UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549

_________________

# FORM 10-KSB

(Mark One)

|[X] |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               FOR THE FISCAL YEAR ENDED:  December 31, 2002
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

OR

|[  ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM ______________ TO ______________
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

Commission file number:  
0-30058

MOVING BYTES INC. (Exact name of small business issuer in its charter)

|Canada
(State or other jurisdiction of incorporation or
organization) | Not Applicable
(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------- | ---------------------------------------------------

|5858 Horton St., Ste. 101
Emeryville, California
(Address of principal executive offices) | 94608
 (Zip Code)
|----------------------------------------------------------------------------------------- | -----------------

Issuer's telephone number:  
(510)
985-1033

|Securities
Registered Under Section 12(b) of the Exchange Act: | None
|-------------------------------------------------------------- | ----

|Securities
Registered Under Section 12(g) of the Exchange Act: | Common Shares
(Title of class)
|-------------------------------------------------------------- | ------------------------------

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

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K
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. |_|

State
the issuers revenue for its most recent fiscal year: $4,513,377

State the
aggregate market value of voting stock and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid
and asked price of such equity, as of a specified date within the past 60 days: $1,326,572
as of March 7, 2003 based on the average bid and asked price of $0.09 per share as quoted
on the National Association of Securities Dealer over the counter bulletin board.

State
the number of shares outstanding of each of the issuers classes of common equity, as
of the latest practicable date: The issuer had 14,739,691 common shares issued and
outstanding as of March 7, 2003.

Documents
Incorporated by Reference:

None

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# TABLE OF CONTENTS

|                                                                                                                                                 | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | 
|PART I                                                                                                                                           | 
|ITEM 1.   DESCRIPTION OF BUSINESS                                                                                                                | 
|ITEM 2.   DESCRIPTION OF PROPERTIES                                                                                                              | 
|ITEM 3.   LEGAL PROCEEDINGS                                                                                                                      | 
|ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                    | 
|
|PART II                                                                                                                                          | 
|ITEM 5.   MARKET PRICE FOR COMMON EQUITY AND RELATED 
              
       STOCKHOLDER  MATTERS                                                 | 
|ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
              
       FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           | 
|ITEM 7.   FINANCIAL STATEMENTS                                                                                                                   | 
|ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              
        ON ACCOUNTING AND FINANCIAL DISCLOSURES                           | 
|
|PART III                                                                                                                                         | 
|ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL 
              
       PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT | 
|ITEM 10.  EXECUTIVE COMPENSATION                                                                                                                 | 
|ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
              
       AND MANAGEMENT                                                  | 
|ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                         | 
|ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                                                                                                       | 
|ITEM 14.  CONTROLS AND PROCEDURES                                                                                                                | 

---

# PART I

# Note Regarding
Forward-Looking Statements

Except
for statements of historical fact, certain information contained herein constitutes
forward-looking statements, including, without limitation, statements that
express or involve discussions with respect to predictions, expectations, beliefs, plans,
projections, objectives, assumptions or future events or performance (often, but not
always, using words or phrases such as expects or does not expect,
is expected, anticipates or does not anticipate,
plans, estimates or intends, or stating that certain
actions, events or results may, could, would,
might or will be taken, occur or be achieved) are not statements
of historical fact and may be forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may
cause the actual results or achievements of the Company to be materially different from
any future results or achievements of the Company expressed or implied by such
forward-looking statements. Such factors include, among others, the following: the
Companys limited operating history, competition, the Companys ability to
penetrate the document processing and management industry, the telecommunications
regulatory environment, dependency upon facility based carriers, dependency on the
integrity of call records, minimum volume commitments, dependency on effective information
systems, dependency on key personnel and other risks associated with the
telecommunications and the document management industries. See Description of
Business  Risk Factors. Such statements are included, among other places, in
this document under the headings Description of Business, Description of
Properties and Managements Discussion and Analysis of Financial
Condition and Results of Operations.

The
Registrant cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Registrant disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

1

---

# ITEM 1.  DESCRIPTION OF
BUSINESS.

HISTORY
OF THE COMPANY

Moving
Bytes Inc. (the Company or Registrant) markets and sells
electronic document processing and management services, and telecommunications voice and
data services. The Company was incorporated under the Company Act of British Columbia,
Canada, on December 23, 1991, under the name Jackpine Mining Co. Inc. The
Companys common shares listed for trading on the Vancouver Stock Exchange (now known
as the TSX Venture Exchange) (VSE) under the symbol UVT on
December 20, 1993 and delisted from the VSE on January 31, 2000. The Companys common
shares have been quoted on the NASD Over the Counter Bulletin Board since September 7,
1999, first, under the symbol YDSLF, under the symbol ECNXF from
June 20, 2000 through July 31, 2002 and under the symbol MBYTF from July 31,
2002 to the present.

On
June 19, 2000, the Company continued under the Canada Business Corporations Act and
changed its name to E*Comnetrix Inc.

On
July 24, 2002 the Company changed its name to Moving Bytes Inc.

On September
15, 2000, the Company acquired 90.28% of the common capital stock of Exstream Data, Inc.
(EDI), a California corporation, in a share exchange transaction. As a result
of the transaction, the Company issued 2,703,036 common shares and assumed 199,515 share
purchase options with exercise prices ranging from $0.48 to $1.00. The Company
consolidated the accounts of EDI in its financial statements and information subsequent to
September 15, 2000. On January 19, 2001, the Company purchased the 9.72% it had not
previously purchased by issuing 291,128 restricted common shares, bringing the
Companys interest in EDI to 100%.

On
September 15, 2000, the Company acquired 89.5% of the common capital stock of
MovingBytes.com Inc. (MBCI), a Nevada corporation, in a cash purchase
transaction for $511. The Company consolidated the accounts of MBCI in its financial
reports subsequent to September 15, 2000. In December 2000, the Company wound up and
dissolved MBCI.

