 
|Options exercised                |  |           | (88,000    | )         |  |          | 0.10         |  |  |          | 0.10 | 
|Options forfeited                |  |           | (1,650,432 | )         |  |          | 0.10  1.20  |  |  |          | 0.59 | 
|                                 |  |           |            |           |  |          |              |  |  |          |      | 
|Outstanding at December 31, 2001 |  |           | 5,858,650  |           |  | $        | 0.10  $2.30 |  |  | $        | 0.78 | 
|                                 |  |           |            |           |  |          |              |  |  |          |      | 

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Information regarding the stock options outstanding at December 31, 2001
is summarized below:

|       |  |                     |           |      |  |           |  |             |           |        |           | 
|------ |  | ------------------- | --------- | ---- |  | --------- |  | ----------- | --------- | ------ | --------- | 
|       |  | Options Outstanding
|       |  |                    
|       |  |                     |           |      |  |           |  |             |           | Option
|       |  |                     |           |      |  | Remaining |  | Exercisable
|       |  | Shares              |           | Life |  | Shares   
|       |  |                     |           |      |  |          
|$0.10  |  |                     | 1,773,000 |      |  | 5.9 years |  |             | 1,453,000 |       
|$0.50  |  |                     | 1,055,000 |      |  | 8.0 years |  |             | 371,666   |       
|$1.175 |  |                     | 1,754,400 |      |  | 8.1 years |  |             | 975,600   |       
|$1.20  |  |                     | 155,000   |      |  | 7.6 years |  |             | 64,000    |       
|$1.25  |  |                     | 805,000   |      |  | 8.3 years |  |             | 201,250   |       
|$2.00  |  |                     | 293,750   |      |  | 3.0 years |  |             | 293,750   |       
|$2.30  |  |                     | 22,500    |      |  | 3.5 years |  |             | 22,500    |       
|       |  |                     |           |      |  |           |  |             |           |        |           | 
|       |  |                     | 5,858,650 |      |  |           |  |             |           |        | 3,381,766 | 
|       |  |                     |           |      |  |           |  |             |           |        |           | 

The Company recorded deferred compensation of $4,970,000 for options
granted at less than fair value during 2000. This deferred compensation, net
of cancellations, is being amortized ratably over the vesting period of the
related options.

The following information concerning the Companys stock option plans is
provided in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. The Company accounts for the Plan in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. The fair value of options granted in 2000 and 2001 was
estimated at the date of the grant using a Black-Scholes option pricing model.
Weighted average assumptions used in determining the fair value of grants in
2000 and 2001, include a risk-free interest rate of 5.0% and 4.5%,
respectively, and an expected life of five and one half years, expected
volatility of 75% and expected dividend yields of zero.

As a result of the above assumptions, the weighted average fair value of
options granted in 2000 and 2001, was $2.85 and $0.31 per share, respectively.

The pro forma net loss for the Company, for the years ended December 31,
2000 and 2001, following the provisions of SFAS 123, is $14,747,090 and
$25,618,053, respectively. The pro forma net loss per share for the Company
for the years ended December 31, 2000 and 2001, following the provisions of
SFAS 123, is $0.20 and $0.28, respectively.

10. Warrants to Purchase Common Stock

As of December 31, 2001, the Company had the following warrants
outstanding that are fully vested:

|          |         |                |  |            |      |  |  |  |    |  
|--------- | ------- | -------------- |  | ---------- | ---- |  |  |  | -- | -
|Number of |         | Exercise Price |  | Expiration
|Warrants  |         | Per Share      |  | Date      
|          |         |                |  |            |      | 
|          | 308,000 |                |  | $          | 0.55 |  |  |  | (1 | )
|          | 80,000  |                |  | $          | 0.25 |  |  |  | (2 | )
|          |         |                |  |            |      |  |  |  |    |  
|          | 388,000 |                |  |            |      |  |  |  |   
|          |         |                |  |            |      |  |  |  |    |  



| | (1) |  | The warrants are held by unrelated parties and are exercisable
until a sale of the Companys shares of common stock pursuant to an
effective registration statement under the Securities Act or a
consolidation (as defined) or merger of the Company into another
corporation.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The warrants are held by a former employee and are exercisable
until the earlier of February 1, 2002 or immediately prior to
completion of any consolidation (as defined) or merger of the
Company. This warrant expired without being exercised.                              

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11. Notes Receivable from Shareholders

Under certain written agreements issued under the 1998 Incentive Stock
Plan, the Company may issue shares of common stock to employees upon the
receipt of a note receivable from the employee. The note receivable is secured
by the shares of common stock, does not have a maturity date and is interest
free. The Company does not realize any benefit or loss from changes in value of
the underlying shares held by the Company as security of the note receivable.
Upon termination any amount unpaid is settled through receipt of the original
shares issued at the original exercise price.

During 2000 the Company issued 160,000 shares of common stock in exchange
for notes receivable in the amount of $189,500. During 2000 the Company
received payments of $35,800 in exchange for 358,000 shares of common stock.
At December 31, 2000 and 2001, notes receivable in the amount of $353,900 were
outstanding for 514,000 shares of common stock.

12. Income Taxes

The components of deferred income taxes at December 31, 2001 are as
follows:

|                                        |                                 |   |              |           |      |   |             |            | 
|--------------------------------------- | ------------------------------- | - | ------------ | --------- | ---- | - | ----------- | ---------- | 
|                                        |                                 |   | December 31,
|                                        |                                 |   |             
|                                        |                                 |   | 2000         |           | 2001
|                                        |                                 |   |              |           |     
|Non-current deferred income tax assets: |                                 |   |              |           |      |   |             |           
|Net operating loss carryforwards        |                                 | $ | 9,508,622    |           |      | $ | 13,966,574  |           
|Other                                   |                                 |   | 202,204      |           |      |   | 106,491     |           
|                                        |                                 |   |              |           |      |   |             |           
|                                        | Total deferred income tax asset |   |              | 9,710,826 |      |   |             | 14,073,065 | 
|Valuation allowance                     |                                 |   | (9,710,826   | )         |      |   | (14,073,065 | )         
|                                        |                                 |   |              |           |      |   |             |           
|                                        |                                 | $ |             |           |      | $ |            |           
|                                        |                                 |   |              |           |      |   |             |           

Due to the uncertain nature of the ultimate realization of the above
deferred tax asset, the Company has recorded a valuation allowance against
deferred tax assets.

At December 31, 2001 the Company has net operating loss carryforwards of
approximately $34,800,000, $19,000,000 and $5,100,000 for federal, state and
foreign income tax purposes, respectively. These carryforwards will expire
from year 2002 through 2021.

13. Employee Benefit Plan

The Company has a 401(k) defined contribution benefit plan covering all
eligible employees. Company contributions to the plan may be made at the
discretion of the Company. The Company has not made any contributions to the
plan since its inception.

14. Segments

The Companys chief operating decision maker is considered to be the
Companys Chief Executive Officer (CEO). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenues by geographic region and by product for purposes of
making operating decisions and assessing financial performance. During the
years ended December 31, 2000 and 2001, the Company operated in three operating
segments: 1) development of software that enables the delivery of
Internet-based services to mass-market wireless telephones, 2) the delivery of
Internet-based services to mobile network operators and Internet businesses,
and related consulting services and 3) the licensing of the Companys core
technologies to Ericsson and the licensing of the Companys products to network
operators and Internet businesses. The disaggregated information reviewed on a
product basis by the CEO is as follows:

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|          |                 |                |   |             |           |      |   |           |           | 
|--------- | --------------- | -------------- | - | ----------- | --------- | ---- | - | --------- | --------- | 
|          |                 |                |   | Years Ended
|          |                 |                |   | December 31
|          |                 |                |   |            
|          |                 |                |   | 2000        |           | 2001
|          |                 |                |   |             |           |     
|Revenues: |                 |                |   |             |           |      |   |          
|          | Development     |                | $ | 7,724,249   |           |      | $ | 7,734,316 |          
|          | Client services |                |   | 299,756     |           |      |   | 464,652   |          
|          | Licenses        |                |   | 279,880     |           |      |   | 236,572   |          
|          |                 |                |   |             |           |      |   |          
|          |                 | Total revenues |   | $           | 8,303,885 |      |   | $         | 8,435,540 | 
|          |                 |                |   |             |           |      |   |          

Revenues attributable to geographic regions are based upon the origination
of the sales. The Company currently has sales operations in Reykjavik, Iceland
to address the European markets and in San Diego to address the United States
and Canadian markets. Geographic information for the Company is as follows:

|                             |       |   |           |           |                   |   |           |           |      |   |            |            |  |   |           |           | 
|---------------------------- | ----- | - | --------- | --------- | ----------------- | - | --------- | --------- | ---- | - | ---------- | ---------- |  | - | --------- | --------- | 
|                             |       |   | Revenues  |           | Long lived assets
|                             |       |   |           |           |                  
|                             |       |   | 2000      |           | 2001              |   | 2000      |           | 2001
|                             |       |   |           |           |                   |   |           |           |     
|North America                |       | $ | 7,393,299 |           |                   | $ | 5,092,839 |           |      | $ | 16,294,741 |            |  | $ | 4,757,994 |          
|Europe (principally Iceland) |       |   | 910,586   |           |                   |   | 3,342,701 |           |      |   | 3,513,293  |            |  |   | 1,864,681 |          
|                             |       |   |           |           |                   |   |           |           |      |   |            |            |  |   |           |          
|                             | Total |   | $         | 8,303,885 |                   |   | $         | 8,435,540 |      |   | $          | 19,808,034 |  |   | $         | 6,622,675 | 
|                             |       |   |           |           |                   |   |           |           |      |   |            |            |  |   |           |          

Ericsson Telecom AB and/or its affiliates (Ericsson) was the Companys
most significant customer during the years ended December 31, 2000 and 2001.
Microcell Telecommunications Inc. and/or its affiliates (Microcell) was also
a significant customer, accounting for payments to the Company in the amount of
$1,750,000 and $2,250,000 for development services in the years ended December
31, 2000 and 2001. These payments from Microcell were not recognized as
revenue because of the significant related party relationship between Microcell
and the Company at the inception of the contract. See Note 2, which discusses
the nature of the relationship with these customers.

15. Commitments and Contingencies

The Company has entered into various noncancellable operating leases for
office space. Future minimum lease payments under operating leases as of
December 31, 2001 are as follows:

|                          |             |                              |   |         |           | 
|------------------------- | ----------- | ---------------------------- | - | ------- | --------- | 
|Years Ending December 31: |             |                              |   |        
|                          | 2002        |                              | $ | 396,233 |          
|                          | 2003        |                              |   | 395,141 |          
|                          | 2004        |                              |   | 388,231 |          
|                          | 2005        |                              |   | 353,676 |          
|                          | 2006        |                              |   | 343,950 |          
|                          | 2007 - 2008 |                              |   | 648,996 |          
|                          |             |                              |   |        
|                          |             | Total minimum lease payments |   | $       | 2,526,227 | 
|                          |             |                              |   |        

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Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




PART III




Item 9. Directors, Executive Officers, Promoters and Control Persons

Directors

The following table lists the members of the Board of Directors and
provides their ages and positions with us as of February 28, 2002.
Biographical information for each director is provided below.

|                      |  |     |    |          |  |                                  
|--------------------- |  | --- | -- | -------- |  | ---------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Gudjon Mar Gudjonsson |  |     | 30 |          |  | Director, Chief Visionary        
|Skuli Mogensen        |  |     | 33 |          |  | Director, Chief Executive Officer
|Stig-Arne Larsson     |  |     | 59 |          |  | Director, Chairman of the Board  
|Jean-Marc Ferland     |  |     | 56 |          |  | Director                         

Gudjon Mar Gudjonsson, age 30, is our co-founder and our Chief Visionary.
He has served as a director since December 1995. In 1990, he founded OZ, hf,
our predecessor in Iceland. Mr. Gudjonsson has worked extensively in the
computer software, communications and Internet industry over the last decade.
He has served as a government consultant on various projects and was
responsible for designing a future vision for the Ministry of Communication in
Iceland in 1998.

Skuli Mogensen, age 33, is our co-founder and our Chief Executive Officer.
Mr. Mogensen has served as a director since December 1995. He has been
involved in several successful ventures in Scandinavia and has extensive
international business experience. Mr. Mogensen is responsible for our overall
business development, investment banking, major partners, general strategy and
tactical input in major contracts and key accounts.

Stig-Arne Larsson, age 59, has served as a director since May 2000 and
serves as the acting Chairman of the Board. He is currently the Chief
Executive Officer of Sal Ventures AB, a telecom and information technology
consulting firm. Previously, he was the Chief Executive Officer and Chief
Financial Officer of Telia Group, the incumbent Swedish telecom operator, and
Deputy Director General and Finance Director at Swedish Telecom Televerket.
Mr. Larsson is also a member of the board of directors of TradeDoubler AB,
Generic Systems AB, Secode AB, Svenska Brand AB and Castellum AB.

Jean-Marc Ferland, age 56, has served as a director since November 2001.
He is currently a Senior Partner of CDP Capital Technology Ventures, a venture
capital company. Previously, Mr. Ferland was a Vice-President of Microcell
Labs, Inc., a venture capital company, and President of DIGIFAX Communications,
a telecommunications consulting firm, and President of Scotcomm Radio Inc., an
exclusive distribution company for the mobile radio equipment division of NEC
Japan. Mr. Ferland has a Bachelor of Economics (with honors), from the
Université de Montréal, a management certificate from McGill University and an
Executive Development diploma from the Harvard Business School.

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Officers

Officers serve at the discretion of the Board of Directors, subject to
rights, if any, under contracts of employment. See Executive Compensation.
There is no family relationship between any director or executive officer and
any other director or executive officer. Our executive officers on February
28, 2002 were as follows:

|                       |  |     |    |          |  |                                                           
|---------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Skuli Mogensen         |  |     | 33 |          |  | Chief Executive Officer                                   
|Gudjon Mar Gudjonsson  |  |     | 30 |          |  | Chief Visionary                                           
|Skuli Valberg Olafsson |  |     | 35 |          |  | Chief Operating Officer                                   
|Fredrik Torstensson    |  |     | 37 |          |  | Executive Vice President of Sales and Business Development
|Jean Regnier           |  |     | 43 |          |  | Chief Technology Officer                                  
|Jon L. Arnason         |  |     | 41 |          |  | Secretary and Treasurer                                   
|Gilles Lapierre        |  |     | 42 |          |  | Vice President; Managing Director, OZ Communications Co.  

Biographical information for Skuli Mogensen and Gudjon Mar Gudjonsson is
provided above.

Skuli Valberg Olafssonhas been Chief Operating Officer since October
1999. Prior to joining us he was Assistant Managing Director at EJS hf, the
largest systems integrator and solution developer in Iceland, specializing in
banking, finance, and retail solutions and services. Mr. Olafsson serves as a
director of Caoz hf and is a director of SmartVR, Inc. Both Caoz hf and
SmartVR, Inc. are our subsidiaries. Mr. Olafsson holds a B.Sc. degree in
Industrial and Systems Engineering from the University of Florida and has
completed postgraduate studies in Total Quality Management and Process
Engineering.

Fredrik Torstenssonhas been Executive Vice President of Business
Development and Sales since April 2000. Prior to joining us, Mr. Torstensson
worked for six years for Ericsson, most recently as Director of Business
Development for Ericsson Inc. He holds a Bachelors Degree in Engineering from
the Chalmers University of Technology in Gothenburg, Sweden, and a Masters
Degree in International Management from the University of Texas.

Jon L. Arnasonhas been Secretary and Treasurer since April 2000 and
formerly was Chief Financial Officer from 1997 to April 2000. Prior to joining
us, Mr. Arnason worked for three years for an accounting firm in Iceland,
representing Arthur Andersen Worldwide. Mr. Arnason is an International Chess
Grandmaster and was a member of the Icelandic Olympic team from 1978 to 1994.
He is three times Icelandic Champion and a former junior World Champion. He
holds a Cand. Oecon. Degree in Finance and Accounting from the University of
Iceland.

Jean Regnierhas been Chief Technology Officer since January 2002. With
more than 20 years of telecom experience with industry leaders such as Nortel
and Microcell, Dr. Regnier is responsible for incorporating our technical
expertise into marketable and profitable products. He holds a Ph.D. from the
Massachusetts Institute of Technology, and has authored more than 20 patents
and publications.

Gilles Lapierrehas been Vice President and Managing Director of OZ
Communications Co. since November 2000. Prior to joining OZ Communications
Co., Mr. Lapierre was Vice President, Network Operators, at Ericsson Canada in
Montreal, QC. In this role, he was responsible for Ericssons business
activities towards the Telesystem Group, and in particular working closely with
Microcell. He also worked as Director of several product development, sales
and marketing teams within Ericsson. In addition, Mr. Lapierre has held
research and development positions at Consortel and Nortel Networks. Mr.
Lapierre earned his Bachelors degree in Electrical Engineering and Masters
degree in Applied Science from Ecole Polytechnique in Montreal, QC.

Section 16(a) Beneficial Ownership Reporting Compliance

Based upon a review of reports received by us during or with respect to
the year ended December 31, 2001 pursuant to Rule 16a-3(e) of the Securities
Exchange Act of 1934, all required reports on Form 3, Form 4 and Form 5 were
timely filed by our directors, officers and 10% stockholders, except that
Gilles Lapierre was late filing a report on Form 5 and Andre Tremblay, a former
director, and Jean Regnier did not file a Form 3.

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##### Table of Contents






Item 10. Executive Compensation

Summary Compensation Table. The following table summarizes the annual and
long-term compensation of, and stock options held by, our Chief Executive
Officer and the four additional most highly compensated executive officers
whose annual salaries and bonuses exceeded $100,000 in total during the fiscal
year ended December 31, 2001 (collectively, the Named Officers).

|                       |                                   |      |      |      |  |        |                     |           |        |              |         |                  |  |            |              |         |            |              |                        |         |  |  |      |   |           |  |   |   |  |  |       |       | 
|---------------------- | --------------------------------- | ---- | ---- | ---- |  | ------ | ------------------- | --------- | ------ | ------------ | ------- | ---------------- |  | ---------- | ------------ | ------- | ---------- | ------------ | ---------------------- | ------- |  |  | ---- | - | --------- |  | - | - |  |  | ----- | ----- | 
|                       |                                   |      |      |      |  |        |                     |           |        |              |         |                  |  |            |              |         |            |              | Long-Term Compensation
|                       |                                   |      |      |      |  |        |                     |           |        |              |         |                  |  |            |              |         |            |              |                       
|                       |                                   |      |      |      |  |        | Annual Compensation |           | Awards |              | Payouts
|                       |                                   |      |      |      |  |        |                     |           |        |              |        
|                       |                                   |      |      |      |  |        |                     |           |        |              |         |                  |  |            | Other Annual |         | Securities |              |                        |         |  |  | LTIP |   | All Other | 
|Name and Principal     |                                   |      |      |      |  | Salary |                     | Bonus     |        | Compensation |         | Underlying       |  | Restricted |              | Payouts |            | Compensation
|Position               |                                   | Year |      | ($)  |  | ($)    |                     | ($)(1)(2) |        | Options(#)   |         | Stock Awards (#) |  | (#)        |              | ($)(3) 
|                       |                                   |      |      |      |  |        |                     |           |        |              |         |                  |  |            |              |        
|Skuli Mogensen         |                                   |      | 2001 |      |  |        | 147,984             |           |        |              | 0       |                  |  |            | 12,039       |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 9,169 |      
|                       | Chief Executive Officer           |      |      | 2000 |  |        |                     | 155,618   |        |              |         | 0                |  |            |              |        |            |              |                        | 0       |  |  |      | 0 |           |  |   | 0 |  |  |       | 9,337 | 
|                       |                                   |      | 1999 |      |  |        | 151,833             |           |        |              | 0       |                  |  |            |             |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 9,110 |      
|Gudjon Mar Gudjonsson  |                                   |      | 2001 |      |  |        | 123,718             |           |        |              | 0       |                  |  |            | 24,335       |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 7,671 |      
|                       | Chairman of the Board,            |      |      | 2000 |  |        |                     | 143,763   |        |              |         | 0                |  |            |              | 16,596  |            |              |                        | 0       |  |  |      | 0 |           |  |   | 0 |  |  |       | 8,626 | 
|                       | Chief Visionary                   |      |      | 1999 |  |        |                     | 151,833   |        |              |         | 0                |  |            |              |        |            |              |                        | 0       |  |  |      | 0 |           |  |   | 0 |  |  |       | 7,940 | 
|Gilles Lapierre        |                                   |      | 2001 |      |  |        | 135,000             |           |        |              | 33,750  |                  |  |            | 6,000        |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 0     |      
|                       | Vice President and                |      |      | 2000 |  |        |                     | 67,500    |        |              |         | 22,386           |  |            |              | 3,000   |            |              |                        | 200,000 |  |  |      | 0 |           |  |   | 0 |  |  |       | 0     | 
|                       | General Manager                   |      |      | 1999 |  |        |                     |          |        |              |         |                 |  |            |              |        |            |              |                        |        |  |  |      |  |           |  |   |  |  |  |       |      | 
|Skuli Valberg Olafsson |                                   |      | 2001 |      |  |        | 119,554             |           |        |              | 0       |                  |  |            | 15,224       |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 7,465 |      
|                       | Chief Operating Officer           |      |      | 2000 |  |        |                     | 114,783   |        |              |         | 0                |  |            |              | 14,541  |            |              |                        | 0       |  |  |      | 0 |           |  |   | 0 |  |  |       | 6,887 | 
|                       |                                   |      | 1999 |      |  |        | 25,937              |           |        |              | 0       |                  |  |            | 3,067        |         |            |              | 400,000                |         |  |  | 0    |   |           |  | 0 |   |  |  | 1,556 |      
|Fredrik Torstensson    |                                   |      | 2001 |      |  |        | 202,000             |           |        |              | 0       |                  |  |            | 0            |         |            |              | 0                      |         |  |  | 0    |   |           |  | 0 |   |  |  | 0     |      
|                       | Executive Vice                    |      |      | 2000 |  |        |                     | 242,693   | (4)    |              |         | 0                |  |            |              | 0       |            |              |                        | 500,200 |  |  |      | 0 |           |  |   | 0 |  |  |       | 0     | 
|                       | President                         |      |      | 1999 |  |        |                     |          |        |              |         |                 |  |            |              |        |            |              |                        |        |  |  |      |  |           |  |   |  |  |  |       |      | 
|                       | of Sales and Business
Development |      |      |      |  |        |                     |           |        |              |         |                  |  |            |              |         |            |              |                        |         |  |  |      |   |           |  |   |   |  |  |       |       | 