On
September 19, 2000, the Company formed Moving Bytes Broadband Corporation
(MBI), a Nevada Corporation, and Layer 427, Inc. (L427), a Nevada
Corporation.

On
March 31, 2001, the Company merged USV Telemanagement Inc., a California corporation and
wholly-owned subsidiary of the Company, and MBB. There were no material financial effects
as a result of the merger.

On
August 20, 2001, the Company renamed MBI to Moving Bytes, Inc.

On September
30, 2001 the Company wound up and dissolved L427. During the year ending December 31,
2001, L427 had no revenues, profits or material losses.

On
September 30, 2001 the Company merged EDI and MBI, with MBI remaining as the surviving
company and as the Companys sole subsidiary.

Neither
the Company nor any of its subsidiaries have been involved in any bankruptcy, receivership
or other similar proceeding.

# BUSINESS OF THE COMPANY

The
Company, through its wholly-owned subsidiary MBI, sells electronic document processing and
management services (Electronic Media Services), and telecommunications voice
and data services (Business Communications Services) to commercial customers.

# Electronic Media Services

Overview

Since
1989, MBI has been providing, as an applications service provider (ASP),
outsourced e-mail and fax centric electronic document delivery services to organizations
of all sizes. Beginning with fax broadcast services, MBI has broadened its product line to
include enhanced fax services, e-mail broadcast, and expanded document processing and
management solutions. MBI revenue from these services in 2002 was $711,163 (2001 
$1,537,856).

MBIs
revenue mix in Electronic Media Services was derived from fax, e-mail and image based
document processing and is generally based on usage. MBI purchases underlying services on
a wholesale basis, and resells it to end users in the form of inbound and outbound
processing and transmission. In addition, some

2

---

of MBIs services contain fixed
monthly fees which may be in addition to usage fees. Cost of services consists primarily
of the cost of long distance transmission, internet access and other telecommunications
related charges.

The Document Processing Industry

Although
fax technology is acknowledged to be mature, according to Dataquest, a communications
research firm, by 2004, the number of sheet fed fax machines sold is expected to rise to
8.4 million. Dataquest also forecasts that during that same time frame the average cost of
a fax machine will fall by more than 33%. MBI plans to target its fax customers for
conversion to e-mail related services which is expected offset the loss of fax customers
over the long run.

E-mail
based technologies are more recent and the Company believes they provide a significantly
higher probability for growth than fax based technologies. Estimates for the size of the
U.S. on-line advertising market, which includes e-mail, range from $4.7 billion to $12.6
billion. GartnerG2, an on-line media consultancy, estimates that the US online advertising
market will grow from an estimated $7.9 billion in 2001 to $18.8 billion by 2005.
According to a recent study by the Winterberry Group, an on-line media consultancy, e-mail
marketing and customer relationship management will grow 41% annually to $3.5 billion by
2005 up from $910 million in 2001.

Document
processing and management, the current product development focus of MBI , is expected to
be a new opportunity for ASPs such as the Company. According to International Data
Corporation, the worlds leading provider of technology intelligence, industry
analysis, and market data, the worldwide business process outsourcing (BPO) market is
undergoing rapid transformation. The drive to leverage technology, the progression of the
XSP model, the arrival of Web services, and a more cost-conscious customer are
in combination, causing major shifts in BPO service provision and adoption. According to a
study published by IDC in 2002, worldwide spending on BPO services totaled $712 billion in
2001 and are projected to grow to $1.2 trillion by 2006.

Electronic Media Services Business Strategy

MBI
provides highly scalable, feature rich document processing and management services on an
outsourced basis, e-mail and fax broadcast services and other services adjunct to
electronic document receipt and delivery.

MBIs
services have been continually refined to accommodate changes in technology and client
requirements. As a result, MBI has both the hardware and the software infrastructure to
provide highly customized solutions for a wide variety of high volume document processing
applications. In the future, MBI is anticipated to provide a set of scalable, fully
automated and seamlessly integrated, document processing and management solutions, on an
ASP basis, targeted at document intensive vertical markets, including the legal,
insurance, health and medical, real estate and mortgage, publishing, retail
sales/warehousing, emergency services, and direct marketing industries. There can be no
assurance that MBI can successfully expand its services offering, product features or sell
services to its vertical markets targets. See Note Regarding Forward-Looking
Statements.

MBIs
current business strategy is to expand from being primarily a provider of e-mail and fax
centric services in North America to becoming a global provider of document processing and
management services for a variety of file types (voice, video e-mail, fax, paging, SMS,
MMS, etc.) and forms of delivery agents and device types (internet, fax, cellular, pager,
handheld devices including PDAs, tablet PCs, etc.). MBI has a fourteen year
operating history in Electronic Media Services and currently provides Electronic Media
Services to approximately 300 businesses world-wide. MBI intends to cross-sell new and
enhanced products to existing clients and to capitalize on its development capabilities
and experience to market its products to new clients.

This
strategy consists of three primary elements: (i) identifying new applications to serve
target vertical markets; (ii) delivering new and enhanced services applying a mix of
internally developed and licensed technology; and (iii) selling Electronic Media Services
to target vertical markets, directly and through agent relationships .

Identifying
New Applications:  Based upon market demand and analysis of key vertical target markets,
MBI intends to:

| |  | Analyze
customer feedback as the kinds of features and capabilities which customers believe they
need in order to increase the value of, and to reduce the complexity and cost of, their
business operations;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Analyze
the needs of target vertical markets and the types of features and capabilities that they
need in order to increase the value of, and to reduce the complexity and cost of, their
business operations;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

---

| |  | Introduce
innovative document processing and management applications designed to augment current
applications and technologies in use by current and prospective customers.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Developing
Document Processing and Management Services: MBI has established a two part parallel path
designed to shorten the time to market for its service, which approach is intended to
capitalize on MBIs current core technology:

| |  | First,
to internally develop interfaces and applications based on internally developed or
licensed core applications; and
|- |  | -------------------------------------------------------------------------------------------------------------------------

| |  | Second,
to license core applications, outside of the Companys intellectual domain, on which
MBI can build robust service applications.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------

Licensing
of core applications may involve licensing software or reselling services provided by
third-parties on a fee basis.