---

|(1) |  | Includes perquisites and other personal benefits, securities or property
received by the Named Officer unless the aggregate amount of such compensation
is less than 10 percent of the total annual salary and bonus reported for the
Named Officer.                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes $5,744 in automobile benefits received in 2001 by Skuli Mogensen;
$22,953 in automobile benefits received in 2001 and $13,696 in automobile
benefits received in 2000 by Gudjon Mar Gudjonsson; and $12,307 in automobile
benefits received in 2001, $4,541 in automobile benefits received in 2000 and
$2,486 in automobile benefits received in 1999 by Skuli Valberg Olafsson.
|   
|   
|   
|   
|(3) |  | Reflects contributions by us to a pension plan on behalf of the Named
Officer in the amounts indicated.                                                                                                                                                                                                                                                                                   
|   
|   
|   
|   
|(4) |  | Includes $83,693 in salary paid by OZCOM AB, our wholly owned subsidiary.                                                                                                                                                                                                                                                                                                                 

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##### Table of Contents



Option / SAR Grants In Last Fiscal Year

The following table sets forth information regarding stock options granted
to Named Officers during the fiscal year ended December 31, 2001.

|                       |  |                    |         |                     |  |           |      |                 |  |                 |      |  |  |   |      |  |  |  |          | 
|---------------------- |  | ------------------ | ------- | ------------------- |  | --------- | ---- | --------------- |  | --------------- | ---- |  |  | - | ---- |  |  |  | -------- | 
|                       |  | Individual Grants 
|                       |  |                   
|                       |  | Number of          |         | Percent of Total    |  |           |      |                 |  |                 |      |  |  |   |      | 
|                       |  | Securities         |         | Options Granted to  |  | Exercise  |      | Market Price of |  |                 |      | 
|                       |  | Underlying Options |         | Employees in Fiscal |  | Price Per |      | Underlying      |  |                 |      | 
|Name                   |  | Granted (#)        |         | 2001(%)             |  | Share     |      | Security(1)     |  | Expiration Date
|                       |  |                    |         |                     |  |           |      |                 |  |                
|Skuli Mogensen         |  |                    |        |                     |  |           |     |                 |  |                 |     |  |  |   |     |  |  |  |         | 
|Gudjon Mar Gudjonsson  |  |                    |        |                     |  |           |     |                 |  |                 |     |  |  |   |     |  |  |  |         | 
|Gilles Lapierre        |  |                    | 200,000 |                     |  |           | 14.8 |                 |  | $               | 0.50 |  |  | $ | 0.50 |  |  |  | 12/31/09 | 
|Skuli Valberg Olafsson |  |                    |        |                     |  |           |     |                 |  |                 |     |  |  |   |     |  |  |  |         | 
|Fredrik Torstensson    |  |                    |        |                     |  |           |     |                 |  |                 |     |  |  |   |     |  |  |  |         | 



---

|(1) |  | There is currently no public market for our common stock (i.e., bid and
asked quotations at fixed prices, excluding bid wanted or offer wanted
quotations, have not appeared regularly in any established trading system).
The fair market value of the common stock on the date of grant is deemed to be
the value used for accounting purposes to determine stock-based compensation.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Long-Term Incentive Plans

No long-term incentive plan was in effect in 2001.

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth the information noted for all exercises of
options by the Named Officers during the fiscal year ended December 31, 2001
and the fiscal year end value of unexercised options.

|                       |  |             |   |          |  |               |   |               |  |             |                 |              |  |   |      |    
|---------------------- |  | ----------- | - | -------- |  | ------------- | - | ------------- |  | ----------- | --------------- | ------------ |  | - | ---- | ---
|                       |  |             |   |          |  |               |   |               |  | Number of   |                 |              |  |  
|                       |  |             |   |          |  |               |   |               |  | Securities  |                 | Value of    
|                       |  |             |   |          |  |               |   |               |  | Underlying  |                 | Unexercised 
|                       |  |             |   |          |  |               |   |               |  | Unexercised |                 | In-the-Money
|                       |  | Shares      |   |          |  |               |   | Options       |  | Options    
|                       |  | Acquired on |   | Value    |  | Exercisable/  |   | Exercisable/ 
|Name                   |  | Exercise    |   | Realized |  | Unexercisable |   | Unexercisable
|                       |  |             |   |          |  |               |   |              
|Skuli Mogensen         |  |             |  |          |  |               |  |               |  |             |                |              |  |   |     |    
|Gudjon Mar Gudjonsson  |  |             |  |          |  |               |  |               |  |             |                |              |  |   |     |    
|Gilles Lapierre        |  |             |  |          |  |               |  |               |  |             | 83,333/116,667  |              |  | $ | 0/$0 | (1)
|Fredrik Torstensson    |  |             |  |          |  |               |  |               |  |             | 133,334/300,066 |              |  | $ | 0/$0 | (2)
|Skuli Valberg Olafsson |  |             |  |          |  |               |  |               |  |             | 266,667/133,333 |              |  | $ | 0/$0 | (2)



---

|(1) |  | The exercise price of these options is $0.50. The fair market value of
the common stock underlying these options on December 31, 2001 was
approximately $0.10 per share, which reflects managements estimate of the fair
market value relying on an independent valuation as of February 1, 2002 and
events and market changes prior to that date. 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The exercise price of these options is $1.175. The fair market value of
the common stock underlying these options on December 31, 2001 was
approximately $0.10 per share, which reflects managements estimate of the fair
market value relying on an independent valuation as of February 1, 2002 and
events and market changes prior to that date.

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##### Table of Contents



Employment Contracts

Skuli Mogensen entered into an employment contract with us in October
1998, which was automatically extended by its terms and is now
effective until January 2003. The contract provides for an
initial annual salary of $132,000, with a yearly 5% increase and a yearly cost
of living adjustment, and an annual bonus based on increases in revenues from
the previous year, with the bonus capped at 100% of salary. Under the contract,
Mr. Mogensen receives standard expatriation benefits. If Mr. Mogensen is
terminated without cause, he will receive a twelve-month continuation of salary
and benefits and a pro rata portion of his annual bonus. The contract includes
a non-competition provision.

Gudjon Mar Gudjonsson entered into an employment contract with us in
October 1998, which was automatically extended by its terms and is now
effective until January 2003. The contract provides for
an initial annual salary of $132,000, with a yearly 5% increase and a yearly
cost of living adjustment, and an annual bonus based on increases in revenues
from the previous year, with the bonus capped at 100% of salary. Under the
contract, Mr. Gudjonsson receives standard expatriation benefits. If Mr.
Gudjonsson is terminated without cause, he will receive a twelve-month
continuation of salary and benefits and a pro rata portion of his annual bonus.
The contract includes a non-competition provision.

Gilles Lapierre entered into an employment contract with us in September
2000, which is effective until October 2, 2003. The contract provides for an
initial salary of $135,000 with a bonus capped at 100% of salary, 200,000
options vesting in three years, and use of an automobile. If Mr. Lapierres
employment is terminated for other than cause, he will receive 12 months of
salary plus his nominal incentive bonus (50% of base salary). All other
benefits will terminate at the date of Mr. Lapierres termination of
employment. He also signed an agreement containing confidentiality and
assignment of intellectual property rights provisions.

Jean Regnier entered
into an employment contract with us in December 2001.
The contract provides for an initial salary of $103,406 with a bonus capped at
75% of salary, 140,000 options vesting in three years. If Mr. Regniers
employment is terminated for other than cause, he will receive four months of
salary. All other benefits will terminate at the date of Mr. Regniers
termination of employment. He also signed an agreement containing
confidentiality and assignment of intellectual property rights provisions.

Skuli Valberg Olafsson entered into an employment contract with us in
September 1999, which provides that he will receive an annual salary of
$128,571, 400,000 options vesting during the subsequent 3 years, and use of an
automobile. If Mr. Olafssons employment is terminated, he will receive six
months base salary. All other benefits will terminate as of the date of Mr.
Olafssons termination of employment. The contract contains confidentiality and
assignment of intellectual property rights provisions.

Fredrik Torstensson entered into an employment contract with us in March
2000. This agreement was amended in November 2000. As amended, the agreement
provides that he will receive an annual salary of $202,000, 400,000 options
that vest during the subsequent three years, a bonus program based on revenue
objectives, an automobile allowance, and relocation benefits. We also
granted 100,200 options that will terminate unless he reaches specified revenue goals in 2001
and 2002. These goals were not achieved in 2001 and a portion of the
100,200 options was terminated. If we terminate Mr.
Torstenssons employment without cause, or he resigns for a good reason, as
those terms are defined in his agreement, he will be entitled to a 12-month
continuation of his salary and vesting of his options that are not tied to
revenue goals. All other benefits will terminate as of the date of Mr.
Torstenssons termination of employment. He has also signed an agreement
containing confidentiality and assignment of intellectual property rights
provisions.