Selling
Document Processing and Management Services: MBI has established a four part approach
which is expected to capitalize on its sales and marketing experience:

| |  | First,
internally develop marketing materials and plans aimed at identifying and fulfilling the
needs of target vertical markets (to be shared between its sales forces);
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Second,
develop an internal sales force who will target both enterprises in, and affinity groups
supporting, key target vertical markets;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | Third,
enter into arms length third party, commission based, agent arrangements with large scale
sales agency networks and value added resellers (VARs);
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fourth,
enter into revenue sharing or licensing arrangements with large scale telecommunications
and cellular operators, business service providers and software companies seeking to sell
value added services which either consume both telephony and internet network capacities,
or serve to augment and support their own application suites.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

MBI
currently intends to fund operating and expansion costs from cash flow from operations,
but may require additional financing as it expands its services offerings and target
markets. There can be no assurance that MBI will successfully expand its services
offerings and target markets or that revenues from its operations will be sufficient to
fund such expansions. Any material changes to the current regulatory environment or to
MBIs current market may have an adverse effect on MBIs Electronic Media
Services business and results of operations. See Note Regarding Forward-Looking
Statements.

Electronic Media Services Operations

MBIs
network services are provided by one or more independent companies, which provide
switching and network services to MBI. These services must be operational twenty-four (24)
hours a day, seven (7) days a week and must be available to MBI on a cost-effective basis.
MBIs client services group both trains and maintains new and existing accounts.

MBI
has built a proprietary, high-throughput, multi-threaded delivery engine for e-mail and
fax delivery, giving clients confidence that their messages will be delivered in a timely
manner. MBI continues to develop its proprietary systems to ensure leading-edge technology
and reliability.

MBI
maintains and operates a proprietary 24 x 7 network operations center located in
Emeryville, California. The operations center is tied directly into its long-distance
carrier Qwest Communications, Inc. to ensure the best and fastest connections and is
connected directly to the Internet through high-speed connections. The operations center
also has complete power-backup and fail-safe systems.

In
order to provide MBIs services, MBI has entered into carrier services contracts with
Qwest Communications, Inc. and Focal Communications. See Material Agreements.
In the future, MBI expects its total telecommunications costs per minute of traffic to
decrease resulting from revised or new carrier contracts.

MBI
experiences a timing gap in its billing and collection cycle arising from its obligations
to pay underlying carriers from fifteen to thirty days prior to when MBIs clients
pay for those services delivered by MBI. The timing gap requires substantial cash or cash
equivalents to finance receivables, and it is anticipated that MBI may require additional
working capital to fund future growth if MBI elects to aggressively expand into new
geographical areas and to offer new services to end users. Currently, MBI believes it will
have sufficient working capital and cash flows from operations to fund its planned
operating and expansion costs.

4

---

However, there can be no assurance
that MBI will not encounter delays or suffer adverse consequences if additional working
capital is not available or if the gap between the billing and collection cycle is
increased.

Currently
no aspect of the MBIs Electronic Media Service business is regulated, although MBI
does maintain and enforce strict acceptable use and anti spam polices, in accordance with
applicable law. Proposed legislation regarding e-mail and fax spamming may have a material
adverse impact on MBIs ability to process its services and may have an adverse
effect on MBIs business and results of operations. See Note Regarding
Forward-Looking Statements.

MBI Electronic Media Services

MBI
serves customers who require high-quality, cost-effective, rapid and confirmed document
processing and delivery. MBI has developed web based applications that enable customers to
receive and deliver common or customized documents to an unlimited number of recipients
around the world using its anywhere, anytime, document distribution network.

E-mail
broadcast services enable rapid distribution of e-mail documents and attachments to
multiple recipients by sending a single transmission through MBIs system to a
database driven list of e-mail recipients. MBI software has the ability to reliably
deliver high-volumes of e-mail messages to targeted audiences. Messages can be in text or
HTML with graphics, attached files and multi-media content. Value added services targeted
to on-line marketers include viral marketing and click through tracking and reporting.

Fax
broadcast services enable rapid distribution of documents to multiple recipients by
sending a single transmission through MBIs system to a database driven list of fax
recipients. Value added services targeted to direct marketers include overlay or
mail merge messaging.

MBdox
is MBIs branded service for document processing and management. Users can upload,
download, receive and send e-mails, faxes, image files and other documents. Inbound and
address book driven outbound transmission of documents can be fully automated with store
and forward and other customer defined options. Value added services include address book
synchronization to Outlook and other PIMs, a file folder facility and a zoomable
on-line image viewer. MBdox also supports fax on demand and fax overflow services.

Electronic Media Services Competition

MBIs
services are used by a broad array of customers including those in industries including,
but not limited to, the publishing, public relations and investor relations, mortgage
banking, manufacturing, travel, electronics, legal and pharmaceutical industries.
MBIs current customer base is broadly diversified and MBI has no single domestic
industry group accounting for greater than five percent (5%) of such revenues. MBI
believes that this diversification limits its susceptibility to the business cycles of any
particular industry or a general business downturn in any particular sector. In each of
its target markets, MBI will face competition from larger, better capitalized competitors
with greater resources.

MBI
competes based on a number of factors, such as customer service and support, service
feature set and price. Of these factors, MBI believes that customer support and feature
set are the most important for Electronic Media Services, with price being less of a
critical competitive component.

In
an industry in which a broad range of delivery models is offered, MBI competes with
e-mail, fax and document processing services providers (primarily, service bureaus) and
proprietary software and hardware vendors. MBIs competitive strategy emphasizes its
web based delivery capabilities.

MBI
believes that service bureaus face certain obstacles in effectively competing with MBI
because in order to effectively compete, they must offer both electronic file delivery
traditionally offered by service bureaus and non-traditional document processing services
that have robust features sets and user capabilities. MBI believes that the smaller
service bureaus may not have a sufficient volume of traffic to obtain Business
Communications Services at rates to be able to compete cost-effectively with MBI. MBI
believes that larger, less targeted competitors, may find it difficult to innovate rapidly
enough to keep up with the markets demand for new features and functionality.

As
an alternative to using MBIs services, companies may use enterprise
solutions, which may be as simple as an individual at a fax machine or may involve the
customer acquiring its own computerized communications systems and enterprise level
software. MBI believes that the enterprise solution is suitable in some applications, but
may be less favorable in instances where a large capital expenditure is required. Unless
an enterprise can justify supporting the resources to effect a significant volume of
electronic document deliveries in a short period of time and on a continuing basis, the
enterprise solution may not be cost effective.

5

---

In addition to being concerned with
the irregular nature of demand, a customer selecting an enterprise solution often
considers factors such as the total cost of system acquisition, ongoing technical support,
reliability, technological obsolescence and accountability. Based on the foregoing, MBI
believes that a substantial percentage of customers in the market for Electronic Media
Services will elect to employ a service provider rather than the enterprise solution.

Electronic Media Services Marketing and Sales Strategy

The
current primary source for new customer accounts are inbound inquiries generated from
MBIs web sites and direct marketing. MBI is also pursuing third party distributor
(sales agents and resellers) relationships and sublicensing, resale and joint venture
opportunities.

Inside
Sales. MBI will focus on expanding current client relationships and targeting vertical
markets using affinity relationships and resources. The current primary source for new
customer accounts are inbound inquiries generated from the Companys web sites and
direct marketing.

Agent
Sales.MBIs strategy has expanded to focus its marketing efforts on agent
distributors. MBI intends to differentiate itself from competitors by offering Electronic
Media services through such distributors by focusing them on target verticals. By owning
and maintaining a proprietary on-line distributor fulfillment facility, MBI believes that
it can significantly increase its exposure to the marketplace for minimal upfront cost.
MBI intends to use similar strategies that it has successfully used in its Business
Communications Services business. MBI believes that this agent distribution strategy will
be unique in the Electronic Media Services industry. See Note Regarding
Forward-Looking Statements.

Sublicensing,
Resale and Joint Venture. MBI believes that it can assign certain fulfillment
responsibilities using sublicensing, resale and joint venture arrangements. In these
instances, certain aspects of the end to end fulfillment requirement is expected to be
shared or assigned to a third party in exchange for a portion of the revenue or profit.
Sales, marketing, network operations, client support, billing and other facets of
fulfillment could be affected.

Electronic Media Services Pricing

MBI
believes that its prices are consistent with other similar service providers. MBI
anticipates that it will maintain a competitive pricing strategy and differentiate its
services from those of its competitors based on quality and features. MBI anticipates that
prices for its services will continue to face downward pressure as technology improves and
competition in the industry increases. However, renegotiated carrier contracts may enable
MBI to maintain or improve its gross margins, while enhanced feature sets may enable MBI
to gain market share through differentiation. There can be no assurance that MBI will be
able to renegotiate its carrier contracts in order to obtain lower pricing.

# Business Communications
Services

Overview

MBI
purchases underlying services on a wholesale basis, and resells it to end users at retail
prices typically below those of its major competitors, which include AT&T,
MCI/WorldCom, Qwest Communications, and Sprint (the Carriers). MBI revenue
from these services in 2002 was $3,802,214 (2001  $4,264,570). MBI primarily sells
its services through independent interconnect companies that sell, lease,
install and service telephone and other telecommunications equipment to end users. MBI
believes that interconnect companies are unique distribution channels. Interconnect
companies are generally the primary installers of trunk lines, phone lines and
telecommunications systems (phones, voice mail systems, switch boards, etc.) in office
buildings and often lease telecommunications systems equipment to MBIs target
market, business end-users, for terms of between three to five years. Most interconnect
companies service and upgrade their leased telecommunications systems and are frequently
contacted when end-users seek to increase capacity or require additional
telecommunications equipment, phone lines or other services. As a result of this
relationship, interconnect companies generally develop long-term relationships with their
customers and are frequently in position to recommend local, long-distance and other
telecommunication service providers to their customers. To date, MBI has developed a
network of 30+ independent interconnect distributors in California and has expanded its
authority to do business in the states of Colorado, Illinois, Florida, Nevada, New Jersey,
New York, Ohio, Pennsylvania, Texas, and Washington D.C. See Business Communications
Services Marketing and Sales Strategy.

6

---

The Business Communications Services Industry

The
telecommunications industry is broken down into a number of segments. Local, long-distance
and international voice and data transmission services fall under the umbrella of
traditional telephone services. Alternative carriers of voice and data, such as cable and
fiber-optics, are grouped under the heading of wireline services. Cellular service, paging
and personal communications devices are considered wireless services, and satellite
services include fixed and mobile voice, data and video delivered through communications
satellites.

Prior
to 1974, AT&T and the Bell System all but exclusively controlled the entire U.S.
telecommunications market. In the early 1980s, the telecommunications industry was
deregulated, and in 1984, AT&T divested itself of 22 local telephone companies. The
deregulation of the long distance industry was designed to open competition in the
telecommunications industry and resulted in the formation of the Regional Bell Operating
Companies (RBOCs) whose then exclusive domain was local services, and
who were then prohibited from entering the long distance services marketplace and
alternative long distance providers (such as MCI/WorldCom, Qwest Communications, and
Sprint) who arose to take advantage of this prohibition as well as imposed regulations
designed to eliminate AT&Ts monopoly long distance service provider status.

Traditional
telecommunications services have two main segments: long distance and local service. Local
telephone companies, including the RBOCs, deal with what is called the last
mile. They set up and service local lines, install new equipment, and connect their
customers to long distance carriers. Despite deregulation, RBOCs still dominate
their respective calling markets, and several of them have recently been authorized to,
and do aggressively, offer long distance in their service areas, including geographical
markets serviced by MBI.