Director Compensation

Commencing in 2002, each outside director will be compensated by quarterly
cash payments totaling $15,000 per year for service on the board of directors
and an additional $5,000 for each committee on which the director serves. In
addition, each outside director will receive a supplemental stock option to
purchase up to 100,000 shares of common stock, which will vest over three years.
The chairman will receive $25,000 per year, plus $5,000 for each committee on which
he serves and a supplemental stock option to purchase up to 150,000 shares of
common stock, which will vest over three years. The outside directors
also will receive reimbursement of
their expenses associated with the performance of their duties and 2.5% of any
capital investment that they source in a transaction that does not involve
investment banker fees or other third-party commission arrangements. There was no standard director compensation
arrangements or any director compensation in 2001.

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##### Table of Contents



Stock Option Plans

1995 Stock Option Plan

Eighteen million shares of the Companys Common Stock are reserved for
issuance under our 1995 Stock Option Plan (the 1995 Plan). Options granted
under the 1995 Plan may be incentive stock options as defined in Section 422
of the Code, or nonqualified options. Under the terms of the Plan, incentive
stock options may be granted only to our key employees. The exercise price of
incentive stock options may not be less than 100% of the fair market value of
the Common Stock as of the date of grant (110% of the fair market value if the
grant is to a person who owns more than 10% of the total combined voting power
of all classes of our capital stock or any of our affiliates). The Code and
the 1995 Plan limit the options first becoming exercisable in any calendar year
which are treated as incentive stock options to options covering $100,000 of
aggregate value (determined as of the date of the grant of the options) of
Common Stock; options first becoming exercisable in any calendar year in excess
of this limit are treated as nonqualified stock options. Nonqualified options
may be granted under the 1995 Plan at an exercise price of not less than 85% of
the fair market value of the Common Stock on the date of grant, or, if the
grant is to a person who owns more than 10% of the total combined voting power
of all classes of our capital stock or any of our affiliates, not less than
110% of the fair market value of the Common Stock as of the date of grant. The
purchase price of stock acquired may be paid in cash or, at the discretion of
the Committee, in Common Stock or through a deferred payment or other
arrangement. We may require an optionee to give written assurances with
respect to the optionees business experience and investment purposes if
required under the then applicable securities laws before exercising an option.
If provided by the terms of the option, the optionee may satisfy
tax-withholding obligations relating to the exercise of options by a cash
payment or the withholding or delivery of Common Stock with a fair market value
equal to the obligations.

Unless otherwise provided in the applicable stock option agreement, upon
termination of employment of an optionee, all options that were then
exercisable will terminate three months (twelve months in the case of
termination by reason of disability and eighteen months in the case of death)
after the termination of employment. Upon an optionees leave of absence, we
may decide that such leave will be treated as a termination for the purposes of
determining the termination date of the options or may suspend the vesting of
the options.

Options granted under the 1995 Plan may not be exercised more than ten
years after the grant (five years after the grant if the grant is an option to
a person who owns more than 10% of the total combined voting power of all
classes of our capital stock or any of our affiliates). Options granted under
the 1995 Plan are not transferable and may be exercised only by the respective
grantees during their lifetime or by their heirs, executors or administrators
in the event of death (or, in the case of nonqualified options, a transferee
pursuant to a qualified domestic relations order). Shares subject to cancelled
or terminated options are reserved for subsequently granted options. The
number of options outstanding and the exercise price thereof are subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.

The 1995 Plan may be administered by the Board of Directors or in the
Boards discretion by a committee designated by the Board. The Compensation
Committee of the Board currently administers the 1995 Plan. The 1995 Plan is
effective for ten years, unless sooner terminated or suspended.

1998 Incentive Stock Plan

Two million shares of Common Stock are reserved for issuance under our
1998 Incentive Stock Plan (the 1998 Plan). The Plan is administered by the
Board of Directors, which may delegate administration to a committee (in both
cases, the Committee). The Compensation Committee of the Board currently
administers the 1998 Plan. Under the 1998 Plan, the Committee may grant stock
to directors, executive officers and selected employees (Participants) for
which the Participant is not obligated to pay additional consideration (Stock
Award) and may grant Participants the right to purchase a specified number of
shares of Common Stock pursuant to a written agreement issued under the 1998
Plan (Stock Purchase Offer). Shares of Common Stock that Participants may
receive as a Stock Award or under a Stock Purchase Offer may include
restrictions on transfer, repurchase rights, rights of first refusal and
forfeiture provisions as the Committee may determine. Under certain Stock
Purchase Offers, we may issue shares of Common Stock to employees upon the
receipt of a note receivable from the employee. The note receivable is secured
by the shares of Common Stock, does not have a maturity date and is interest
free. Upon termination any amount unpaid is settled through receipt of the
original shares issued. The 1998 Plan will terminate in 2008, unless
terminated earlier by the Board of Directors. As of February 28, 2002 no
option to purchase shares of Common Stock was outstanding under the 1998 Plan,
1,317,924 shares had been granted as incentive stock under the 1998 Plan, and
682,076 shares remained available for future grants under the 1998 Plan.

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##### Table of Contents






Item 11. Security Ownership of Certain Beneficial Owners and Management

The following tables set forth the number of shares and percentage of our
outstanding Common Stock and Series A Preferred stock beneficially owned as of
February 28, 2002, by each person known to our Board of Directors to be the
beneficial owner of 5% or more of the outstanding shares of our Common Stock
and/or Series A Preferred stock, each Director, each Executive Officer, and all
Directors and Executive Officers as a group.

COMMON STOCK

|                                                                                                                                                                |  |                         |            |            |  |                   |            |  |  |  |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- |  | ----------------- | ---------- |  |  |  | ----- | -
|                                                                                                                                                                |  | As of February 28, 2002
|                                                                                                                                                                |  |                        
|                                                                                                                                                                |  |                         |            |            |  | Shares Acquirable |            |  |  | 
|                                                                                                                                                                |  | Shares Beneficially     |            | Within 60  |  | Percentage of All
|Name and Address of Beneficial Owner                                                                                                                            |  | Owned                   |            | Days(1)(2) |  | Common Stock(3)  
|                                                                                                                                                                |  |                         |            |            |  |                  
|Titan Holdings, S.A., Skuli Mogensen (4)                                                                                                                        |  |                         | 18,597,000 | (5)        |  |                   | 0          |  |  |  | 21.86 | %
|Ozone Ventures, S.A., Gudjon Mar Gudjonsson (4)                                                                                                                 |  |                         | 34,597,000 | (6)        |  |                   | 100,000    |  |  |  | 40.73 | %
|Telefonaktiebolaget LM Ericsson, Ericsson Holding
International B.V., Ericsson Canada Inc., Ericsson Inc., LM
Ericsson Holding AB, Ericsson Holding II Inc. (7) |  |                         | 5,069,271  | (8)        |  |                   | 20,104,862 |  |  |  | 23.93 | %
|Microcell Telecommunications Inc., Microcell Capital II Inc.(9)                                                                                                 |  |                         | 6,106,700  | (10)       |  |                   | 0          |  |  |  | 7.18  | %
|Jean
Marc Ferland (9)                                                                                                                                           |  |                         | 0          |            |  |                   | 0          |  |  |  | 0     | %
|Stig-Arne Larsson (11)                                                                                                                                          |  |                         | 0          |            |  |                   | 25,000     |  |  |  | 0.03  | %
|Skuli Valberg Olafsson (4)                                                                                                                                      |  |                         | 5,390      | (12)       |  |                   | 266,667    |  |  |  | 0.32  | %
|Jon L. Arnason (4)                                                                                                                                              |  |                         | 71,412     |            |  |                   | 110,000    |  |  |  | 0.21  | %
|Fredrik Torstensson (13)                                                                                                                                        |  |                         | 0          |            |  |                   | 266,668    |  |  |  | 0.31  | %
|Gilles Lapierre (14)                                                                                                                                            |  |                         | 0          |            |  |                   | 100,000    |  |  |  | 0.12  | %
|Jean Regnier (15)                                                                                                                                               |  |                         | 0          |            |  |                   | 15,000     |  |  |  | 0.02  | %
|All executive officers and directors as a group (9 persons)                                                                                                     |  |                         | 53,270,802 |            |  |                   | 935,001    |  |  |  | 63.01 | %



---

|(1) |  | Includes 25,000 that could be exercised by Stig-Arne Larsson, 266,667
shares that could be purchased by Skuli Valberg Olafsson, 110,000 shares
that could be purchased by Jon L. Arnason, 266,668 shares that could be
purchased by Fredrik Torstensson, 15,000 shares that could be
purchased by Jean Regnier and 100,000 shares that could be
purchased by Gilles Lapierre by exercise of options available on February
28, 2002 or within 60 days thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes 50,000 and 10,052,431 shares of Series A Preferred stock of
which each share are convertible into two shares of common stock by Ozone
Ventures and Ericsson Inc., respectively, as of February 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|   
|   
|   
|(3) |  | Options that are currently exercisable or exercisable within sixty days
and/or shares of Series A Preferred stock are deemed to be shares of
Common Stock, outstanding and beneficially owned by the person holding
such options and/or Series A Preferred stock, for the purpose of computing
the percentage ownership of such person, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|   
|   
|   
|(4) |  | Shareholder is at the following address: Snorrabraut 54, IS-105,
Reykjavik, Iceland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(5) |  | Titan Holdings, S.A., a Luxembourg holding company 100% owned by Skuli
Mogensen, is the record owner of the 18,597,000 shares beneficially owned
by Mr. Mogensen. The number of shares indicated does not include
34,697,000 shares of common stock beneficially owned by Mr. Gudjonsson and
6,106,700 shares of common stock beneficially owned by Microcell Capital
II Inc. (Microcell Capital), who, together with Mr. Mogensen, may
constitute a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 by virtue of the Shareholder Agreement
dated November 8, 2000 between us, Skuli Mogensen, Gudjon Mar Gudjonsson
and Microcell Capital (Shareholder Agreement), which provides that Mr.
Mogensen and Mr. Gudjonsson will vote a sufficient number of shares to
elect a nominee of Microcell Capital to our board of directors at the 2002
annual meeting of the shareholders. Does not include 34,697,000 shares of
common stock beneficially owned by Mr. Gudjonsson and 25,174,133 shares of
Common Stock beneficially owned by Ericsson Inc., who, together with Mr.
Mogensen, may constitute a group within the meaning of Section 13(d)(3)
of the Securities Exchange Act by virtue of the Shareholder Rights
Agreement dated February 4, 1999