Long-distance
carriers build national and international networks out of both wire and fiber-optic lines.
They may use other means of transmission, including satellites or microwave systems.
Although they own and manage switching systems to create their own long distance networks
these carriers pay local telcos, including RBOCs, to route calls through their
lines. While large long-distance companies such as the Carriers have their own facilities,
other long-distance companies, such as MBI, are simply resellers of leased capacity.

In
the late 1980s, telecommunications resellers, like MBI, which owned neither
switching equipment nor their own transmission lines, emerged to provide discounted long
distance services to end-users. Telecommunications resellers purchase services from
carriers at wholesale prices and offer them to their subscribers at discount prices.
Telecommunications resellers sell services under their own names and maintain
provider-customer relationships with their subscribers.

By
renting the principal physical elements, telecommunications resellers are able
to become virtual carriers, differentiating them from traditional carriers. To
become a virtual carrier, a reseller must have a significant volume of traffic and enough
working capital to sustain operational cash flow requirements.

Business
Communications Services Business Strategy

MBIs
target market for its Business Communications Services is the segment of end-users
constituting small-to-medium sized businesses. Currently, MBIs customers consist of
businesses with telecommunications usage typically of less than five thousand dollars
($5,000) per month.

MBIs
basic marketing strategy has been, and continues to be, to build and maintain a network of
independent interconnect companies through which MBI can sell and market its services to
end-users. See Business Communications Services Marketing and Sales Strategy 
Interconnect Companies. The Company believes that it will be successful in acquiring
new customers, cross-selling enhanced products and services to its existing long distance
customers and maintaining customer retention. MBIs business strategy is to:

| |  | be
a one-stop telephony service provider offering quality Business Communications Services
at competitive prices;
|- |  | -----------------------------------------------------------------------------------------------------------------

| |  | acquire
and retain market share through its sales force of interconnect companies and through
focused customer service;
|- |  | -----------------------------------------------------------------------------------------------------------------------

| |  | build
and retain market share through advanced technologies and an advanced operational support
system;
|- |  | -------------------------------------------------------------------------------------------------------

| |  | target
the market of small and medium-sized businesses, which MBI believes to be under-served.
|- |  | ----------------------------------------------------------------------------------------------

The
Company currently intends to fund operating and expansion costs from cash flow from
operations, but may require additional financing as MBI expands its service areas and
offers additional services and products to end users. There can be no assurance that MBI
will successfully expand its operations into other markets or that revenues from its
operations will be sufficient to fund such expansions. Any material changes to

7

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the current regulatory environment or
to MBIs current market may have an adverse effect on MBIs business and results
of operations. See Note Regarding Forward-Looking Statements.

Business
Communications Services Operations

MBIs
underlying services are provided by one or more third party providers, whom provide
switching, network and billing services to MBI. These services must be operational
twenty-four (24) hours a day, seven (7) days a week and must be available to MBI on a
cost-effective basis.

MBI
contracts with such third parties to provide network transmission and therefore has not
needed to commit, and does not anticipate committing, capital for its own network and
transmission facilities. As a result, MBI believes its ability to expand is not limited by
capacity, geographic coverage or configuration of a particular providers network.

MBI
has entered into carrier services contracts with MCI/WorldCom, Global Crossing and Qwest
Communications. See Material Agreements. If Carriers or other providers were
to lower rates made available to MBIs target market without a corresponding
reduction in MBIs costs, MBIs Business Communications Services business and
results of operations could be adversely effected.

MBI
experiences a timing gap in its billing and collection cycle arising from its obligations
to pay underlying providers from fifteen to thirty days prior to when MBIs customers
pay for those services delivered by MBI. The timing gap requires substantial cash and cash
equivalents to finance receivables, and it is anticipated that MBI may require additional
working capital to fund future growth if MBI elects to aggressively expand into new
geographical areas and to offer new services to end users. Currently, MBI believes it will
have sufficient working capital and cash flows from operations to fund its planned
operating and expansion costs. However, there can be no assurance that MBI will not
encounter delays or suffer adverse consequences if additional working capital is not
available or if the gap between the billing and collection cycle is increased.

MBI
Business Communications Services

MBIs
Business Communications Services consist of traditional 1+ and 800 (toll free)
telecommunications services, data and frame relay services and audio conferencing.
Business Communications Services are anticipated to be fully developed by third parties
and re-sold by MBI. MBI currently has no materially significant development costs and has
no plans to develop its own transmission network or services in the future. Instead, as
new services are developed in the industry and become available to MBI to be re-sold, MBI
may enter new markets and offer new services. There can be no assurance that MBI will be
able to successfully offer new services or that MBI will be capable of obtaining the
services of current providers in the future on terms acceptable to MBI.

Business
Communications Services Competition

MBI
operates in a highly competitive industry and competes with competitors with substantially
greater resources and significantly greater market share than MBI. MBI expects that
competition will continue to intensify in the future due to regulatory changes and the
increase in the size, resources and number of market participants. In each of its markets,
MBI will face competition from larger, better capitalized competitors with greater
resources.

There
are several providers of services similar to MBIs. MBI believes that the market is
dominated by the Carriers whose collective market share is eroding as independents expand
and compete for market share. MBI believes that the Major Carriers and other large
competitors generally battle for large shares of major market sectors (e.g. Fortune 1000
businesses, residential and large 800 user services), while other independent
telecommunication service providers, including MBI, target specialized, regional, local
and niche markets consisting of small to medium sized businesses.

In
addition the RBOCs have begun to sell long distance services in allowed states,
including the aggressive marketing of low cost services in state of California in which
MBI generates over 95% of its revenues. RBOCs may enjoy a competitive advantage as
they can combine local and long distance services into a single offering, which MBI
cannot. This competitive advantage may have a material adverse effect on MBIs
Business Communications Services business and results of operations. See Risk
Factors  Intense Competition, and Risk Factors  Regulation and
Pending Regulation.

Competition
for the MBIs Business Communications Services is generally based on price, quality,
reputation, name recognition, network reliability, service features, billing services,
perceived quality and responsiveness to customers needs. A continuing trend toward
business combinations and alliances in the telecommunications industry may create
significant new competitors to MBI. Many of MBIs existing and

8

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potential competitors have financial,
technical and other resources significantly greater than those of MBI. See Risk
Factors  Intense Competition, and Risk Factors  Regulation and
Pending Regulation.

The
telecommunications industry is highly competitive and affected by the introduction of new
services and technologies by, and the market activities of, major industry participants.
MBI competes against various providers offering essentially the same services as MBI.
MBIs success will depend upon its ability to provide high-quality services at prices
generally competitive with, or lower than, those charged by its competitors. In addition,
the long distance industry is characterized by a high level of customer attrition or
churn. Such attrition is attributable to a variety of factors, including
initiatives of competitors as they engage in advertising campaigns, marketing programs and
cash payments and other incentives to entice end users to subscribe for services. End
users are often not obligated to purchase any minimum usage amount and can discontinue
service without penalty at any time. MBIs revenue has been, and is expected to
continue to be, affected by churn.

The
Carriers have implemented new price plans aimed at residential customers with
significantly simplified rate structures, which may have the impact of lowering overall
prices. There can also be no assurance that Carriers will not make similar offerings
available to the small to medium-sized businesses that MBI primarily targets and serves.
Most recently Carriers have begun to more aggressively compete for the business of small
and medium-sized business customers, and there can be no assurance MBIs customers
and potential customers will not be lost to these or other providers in the future.

Additional
pricing pressure may come from IP transport, which is a developing use of
packet-switched technology that can transmit voice communications at a cost that may be
below that of traditional circuit-switched long distance service. While IP transport in
the form of long distance services (IP Long Distance) is not yet available in
all areas, requires the dialing of additional digits and generally produces sound quality
inferior to traditional long distance service, it could eventually be perceived as a
substitute for traditional long distance service and may put pricing pressure on long
distance rates. Any significant reduction in long distance prices due to the introduction
of competitive IP Long Distance services may have a material adverse effect on MBIs
Business Communications Services business and results of operations. See Risk
Factors  Intense Competition.

Some
of MBIs principal competitors are also major suppliers of services to MBI. MBI is
not a facilities-based provider and relies on the services, transmission lines and
switching facilities of Carriers to provide services to MBIs clients. There can be
no assurance that such competitors will continue to offer services to MBI at competitive
rates or on attractive terms, if at all, and any failure to do so could have a material
adverse effect on MBIs Business Communications Services business and results of
operations.

Business
Communications Services Marketing and Sales Strategy

In
an effort to generate a maximum amount of minutes to cover its transmission and switching
costs at the highest competitive margins, MBIs strategy is to focus its marketing
efforts on interconnect distributors. MBI intends to differentiate itself from competitors
offering similar services to distributors by allowing its distributors to have market
identity with MBI. Certain interconnect distributors that market MBIs telephony
services are permitted to use, display and promote MBIs trademarks, service marks
and other promotional materials for marketing purposes. Such interconnect distributors use
the MBI name and logo on their business cards and other promotional materials. MBI also
promotes its affiliation with individual interconnect distributors in MBIs monthly
statements and invoices to end-users. MBI believes that this strategic marketing
affiliation is mutually beneficial to MBI and the interconnect distributor.

MBI
does not maintain a direct sales force for Business Communications Services and it directs
its sales effort exclusively through interconnect distributors. MBI has developed
relationships with 30+ independent interconnect companies who for a commission recommend
and sell MBIs telephony services to their customers. Approximately ninety-five
percent (95%) of MBIs revenues from Business Communications Services are derived
from services provided through interconnect companies.

MBI
grants non-exclusive rights to interconnect companies and distributors to market the
MBIs services to end users, and pays an ongoing commission to the interconnect
company of approximately ten percent (10%), which commission figure is based on the
revenues received from the referred end-user. MBIs relationship with the
interconnect company is non-exclusive and the interconnect company is free to market other
providers services.

Business
end users generally select independent interconnect companies to install office phone
lines and systems, and often lease these systems for terms between three to five years.
Most interconnect companies provide maintenance and service during the term of the lease,
which may create a long term relationship with the end-user. Some interconnect companies
offer bundled system packages to end-users that include the

9

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system lease, service and maintenance
follow-up, extended warranty coverage, local and long distance service coverage and other
telecommunications systems services. Interconnect companies can generate long term
commitments from their customers by bundling a package of discounted services (discounts
on equipment purchases, service, maintenance, consulting, etc.) to the sale of MBIs
services. This sales strategy includes offering customers a one stop shopping
and a single point of contact alternative that MBI believes creates brand
loyalty and reduces customer attrition. MBI positions itself to facilitate the bundling of
system packages by offering seamless and transparent quality long distance services to the
end-user and paying the interconnect company a commission based on Business Communications
Services revenues received from the end-user. The bundling of system packages provides
interconnect companies with a stream of revenues for the duration of the end-users
commitment, while providing stability in MBIs end-user service base.

The
interconnect companies are also the primary contract when an end user seeks to increase
capacity, upgrade or change their phone systems, to install new equipment and/or lines or
service warranty claims for manufacturers. As a result, the interconnect company
frequently builds long-term relationships with the end user and may have frequent contact
with the decision-maker for selecting telephony services. This means that interconnect
companies are generally in the unique position to recommend telephony service providers to
customers at the time of installation, service or maintenance.