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##### Table of Contents



|     |  | between us, Skuli Mogensen, Gudjon Mar
Gudjonsson, OZ Holdings LLC and Ericsson Inc., as amended
(Shareholder Rights Agreement), which provides that Mr. Mogensen and Mr. Gudjonsson
will vote a sufficient number of shares to elect a nominee of Ericsson
Inc. to our board of directors. Titan Holdings and Mr. Mogensen disclaim
beneficial ownership of the shares beneficially owned by Mr. Gudjonsson,
Microcell Capital or Ericsson Inc. As of December 31, 2001, discussions
were underway between Titan Holding SA and Landsbanki Islands hf., an
Icelandic commercial bank, regarding the sale of 5,000,000 shares to
Pallium International Ltd., a holding company based in the British
Virgin Islands, and the subsequent purchase by Landsbanki Investor hf., a subsidiary of Landsbanki Islands hf. As of
April 10, 2002, the proposed transaction is pending notice from
Microcell Capital regarding its participation rights under the
Shareholder Agreement and Ericsson
Inc. regarding its participation rights under the Shareholder Rights
Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(6)  |  | Ozone Ventures, S.A., a Luxembourg holding company 100% owned by Gudjon
Mar Gudjonsson, is the record owner of the 34,597,000 shares beneficially
owned by, and the 100,000 shares acquirable within 60 days by, Mr.
Gudjonsson. The number of shares indicated does not include 18,597,000
shares of common stock beneficially owned by Mr. Mogensen and 6,106,700
shares of common stock beneficially owned by Microcell Capital, who,
together with Mr. Gudjonsson, may constitute a group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 by virtue of
the Shareholder Agreement, which provides that Mr. Mogensen and Mr.
Gudjonsson will vote a sufficient number of shares to elect a nominee of
Microcell Capital to our board of directors at the 2002 annual meeting of
the shareholders. Does not include 18,597,000 shares of Common Stock
beneficially owned by Mr. Mogensen and 25,174,133 shares of Common Stock
beneficially owned by Ericsson Inc., who, together with Mr. Gudjonsson,
may constitute a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act by virtue of the Shareholder Rights Agreement,
which provides that Mr. Mogensen and Mr. Gudjonsson will vote a sufficient
number of shares to elect a nominee of Ericsson Inc. to our board of
directors. Ozone Ventures and Mr. Gudjonsson disclaim beneficial ownership
of the shares beneficially owned by Mr. Mogensen, Microcell Capital or
Ericsson Inc.
|    
|    
|    
|    
|(7)  |  | Telefonaktiebolaget LM Ericsson and LM Ericsson Holding AB are at the
following address: Telefonvagen 30, SE-12625 Stockholm, Sweden. Ericsson
Holding International B.V. is at the following address: Ericsson Straat
#2, P.O. Box 8, NL-5120 AA, Rijen, Netherlands. Ericsson Canada Inc. is
at the following address: 8400 Decarie Blvd., Town of Mount-Royal, Quebec,
Canada H4P 2N2. Ericsson Inc. and Ericsson Holding II Inc. are at the
following address: 740 East Campbell Road, Richardson, Texas 75083.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|    
|    
|    
|(8)  |  | As disclosed in the Schedule 13D filed on December 7, 2000, each of the
named entities is the beneficial owner of the 5,069,271 shares of common
stock owned directly by Ericsson Canada Inc. and the 10,052,431 shares of
Series A Preferred stock owned directly by Ericsson Inc., which are
convertible into 20,104,862 shares of common stock as of February 28,
2002. Does not include 34,697,000 shares of common stock beneficially
owned by Mr. Gudjonsson and 18,597,000 shares of common stock beneficially
owned by Skuli Mogensen, who, together with Ericsson Inc., may constitute
a group within the meaning of Section 13(d)(3) of the Securities
Exchange Act by virtue of the Shareholder Rights Agreement, which provides
that Mr. Mogensen and Mr. Gudjonsson will vote a sufficient number of
shares to elect a nominee of Ericsson Inc. to our board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|(9)  |  | Shareholder is at the following address: 1000, de la Gauchetiére Street
West, 25th Floor, Montreal, Quebec H3B 4W5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|    
|    
|    
|(10) |  | Based on the Schedule 13D/A filed on March 15, 2002, Microcell
Telecommunications Inc. is a beneficial owner of the 6,106,700 shares of
common stock owned directly by Microcell Capital, a wholly-owned
subsidiary of Microcell Telecommunications Inc. As disclosed in the
13D/A, Microcell Telecommunications Inc. and Microcell Capital believe
that they are no longer a group within the meaning of Section 13(d)(3)
of the Securities Exchange Act with Mr. Mogensen and Mr. Gudjonsson by
virtue of the February 28, 2002 amendment to the Shareholder Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(11) |  | Shareholder is at the following address: Lonnv 31B, 13552, TYRESO,
Sweden.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|    
|    
|    
|(12) |  | Includes 5,390 shares owned by Mr. Olafssons family of which Mr.
Olafsson disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|    
|    
|    
|(13) |  | Shareholder is at the following address: 2369 Montgomery Avenue, Cardiff,
California 92007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(14) |  | Shareholder is at the following address: 193 Val Chenaie, Rosemere,
Québec, Canada J7A 4B5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(15) |  | Shareholder is at the following address: 11 Dussault, Laval, Québec,
Canada H7N 3J9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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SERIES A PREFERRED STOCK

|                                                                                                                                                            |  |                         |            |                   |  |                   |   |  |  |  |      |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ----------------- |  | ----------------- | - |  |  |  | ---- | -
|                                                                                                                                                            |  | As of February 28, 2002
|                                                                                                                                                            |  |                        
|                                                                                                                                                            |  | Shares                  |            | Shares Acquirable |  | Percentage of All
|Name and Address of Beneficial Owner                                                                                                                        |  | Beneficially Owned      |            | Within 60 Days    |  | Preferred Stock  
|                                                                                                                                                            |  |                         |            |                   |  |                  
|Titan Holdings, Skuli Mogensen                                                                                                                              |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Ozone Ventures, Gudjon Mar Gudjonsson                                                                                                                       |  |                         | 50,000     | (1)               |  |                   | 0 |  |  |  | 0.35 | %
|Telefonaktiebolaget LM Ericsson, Ericsson Holding
International B.V., Ericsson Canada Inc., Ericsson Inc.,
LM Ericsson Holding AB, Ericsson Holding II
Inc. |  |                         | 10,052,431 | (2)               |  |                   | 0 |  |  |  | 70.4 | %
|Microcell Telecommunications Inc.                                                                                                                           |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Microcell Capital II Inc.                                                                                                                                   |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Stig-Arne Larsson                                                                                                                                           |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Jean Marc Ferland                                                                                                                                           |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Skuli Valberg Olafsson                                                                                                                                      |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Jon L. Arnason                                                                                                                                              |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Fredrik Torstensson                                                                                                                                         |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Gilles Lapierre                                                                                                                                             |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|Jean Regnier                                                                                                                                                |  |                         | 0          |                   |  |                   | 0 |  |  |  | 0    | %
|All executive officers and directors as a group (9 persons)                                                                                                 |  |                         | 50,000     |                   |  |                   | 0 |  |  |  | 0.35 | %



---

|(1) |  | Ozone Ventures, a Luxembourg holding company 100% owned by Gudjon Mar
Gudjonsson is the record owner of the 50,000 shares beneficially owned by
Mr. Gudjonsson.                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | As disclosed in the Schedule 13D filed on December 7, 2000 each of the
named entities is the beneficial owner of the 10,052,431 shares of Series
A Preferred stock owned by Ericsson Inc.




Item 12. Certain Relationships and Related Transactions

Directors. Skuli Mogensen borrowed $70,000 on December 27, 2001. The
loan accrued interest at a rate of 6% per annum. The loan (including accrued
interest) was repaid in full in March, 2002. Messrs. Mogensen and Gudjonsson
are also parties to the shareholder rights agreement and the shareholder
agreement described below.

Ericsson. On November 1, 2000 we signed a general co-operation and
development agreement with Ericsson that superseded an earlier agreement of the
same name dated February 1999. The agreement set a framework for our
cooperation in the area of Internet-based technologies, applications and
services. Two specific development projects were structured under various
specific agreements under the general co-operation and development agreement.
These projects covered the co-development of iPulse with Ericsson Radio
Systems AB and the development of 3G applications for Ericsson Canada Inc. We
entered into a value-added license distribution agreement with Ericsson on
November 1, 2000, which gave us unrestricted perpetual rights to offer iPulse
as a hosted service to our mPresence customers in exchange for royalties.
Pursuant to the mPresence agency agreement also concluded with Ericsson on
November 1, 2000, we granted Ericsson a nonexclusive right to promote our
mPresence framework and our value-added services. Pursuant to the iPulse
agency agreement also concluded with Ericsson on November 1, 2000, we obtained
a nonexclusive right to promote iPulse.

On January 24, 2002 we entered into an agreement with Ericsson ending more
than three years of cooperation with Ericsson to develop and market the iPulse
software. Under the terms of the agreement Ericsson agreed to pay us an
aggregate of $6 million prior to the end of the quarter ending March 31, 2002
and irrevocably (a) assigned to us an equal and undivided share of its right,
title and interest in and to (i) the iPulse software, including source and
object code, (ii) the iPulse trademark, and (b) granted to us a worldwide and
perpetual license for all purposes to all other intellectual property rights
contained in and related to the iPulse software, including any patent rights,
copyrights, rights to photographs, design rights, technical documentation and
any other industrial and intellectual property rights contained in the source
and object code. The agreement expressly terminates all other

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contracts with Ericsson except for the shareholder rights agreement made
and entered into as of February 4, 1999 with Ericsson Inc. and certain of our
shareholders.

Pursuant to a warrant and stock purchase agreement entered into in
February 1999, Ericsson, Inc. invested $13.1 million in us in exchange for
10,052,431 shares of Series A Preferred stock. Under a shareholders rights
agreement entered into in February 1999, Ericsson, Inc. and certain holders of
our securities have the right to require registration of our securities under
the Securities Act, subject to terms and conditions set forth in the agreement.
In addition, until we effect a public offering of our securities, each party
to the shareholder rights agreement has the right of first refusal with respect
to any proposed transfer of our securities by another party other than a
transfer to an affiliate (as defined in the agreement); provided, however, that
the first 1,000,000 shares transferred by Skuli Mogensen and Gudjon Mar
Gudjonsson is not subject to the right of first refusal and shares held by a
former affiliate of a party to the shareholder rights agreement shall become
subject to the right of first refusal at the time of the transaction by which
the affiliate loses its affiliate status. Upon notice by the transferor
stating the purchase price and terms of the third-party offer to purchase the
shares, the other parties have the right for a period of ten days to elect to
purchase a pro rata portion of the offered shares. If none of the parties
elects to purchase the shares, the transferor may sell the shares to a
third-party purchaser.

If we sell shares of common stock or preferred stock or options, warrants
or other rights convertible or exercisable into shares of common stock or
preferred stock at any time until a public offering, each party to the
shareholder rights agreement has the right to purchase its pro rata portion of
the number of securities offered for sale. However, the parties shall not have
this right with respect to an issuance or sale of securities:



| |  |  | in connection with a stock split;                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | issuable to our employees, consultants or agents directly or
through an equity incentive arrangement, not to exceed in the
aggregate 10% of the outstanding capital stock as of February 4,
1999;
|
| |  |  | issuable or issued upon conversion of our preferred stock or
warrants, rights or other securities convertible for common stock or
preferred stock;                                               
|
| |  |  | issuable or issued in connection with the acquisition of all or
substantially all of the stock or assets of a person or entity; and                                                              
|
| |  |  | issuable or issued to a strategic investor that is not a
competitor to us or Ericsson, not to exceed 20% of the outstanding
capital stock as of February 4, 1999.                                

If we offer to sell shares not exceeding 20% of our capital stock
outstanding on February 4, 1999 to a strategic investor that is not a
competitor to us or Ericsson, then Ericsson has the right to purchase from us a
certain number of shares as determined by the formula set forth in the
shareholder rights agreement.

Until a public offering, we have agreed in the shareholder rights
agreement that we will not, without the consent of Ericsson, increase the
authorized number of shares reserved under any stock option or purchase plan
that results in the aggregate number of shares of common stock issued or
issuable to providers of services to us exceeding 10,000,000 shares, issue any
equity security or right to acquire an equity security to any primary
competitor of Ericsson, or enter into any agreements with lenders providing for
the borrowing of more than $750,000 or issue any notes, bonds, debentures, or
similar instruments with an aggregate value in excess of $750,000.

Pursuant to an amendment to the shareholder rights agreement dated as of
October, 2000, we are no longer obligated to repurchase the shares of our stock
held by Ericsson as was set forth in the shareholder rights agreement.

Transactions with Ericsson and Microcell. On November 8, 2000, we
completed an acquisition of all of the outstanding voting capital stock of MCE
Holding Corporation. MCE Holding Corporation was a strategic alliance of
Microcell and Ericsson formed to hold all of the issued and outstanding capital
stock of 3044016 Nova Scotia Company, a company based in Montreal, Canada,
which was formed to develop mobile Internet applications for network operators
in Canada. The name of 3044016 Nova Scotia Company was changed to OZ.COM
Canada Company following the closing of the transaction, and later to OZ
Communications Co. The transaction was closed pursuant to two share exchange
agreements dated November 8, 2000 between us and each of Microcell and Ericsson
as the former stockholders of MCE Holding Corporation.

The acquisition was structured as a stock-for-stock exchange in which we
issued an aggregate of 16,475,131 shares of our common stock to Microcell and
Ericsson in exchange for all of the issued and outstanding stock of MCE Holding
Corporation. Total consideration given, including direct acquisition costs,
aggregated approximately $18.4 million. We have accounted for the

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acquisition using the purchase method of accounting. MCE Holding
Corporation and 3044016 Nova Scotia Company had no operations prior to the
acquisition. The excess of the purchase price over the estimated fair value of
tangible net assets acquired amounted to approximately $16.4 million, with
$15.5 million attributable to goodwill and $0.9 million attributable to a fully
paid-up iPulse 1.5 license for the benefit of Microcell and its affiliates.
We have been amortizing the goodwill on a straight-line basis over an estimated
useful life of five years and the iPulse 1.5 license on a straight-line basis
over an estimated useful life of 3.5 years. The acquired assets consist of
licensed technology and cash to be used in the business of developing and
marketing Internet application technology for wireless service providers. In
the quarter ended December 31, 2001, we will record an $8.9 million non-cash
impairment loss on these intangible assets as an operating expense in
connection with both the amendments of the Microcell agreements in February
2002 and the cancellation of the Ericsson development agreements in January
2002.

Pursuant to an amendment to the share exchange agreement dated as of
February 28, 2002, we are no longer obligated to repurchase the shares of our
stock held by Microcell as was set forth in the shareholder rights agreement.

In connection with the acquisition, we entered into a shareholder
agreement dated November 8, 2000 with Microcell and two of our directors and
officers, Skuli Mogensen and Gudjon Mar Gudjonsson. This agreement gives
Microcell the right to participate in any sales of our shares by either Mr.
Mogensen or Mr. Gudjonsson and, with some exceptions, to purchase pro rata
shares of our securities offered by us. In addition, Messrs. Mogensen and
Gudjonsson have agreed to vote a sufficient number of our shares to enable a
nominee of Microcell to sit on our board of directors. Pursuant to an
amendment to the shareholder agreement dated as of February 28, 2002 Messrs.
Mogensens and Gudjonssons agreement to vote for a nominee of Microcell will
terminate after the 2002 annual meeting of the shareholders.

Microcell.In connection with the acquisition, OZ Communications Co.
entered into a general co-operation and development agreement with Microcell on
November 8, 2000 pursuant to which Microcell agreed to use OZ Communications
Co. as its preferred development resource for development work and consulting
services in the field of wireless Internet applications. Under the terms of
the agreement, Microcell committed to purchasing $9 million in consulting and
development services and technology licenses during the three-year term of the
agreement. OZ Communications Co. also concluded a specific development and
consulting agreement with Microcell on November 8, 2000 pursuant to which OZ
Communications Co. granted to Microcell a non-exclusive, non-transferable,
non-revocable license to use iPulse 1.5 on certain terms and conditions, and
three other specific agreements relating to other development or consulting
projects.

As a result of the level of Microcells ownership in us at the inception
of the agreements with Microcell, all payments received from Microcell under
such agreements were not immediately recognizable as revenue according to
generally accepted accounting principles. In the year ended December 31, 2001,
we received payments of $2.25 million for development services under the
specific development and consulting agreement that was not recognized as
revenue. The expenses associated with our performance of this work have been
recognized as research and development expenses, and the payments from
Microcell for the work performed have been characterized as deferred revenues
on our balance sheet. We will recognize all of the deferred revenues as
current revenues at the termination of the development agreements in the
quarter ended March 31, 2002.

On February 28, 2002 we and OZ Communications Co. entered into a series of
amending agreements with Microcell Labs Inc. and Microcell Capital II Inc.
Under the terms of the agreements the parties have terminated all specific
development agreements between the parties, terminated Microcells agreement to
use us as its preferred development resource in the field of wireless Internet
messaging services, terminated Microcells right to require us to redeem
Microcells shares of our common stock, terminated Microcells obligation to
pay minimum quarterly payments of $750,000 for development services, and
replaced the license of Ericssons iPulse 1.5 with a license of the OZ® Instant
Communications Platform. The new license is conditioned upon the purchase by
Microcell Labs Inc. of annual support and maintenance contracts from us, but is
otherwise royalty-free for the first three years and incremental capacity
required after the initial three-year period will be purchased separately at
competitive prices and terms. In addition, the parties modified a shareholder
agreement to change certain participation rights of Microcell and to provide
that the obligation of certain of our shareholders to vote a sufficient number
of shares to elect Microcells designee as a director is applicable only to the
election of directors held at our 2002 annual shareholders meeting. In partial
consideration for our agreement to make the amendments, Microcell has
surrendered to us 5,299,160 shares of our common stock for cancellation.

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Item 13. Exhibits, Lists, and Reports on Form 8-K

(a)  Documents to be filed as part of this Annual Report on Form 10-K

|        |  |                                                                                                                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                 
|Number  |  | Description                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                 
|2.1     |  | Share Exchange Agreement between the Registrant and Microcell Capital
II Inc. dated as of November 8, 2000 (incorporated by reference to
Exhibit 2.1 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)
|2.2     |  | Share Exchange Agreement between the Registrant and Ericsson Canada
Inc. dated as of November 8, 2000 (incorporated by reference to
Exhibit 2.2 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)     
|2.3     |  | Share Transfer Agreement between Microcell Capital II Inc. and
Registrant dated as of February 28, 2002 (incorporated by reference
to Exhibit 10.4 to Registrants Current Report on Form 8-K (file
number 000-30701) filed on March 18, 2002)                                                  
|3.1     |  | Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Registrants Annual Report on Form 10-KSB
for the period ended December 31, 2000 (file number 000-30701) filed
on June 21, 2001)                                                                    
|3.2     |  | Certificate of Ownership filed November 28, 2001 (incorporated by
reference to Exhibit 3.1 to Registrants Current Report on Form 8-K
(file number 000-30701) filed on February 19, 2002)                                                                                                       
|3.3     |  | Amended and Restated By-laws (incorporated by reference to Exhibit
3.2 to Registrants Annual Report on Form 10-KSB for the period ended
December 31, 2000 (file number 000-30701) filed on June 21, 2001)                                                                                      
|10.1    |  | 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                                                                                           
|10.2    |  | 1998 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.2 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                                 
|10.3    |  | 2000 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.3 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                                
|10.4    |  | Employment Agreement between the Registrant and Skuli Mogensen dated
as of October 15, 1998 (incorporated by reference to Exhibit 10.4 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                      
|10.5    |  | Employment Agreement between the Registrant and Gudjon Mar Gudjonsson
dated as of October 15, 1998 (incorporated by reference to Exhibit
10.5 to Registrants Registration Statement on Form 10-SB (file
number 000-30701) filed on May 24, 2000)                                               
|10.6    |  | Employment Agreement between the Registrant and Robert Quinn dated as
of April 1, 2000 (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrants Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)                                     
|10.7    |  | Employment Agreement between the Registrant and Skuli Valberg
Olafsson dated as of September 1999 (incorporated by reference to
Exhibit 10.7 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                