MBI
believes that the matching of the interconnect customer, which has traditionally purchased
its telephone equipment and service from the interconnect supplier, with telecommunication
services at reduced rates, is an ideal strategy. Interconnect companies generally have
customer bases that rely on the interconnect companies for a variety of services including
repairs and system maintenance, system additions and rearrangements and training. MBI
believes that it is not uncommon for the customers of interconnect companies to rely on
the various interconnect representatives with whom they interact for advice about related
telephone services.

MBIs
primary sales strategy is to develop strategic relationships with interconnect companies
by:

| |  | offering
quality, reliable transmission and customer services;
|- |  | --------------------------------------------------------------

| |  | paying
commissions for end user referrals based on the revenues generated from such referrals;
|- |  | ----------------------------------------------------------------------------------------------

| |  | understanding
the interconnect market and the needs of the interconnect provider;
|- |  | ---------------------------------------------------------------------------------

| |  | providing
competitive rates for services to end-users,
|- |  | ------------------------------------------------------

| |  | promoting
and reinforcing the  interconnect-MBI  relationship in  communications  (such as billing
 statements and promotional          materials) to end-users;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | designing
flexible and innovative service programs to permit the bundling of the MBI's services
into system  packages;
|- |  | ----------------------------------------------------------------------------------------------------------------------

| |  | maintaining
existing relationships with interconnect companies through marketing communications;
|- |  | ------------------------------------------------------------------------------------------------

| |  | developing
new relationships with interconnect companies through networking;
|- |  | ----------------------------------------------------------------------------

| |  | developing
incentive programs designed to encourage interconnect companies to refer MBI as the
service provider to end-users.
|- |  | -----------------------------------------------------------------------------------------------------------------------------

MBI
believes that changes in the telecommunications markets, which are designed to increase
competition by removing regulatory barriers to entry, may make interconnect companies even
more valuable as distributors because interconnect companies generally are the primary
installers of office phone lines, telecommunications systems, central office trunks, and
other telecommunications equipment for businesses. Interconnect providers generally
compete with other independent interconnect companies and, in some cases, subsidiaries of
telecommunications equipment manufacturers to install, sell, service and maintain office
phone lines and equipment. However, as the PBX systems market undergoes a migration from a
circuit-switching to an Ethernet-based packet-switching design platform using Internet
protocol (IP), an increase in the demand for IP Long Distance services will result, which
may have a material adverse effect on MBIs Business Communications Services business
and results of operations adverse if MBI cannot not competitively offer IP Long Distance
services. See Risk Factors  Intense Competition.

Although
MBI has been successful in developing relationships with interconnect companies, there is
generally no exclusive or long-term commitment on the part of the interconnect company to
offer MBI Business Communications Services as part of their systems packages or to refer
end-users to MBIs services. MBI must maintain and offer a high level of transmission
quality and must provide responsive customer support and service to the end-user and to
telecommunications companies. There can be no assurance that interconnect companies will
continue to bundle MBIs services into their system packages or recommend MBI
services to

10

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end-users in the future. There can
also be no assurance that the interconnect companies will not switch telecommunications
services providers for their system packages or that MBI will successfully maintain
existing relationships with the interconnect companies that market MBIs services.
MBIs ability to build and maintain its interconnect company network and to sell its
services to end-users is dependent on a number of factors, including changes in market
condition, increased competition among interconnect companies, lower rate and higher
commission structures, changes in the economy that affect the demand for phone systems,
switching of service providers by interconnect companies, the demand for system packages
and other factors, many of which are beyond MBIs control.

Business
Communications Services Pricing

MBI
believes that its prices are competitive with other Business Communications Services
providers. MBI anticipates it will maintain a competitive pricing strategy and attempts to
differentiate its services from those of its competitors based on quality.

# Regulation

With
respect to telecommunications , MBI is federally regulated by the Federal Communications
Commission (the FCC) and at the state level by the Public Utilities
Commissions in the states in which it operates (the CPUCs). MBI must
obtain regulatory approval on a state by state basis as it expands its geographical
territory. MBI is not regulated by the FCC or the CPUCs with respect to Electronic
Media Services.

Recent
rulings by the FCC, effectively handing the responsibility for deregulation to the
CPUCs will create significant opportunities for the entry of RBOCs into the
long distance market, a position resisted by the FCC. As CPUCs have long been
proponents of greater competition it can be expected that more competitors, in the form of
RBOCs, will be allowed to sell long distance services in and out of their own
regions. Increased competition from the RBOCs may have a material adverse effect on
MBIs Business Communications Services business and results of operations. See
Risk Factors  Intense Competition. New regulations may also allow
companies like the Company to compete for local toll business. See Risk Factors
 Regulation and Pending Regulation and Note Regarding Forward-Looking
Statements.

State
Regulation. The Company believes that the CPUCs are generally active proponent
of deregulation of state telecommunications industries. The CPUCs have also
indicated that they are committed to reducing tariffing requirements on non-dominant
telecommunications carriers and has proposed major modifications to General Order 96-A,
the rules regulating rates, rules and contracts for regulated utilities including the
telecommunications industry.

Taxes
currently applicable to MBIs services include the Universal Lifeline Telephone
Service (ULTS), which helps subsidize low-income users; the California Relay Service and
Communications Devices Surcharge, which funds the placement of equipment for the deaf and
hearing impaired; the California High Cost Fund A, which provides subsidies to 17 small
independent telephone companies so that the disparity between rural and metropolitan
consumers is minimized; the California High Cost Fund B, which provides subsidies to
carriers of last result like Pacific Bell and GTE; the California Teleconnect Fund, which
provides discounted telecommunications services to qualifying entities; and the CPUC User
Fee, which finances the CPUC annual operating budget. In addition, there is also an
Emergency Telephone Surcharge tax that provides the funding mechanism for emergency 911
service. Various cities and counties may also apply taxes for calls that originate or
terminate in their jurisdictions.