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|        |  |                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.8    |  | Employment Agreement between the Registrant and Fredrik Torstensson
dated as of March 17, 2000 (incorporated by reference to Exhibit 10.8
to Registrants Annual Report on Form 10-KSB for the period ended
December 31, 2000 (file number 000-30701) filed on June 21, 2001)                                                                                    
|10.9    |  | Amendment to Employment Agreement between the Registrant and Fredrik
Torstensson dated as of November 30, 2000 (incorporated by reference
to Exhibit 10.9 to Registrants Annual Report on Form 10-KSB for the
period ended December 31, 2000 (file number 000-30701) filed on June
21, 2001)                                                                    
|10.11   |  | General Co-operation and Development Agreement between the Registrant
and Ericsson Telecom AB dated as of February 4, 1999 (incorporated by
reference to Exhibit 10.9 to Registrants Registration Statement on
Form 10-SB (file number 000-30701) filed on May 24, 2000)                                                                                        
|10.12   |  | Specific Co-operation and Development Agreement between the
Registrant and Ericsson Telecom AB for Communities and Link dated as
of February 4, 1999 (incorporated by reference to Exhibit 10.10 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                             
|10.13   |  | Value Added Reseller Agreement between the Registrant and Ericsson
Telecom AB dated as of February 4, 1999 (incorporated by reference to
Exhibit 10.11 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                       
|10.14   |  | Shareholder Rights Agreement among the Registrant, Gudjon Mar
Gudjonsson, Skuli Mogensen, Ericsson Inc. and OZ Holdings LLC dated
as of February 4, 1999 (incorporated by reference to Exhibit 10.12 to
Amendment No. 1 to Registrants Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)                                   
|10.15   |  | General Co-operation and Development Agreement between the Registrant
and Ericsson Radio Systems AB dated as of November 1, 2000
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB for the period ended September 30, 2000 (file
number 000-30701) filed on November 14, 2000)                                          
|10.16   |  | Specific Co-operation and Development Agreement between Ericsson
Canada Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia
Company) dated as of November 8, 2000 (incorporated by reference to
Exhibit 10.2 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)     
|10.17   |  | Value-added Distribution License Agreement between the Registrant and
Ericsson Radio Systems AB dated as of November 1, 2000 (incorporated
by reference to Exhibit 10.3 to Registrants Quarterly Report on Form
10-QSB for the period ended September 30, 2000 (file number
000-30701) filed on November 14, 2000)                                              
|10.18   |  | General Co-operation and Development Agreement between Microcell Labs
Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia Company)
dated as of November 8, 2000 (incorporated by reference to Exhibit
10.4 to Registrants Quarterly Report on Form 10-QSB for the period
ended September 30, 2000 (file number 000-30701) filed on November
14, 2000)       
|10.19   |  | Specific Development and Consulting Agreement between Microcell Labs
Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia Company)
dated as of November 8, 2000 (incorporated by reference to Exhibit
10.5 to Registrants Quarterly Report on Form 10-QSB for the period
ended September 30, 2000 (file number 000-30701) filed on November
14, 2000)        
|10.20   |  | Assignment of Right to Sublicense Use of Software between MCE
Holding Corporation and OZ.COM Canada Company (fka 3044016 Nova
Scotia Company) dated as of November 8, 2000 (incorporated by
reference to Exhibit 10.6 to Registrants Quarterly Report on Form
10-QSB for the period ended September 30, 2000 (file number
000-30701) filed on November 14, 2000)
|10.21   |  | mPresence Agency Agreement between the Registrant and Ericsson Radio
Systems AB dated as of                                                                                                                                                                                                                                                                      

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|        |  |                                                                                                                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                    
|        |  | November 1, 2000 (incorporated by reference to
Exhibit 10.7 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)                                                                                                                            
|10.22   |  | Shareholder Agreement among the Registrant, Gudjon Mar Gudjonsson,
Skuli Mogensen and Microcell Capital II Inc. dated as of November 8,
2000 (incorporated by reference to Exhibit 10.8 to Registrants
Quarterly Report on Form 10-QSB for the period ended September 30,
2000 (file number 000-30701) filed on November 14, 2000)
|10.23   |  | Shareholder Agreement among the Registrant, Gudjon Mar Gudjonsson,
Skuli Mogensen and Ericsson Canada dated as of November 8, 2000
(incorporated by reference to Exhibit 10.9 to Registrants Quarterly
Report on Form 10-QSB for the period ended September 30, 2000 (file
number 000-30701) filed on November 14, 2000)          
|10.24   |  | iPulse Agency Agreement between the Registrant and Ericsson Radio
Systems AB dated as of November 1, 2000 (incorporated by reference to
Exhibit 10.22 to Amendment No. 3 to Registrants Registration
Statement on Form 10-SB (file number 000-30701) filed on
approximately August 9, 2001)                                       
|10.25   |  | Amendment Number One to Shareholder Rights Agreement between the
Registrant and Ericsson, Inc. dated as of October 2000 (incorporated
by reference to Exhibit 10.6 to Registrants Current Report on Form
8-K (file number 000-30701) filed on November 21, 2000)                                                                  
|10.26   |  | Specific Co-Operation and Development Agreement (II) between
Registrant and Microcell Labs Inc. dated as of March 9, 2001
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB (file number 000-30701) filed on August 14,
2001)                                                             
|10.27   |  | Specific Co-Operation and Development Agreement No. 3 between
Registrant and Microcell Labs Inc. dated as of September 27, 2001
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB (file number 000-30701) filed on November 14,
2001)                                                     
|10.28   |  | Specific Co-Operation and Development Agreement No. 4 between
Registrant and Microcell Labs Inc. dated as of September 27,
2001(incorporated by reference to Exhibit 10.2 to Registrants
Quarterly Report on Form 10-QSB (file number 000-30701) filed on
November 14, 2001)                                                      
|10.29   |  | Specific Agreement No. 5 (OZ Instant Communications Platform License)
between Microcell Labs Inc. and OZ Communications Co. dated as of
February 28, 2002 (incorporated by reference to Exhibit 10.5 to
Registrants Current Report on Form 8-K (file number 000-30701) filed
on March 18, 2002)                                   
|10.30   |  | Agreement among Registrant, Ericsson Radio Systems AB, Ericsson
Telecom AB, Ericsson Inc. and Ericsson Canada Inc. dated as of as of
January 28, 2002 (incorporated by reference to Exhibit 3.1 to
Registrants Current Report on Form 8-K (file number 000-30701) filed
on February 19, 2002)                                     
|10.31   |  | Amending Agreement between Microcell Labs Inc. and OZ Communications
Co. dated as of February 28, 2002 (incorporated by reference to
Exhibit 10.1 to Registrants Current Report on Form 8-K (file number
000-30701) filed on March 18, 2002)                                                                                      
|10.32   |  | Amending Agreement to a Share Exchange Agreement between Microcell
Capital II Inc. and Registrant dated as of February 28, 2002
(incorporated by reference to Exhibit 10.2 to Registrants Current
Report on Form 8-K (file number 000-30701) filed on March 18, 2002)                                                             
|10.33   |  | Amending Agreement among Microcell Capital II Inc., Gudjon Mar
Gudjonsson, Skuli Mogensen and Registrant dated as of February 28,
2002 (incorporated by reference to Exhibit 10.3 to Registrants
Current Report on Form 8-K (file number 000-30701) filed on March 18,
2002)                                                      
|21.1    |  | List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
Amendment No. 1 to Registrants                                                                                                                                                                                                                                 

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|        |  |                                                                                       
|------- |  | --------------------------------------------------------------------------------------
|Exhibit |  |                                                                                       
|Number  |  | Description                                                                           
|        |  |                                                                                       
|        |  | Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)

Copies of exhibits are available to shareholders upon request at a charge of
$10.00 per document to cover the reasonable costs of printing and mailing the
document. Requests should be made to Jon L. Arnason, OZ.COM, Snorrabraut 54,
IS-105 Reykjavik, Iceland.

(b)  Reports on Form 8-K



| |  | Report on Form 8-K filed on February 19, 2002, which reported (1)
under Item 5 of Form 8-K the change of Registrants name to OZ
Communications, Inc. and (2) under Item 5 of Form 8-K the execution
by Registrant, OZ Communications Co., Skuli Mogensen and Gudjon
Gudjonsson, as appropriate and five Ericsson affiliates in January
2002 of an Agreement, which terminated all pending agreements
between Registrant and the parties, with the exception of the
Shareholders Rights Agreement among Registrant, Skuli Mogensen,
Gudjon Gudjonsson and Ericsson Inc. The Agreement also provides
for a total of $6 million in cash payments to the Registrant and an
assignment to Registrant of an equal and undivided share in the
iPulse technology (as more particularly described in the
Agreement).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Report on Form 8-K filed on March 18, 2002, which reported under
Item 5 of Form 8-K the execution by Registrant, OZ Communications
Co, Skuli Mogensen and Gudjon Gudjonsson, as appropriate, and
Microcell Labs, Inc. and Microcell Capital II, Inc., as
appropriate, of Amending Agreements amending the general
co-operation and development agreement, share exchange agreement
and shareholders agreement, terminating all pending specific
agreements, a Share Transfer Agreement pursuant to which Microcell
Capital II, Inc. surrendered 5,299,160 shares of Registrants
common stock and a new Specific Agreement granting a license to
Microcell to use the OZ ICS and two complementary applications.                                                                                             

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SIGNATURES

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

|                     |  |  |  |                                                                                               
|-------------------- |  |  |  | ----------------------------------------------------------------------------------------------
|Date: April 11, 2002 |  |  |  | OZ COMMUNICATIONS, INC.,
a California Corporation
By: /s/ SKÚLI MOGENSEN
       Skuli Mogensen

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|                                                |  |                                                                      |  |               
|----------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                       |  | Title                                                                |  | Date          
|                                                |  |                                                                      |  |               
|                                               
|/S/ SKULI MOGENSEN
Skuli Mogensen               |  | Director and Chief Executive Officer
(principal executive officer)   |  | April 11, 2002
|                                               
|/S/ JON L. ARNASON
Jon L. Arnason               |  | Vice President, Finance (principal
financial and accounting officer) |  | April 11, 2002
|                                               
|/S/ GUDJON MAR GUDJONSSON
Gudjon Mar Gudjonsson |  | Chief Visionary and Director                                         |  | April 11, 2002
|                                               
|/S/ JEAN-MARC FERLAND
Jean-Marc Ferland         |  | Director                                                             |  | April 11, 2002
|                                               
|/S/ STIG-ARNE LARSSON
Stig-Arne Larsson         |  | Director and Chairman of the Board                                   |  | April 11, 2002

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EXHIBIT LIST

|        |  |                                                                                                                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                 
|Number  |  | Description                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                 
|2.1     |  | Share Exchange Agreement between the Registrant and Microcell Capital
II Inc. dated as of November 8, 2000 (incorporated by reference to
Exhibit 2.1 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)
|2.2     |  | Share Exchange Agreement between the Registrant and Ericsson Canada
Inc. dated as of November 8, 2000 (incorporated by reference to
Exhibit 2.2 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)     
|2.3     |  | Share Transfer Agreement between Microcell Capital II Inc. and
Registrant dated as of February 28, 2002 (incorporated by reference
to Exhibit 10.4 to Registrants Current Report on Form 8-K (file
number 000-30701) filed on March 18, 2002)                                                  
|3.1     |  | Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Registrants Annual Report on Form 10-KSB
for the period ended December 31, 2000 (file number 000-30701) filed
on June 21, 2001)                                                                    
|3.2     |  | Certificate of Ownership filed November 28, 2001 (incorporated by
reference to Exhibit 3.1 to Registrants Current Report on Form 8-K
(file number 000-30701) filed on February 19, 2002)                                                                                                       
|3.3     |  | Amended and Restated By-laws (incorporated by reference to Exhibit
3.2 to Registrants Annual Report on Form 10-KSB for the period ended
December 31, 2000 (file number 000-30701) filed on June 21, 2001)                                                                                      
|10.1    |  | 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                                                                                           
|10.2    |  | 1998 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.2 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                                 
|10.3    |  | 2000 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.3 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                                
|10.4    |  | Employment Agreement between the Registrant and Skuli Mogensen dated
as of October 15, 1998 (incorporated by reference to Exhibit 10.4 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                      
|10.5    |  | Employment Agreement between the Registrant and Gudjon Mar Gudjonsson
dated as of October 15, 1998 (incorporated by reference to Exhibit
10.5 to Registrants Registration Statement on Form 10-SB (file
number 000-30701) filed on May 24, 2000)                                               
|10.6    |  | Employment Agreement between the Registrant and Robert Quinn dated as
of April 1, 2000 (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrants Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)                                     
|10.7    |  | Employment Agreement between the Registrant and Skuli Valberg
Olafsson dated as of September 1999 (incorporated by reference to
Exhibit 10.7 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                

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|        |  |                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.8    |  | Employment Agreement between the Registrant and Fredrik Torstensson
dated as of March 17, 2000 (incorporated by reference to Exhibit 10.8
to Registrants Annual Report on Form 10-KSB for the period ended
December 31, 2000 (file number 000-30701) filed on June 21, 2001)                                                                                    
|10.9    |  | Amendment to Employment Agreement between the Registrant and Fredrik
Torstensson dated as of November 30, 2000 (incorporated by reference
to Exhibit 10.9 to Registrants Annual Report on Form 10-KSB for the
period ended December 31, 2000 (file number 000-30701) filed on June
21, 2001)                                                                    
|10.11   |  | General Co-operation and Development Agreement between the Registrant
and Ericsson Telecom AB dated as of February 4, 1999 (incorporated by
reference to Exhibit 10.9 to Registrants Registration Statement on
Form 10-SB (file number 000-30701) filed on May 24, 2000)                                                                                        
|10.12   |  | Specific Co-operation and Development Agreement between the
Registrant and Ericsson Telecom AB for Communities and Link dated as
of February 4, 1999 (incorporated by reference to Exhibit 10.10 to
Registrants Registration Statement on Form 10-SB (file number
000-30701) filed on May 24, 2000)                                                             
|10.13   |  | Value Added Reseller Agreement between the Registrant and Ericsson
Telecom AB dated as of February 4, 1999 (incorporated by reference to
Exhibit 10.11 to Registrants Registration Statement on Form 10-SB
(file number 000-30701) filed on May 24, 2000)                                                                                                       
|10.14   |  | Shareholder Rights Agreement among the Registrant, Gudjon Mar
Gudjonsson, Skuli Mogensen, Ericsson Inc. and OZ Holdings LLC dated
as of February 4, 1999 (incorporated by reference to Exhibit 10.12 to
Amendment No. 1 to Registrants Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)                                   
|10.15   |  | General Co-operation and Development Agreement between the Registrant
and Ericsson Radio Systems AB dated as of November 1, 2000
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB for the period ended September 30, 2000 (file
number 000-30701) filed on November 14, 2000)                                          
|10.16   |  | Specific Co-operation and Development Agreement between Ericsson
Canada Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia
Company) dated as of November 8, 2000 (incorporated by reference to
Exhibit 10.2 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)     
|10.17   |  | Value-added Distribution License Agreement between the Registrant and
Ericsson Radio Systems AB dated as of November 1, 2000 (incorporated
by reference to Exhibit 10.3 to Registrants Quarterly Report on Form
10-QSB for the period ended September 30, 2000 (file number
000-30701) filed on November 14, 2000)                                              
|10.18   |  | General Co-operation and Development Agreement between Microcell Labs
Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia Company)
dated as of November 8, 2000 (incorporated by reference to Exhibit
10.4 to Registrants Quarterly Report on Form 10-QSB for the period
ended September 30, 2000 (file number 000-30701) filed on November
14, 2000)       
|10.19   |  | Specific Development and Consulting Agreement between Microcell Labs
Inc. and OZ.COM Canada Company (fka 3044016 Nova Scotia Company)
dated as of November 8, 2000 (incorporated by reference to Exhibit
10.5 to Registrants Quarterly Report on Form 10-QSB for the period
ended September 30, 2000 (file number 000-30701) filed on November
14, 2000)        
|10.20   |  | Assignment of Right to Sublicense Use of Software between MCE
Holding Corporation and OZ.COM Canada Company (fka 3044016 Nova
Scotia Company) dated as of November 8, 2000 (incorporated by
reference to Exhibit 10.6 to Registrants Quarterly Report on Form
10-QSB for the period ended September 30, 2000 (file number
000-30701) filed on November 14, 2000)

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|        |  |                                                                                                                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.21   |  | mPresence Agency Agreement between the Registrant and Ericsson Radio
Systems AB dated as of
November 1, 2000 (incorporated by reference to
Exhibit 10.7 to Registrants Quarterly Report on Form 10-QSB for the
period ended September 30, 2000 (file number 000-30701) filed on
November 14, 2000)                                
|10.22   |  | Shareholder Agreement among the Registrant, Gudjon Mar Gudjonsson,
Skuli Mogensen and Microcell Capital II Inc. dated as of November 8,
2000 (incorporated by reference to Exhibit 10.8 to Registrants
Quarterly Report on Form 10-QSB for the period ended September 30,
2000 (file number 000-30701) filed on November 14, 2000)
|10.23   |  | Shareholder Agreement among the Registrant, Gudjon Mar Gudjonsson,
Skuli Mogensen and Ericsson Canada dated as of November 8, 2000
(incorporated by reference to Exhibit 10.9 to Registrants Quarterly
Report on Form 10-QSB for the period ended September 30, 2000 (file
number 000-30701) filed on November 14, 2000)          
|10.24   |  | iPulse Agency Agreement between the Registrant and Ericsson Radio
Systems AB dated as of November 1, 2000 (incorporated by reference to
Exhibit 10.22 to Amendment No. 3 to Registrants Registration
Statement on Form 10-SB (file number 000-30701) filed on
approximately August 9, 2001)                                       
|10.25   |  | Amendment Number One to Shareholder Rights Agreement between the
Registrant and Ericsson, Inc. dated as of October 2000 (incorporated
by reference to Exhibit 10.6 to Registrants Current Report on Form
8-K (file number 000-30701) filed on November 21, 2000)                                                                  
|10.26   |  | Specific Co-Operation and Development Agreement (II) between
Registrant and Microcell Labs Inc. dated as of March 9, 2001
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB (file number 000-30701) filed on August 14,
2001)                                                             
|10.27   |  | Specific Co-Operation and Development Agreement No. 3 between
Registrant and Microcell Labs Inc. dated as of September 27, 2001
(incorporated by reference to Exhibit 10.1 to Registrants Quarterly
Report on Form 10-QSB (file number 000-30701) filed on November 14,
2001)                                                     
|10.28   |  | Specific Co-Operation and Development Agreement No. 4 between
Registrant and Microcell Labs Inc. dated as of September 27,
2001(incorporated by reference to Exhibit 10.2 to Registrants
Quarterly Report on Form 10-QSB (file number 000-30701) filed on
November 14, 2001)                                                      
|10.29   |  | Specific Agreement No. 5 (OZ Instant Communications Platform License)
between Microcell Labs Inc. and OZ Communications Co. dated as of
February 28, 2002 (incorporated by reference to Exhibit 10.5 to
Registrants Current Report on Form 8-K (file number 000-30701) filed
on March 18, 2002)                                   
|10.30   |  | Agreement among Registrant, Ericsson Radio Systems AB, Ericsson
Telecom AB, Ericsson Inc. and Ericsson Canada Inc. dated as of as of
January 28, 2002 (incorporated by reference to Exhibit 3.1 to
Registrants Current Report on Form 8-K (file number 000-30701) filed
on February 19, 2002)                                     
|10.31   |  | Amending Agreement between Microcell Labs Inc. and OZ Communications
Co. dated as of February 28, 2002 (incorporated by reference to
Exhibit 10.1 to Registrants Current Report on Form 8-K (file number
000-30701) filed on March 18, 2002)                                                                                      
|10.32   |  | Amending Agreement to a Share Exchange Agreement between Microcell
Capital II Inc. and Registrant dated as of February 28, 2002
(incorporated by reference to Exhibit 10.2 to Registrants Current
Report on Form 8-K (file number 000-30701) filed on March 18, 2002)                                                             
|10.33   |  | Amending Agreement among Microcell Capital II Inc., Gudjon Mar
Gudjonsson, Skuli Mogensen and Registrant dated as of February 28,
2002 (incorporated by reference to Exhibit 10.3 to Registrants
Current Report on Form 8-K (file number 000-30701) filed on March 18,
2002)                                                      

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|        |  |                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                          
|Number  |  | Description                                                                                                                                                                              
|        |  |                                                                                                                                                                                          
|21.1    |  | List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
Amendment No. 1 to Registrants
Registration Statement on Form
10-SB/A (file number 000-30701) filed on July 24, 2000)

Copies of exhibits are available to shareholders upon request at a charge of
$10.00 per document to cover the reasonable costs of printing and mailing the
document. Requests should be made to Jon L. Arnason, OZ.COM, Snorrabraut 54,
IS-105 Reykjavik, Iceland.

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