Federal
Regulation. The FCC is the federal entity responsible for regulating interstate and
international telecommunications services under the Communications Act of 1934, as amended
(the Communications Act). The Communications Act generally imposes more
extensive requirements on Carriers that have some degree of market power, such as the
original local exchange carriers, than it imposes on non-dominant Carriers that lack
market power and telecommunications resellers, such as MBI. The FCC regulates interstate
and American international inbound and outbound traffic and applies taxes on these calls.
Basically, the FCC is responsible for the subscriber line charge that provides a fund for
local telephone companies to recover the costs associated with connecting their customers
to long distance networks. The FCC also regulates the federal excise tax on telephone
bills.

Other
Regulations. As MBI expands its service areas to other states, its telecommunications
operations will also be subject to various state laws and regulations. MBI will be
required to obtain and maintain certificates of public convenience and necessity from
regulatory authorities in most states in which it may offer intrastate service. In most
states, MBI must also file and obtain prior regulatory approval of tariffs for intrastate
services. MBI will be required to update or amend its tariffs when rates are adjusted or
new products are added to services offered by MBI. MBI will also be subject to challenges
by third parties to the MBIs Federal or state

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tariffs, if any, and complaints about
MBI practices could cause MBI to incur substantial legal and administrative expenses.
There can be no assurance that MBI will expand its service area into other states or that
MBI will successfully obtain the necessary regulatory approval to operate in such
jurisdictions.

See
Risk Factors  Intense Competition. New regulations may also allow
companies like the Company to compete for local toll business. See Risk Factors
 Regulation and Pending Regulation and Note Regarding Forward-Looking
Statements.

# Billing and Collection
Cycle

MBI
experiences a timing gap in its billing and collection cycle arising from its obligations
to pay underlying Carriers from five to twenty days prior to when MBIs customers pay
for those services delivered by MBI. The timing gap requires substantial working capital
to finance receivables, and it is anticipated that MBI may require additional working
capital to fund future growth if MBI elects to aggressively expand into new geographical
areas and to offer new services to end users. Currently, MBI believes it will have
sufficient working capital and cash flows from operations to fund its planned operating
and expansion costs for the foreseeable future. However, there can be no assurance that
MBI will not encounter delays or suffer adverse consequences if additional working capital
is not available or if the gap between the billing and collection cycle is increased.

# Selling, General and
Administrative Expenses and Research and Development

Selling,
general and administrative expenses include salaries and wages (including stock-based
compensation) associated with customer service, operations, research and development,
direct sales, marketing and administrative functions, sales commissions, direct marketing
and advertising costs, travel and entertainment expenses, bad debt expense, rent and
facility expense, professional and consulting fees, and other operating and administrative
expenses. The Company spent only nominal amounts during fiscal year 2002 on research and
development activities, and estimates that it will incur only nominal research and
development expenditures in 2003.

# Depreciation and
Amortization

Depreciation
and amortization includes depreciation of furniture and fixtures, computer and
telecommunications equipment.

# Personnel

As
of February 28, 2002, the Company had fourteen (14) full-time personnel, including two (2)
officers. None of the Companys personnel are members of a labor union or are covered
by a collective bargaining agreement. Management believes that the Companys
relationship with its personnel is good.

# Trademarks

The
brand names Moving Bytes and gooeymail are registered trademarks
of the Company in the United States. The Company may also apply for trademark protection
for additional marks as the Company develops new products and variants of its current
services. There can be no assurance that the Company will receive registration for any
applied for trademarks or that any registered trademark will provide the Company with any
significant marketing or industry recognition, protection, advantage or benefit.

# Material Agreements

Telecommunication
Agreements

MBI
has entered into the following telecommunications service agreements :

MCI/WorldCom
effective July 15, 1994, as amended December 31, 1998 (the MCI/WorldCom
Agreement), with a term expiring December 31, 2001. MBI now operates under this
Agreement on a month-to-month basis and it is in full effect as of the date of the filing
of this Annual Report. There are no minimum purchase requirements and the MCI/WorldCom
Agreement is terminable by either party on a thirty day advance notice to the other party.

Qwest
Communications Corporation (Qwest) effective May 1, 2002 and June 5, 2001 (the
Qwest Agreement), as amended on October 1, 2002 with terms expiring May 1,
2003 and June 5, 2003 respectively, and continuing on a month to month basis thereafter.
Under the terms of the Qwest Agreements, Qwest will provide MBI with switched and
dedicated telecommunications, Internet access and data services at specified rates. There
are no minimum purchase requirements and the Qwest Agreement is generally terminable by
either party on a thirty day advance notice to the other party.

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Focal
Communications (Focal) effective April 2, 2002 (the Focal
Agreement) expiring April 2, 2003, and continuing on a year to year basis
thereafter. Under the terms of the Focal Agreement, Focal will provide MBI with local
access services at specified rates. There are no minimum purchase requirements and the
Focal Agreement is generally terminable by either party on a thirty day advance notice to
the other party prior to the end of then current term.

Global
Crossing (Global) effective November 21, 2002 (the Global
Agreement) expiring and continuing on a year to year basis thereafter. Under the
terms of the Global Agreement, Global will provide MBI with switched and dedicated
telecommunications, Internet access and data services at specified rates. There are no
minimum purchase requirements and the Global Agreement is generally terminable by either
party on a ninety day advance notice to the other party prior to the end of then current
term.

Digital
Communications of America, Inc. (Digital) effective July 15, 1994, and amended
effective December 16, 1998, with a term expiring April 15, 1999, automatically renewed
for additional one hundred and twenty (120) day periods unless either party gives notice
prior to the end of the then current term (the Digital Agreement). The Digital
Agreement was automatically renewed for a term of one hundred and twenty (120) days on
April 15, 1999, and has subsequently been renewed for successive one hundred and twenty
(120) day periods. Under the Digital Agreement, Digital agreed to provide customer billing
services on behalf of MBI at specified rates. MBI must purchase a minimum of ten thousand
dollars ($10,000) per month in services on a take or pay basis. In the event that the
actual calculated costs for services purchased by MBI falls below ten thousand dollars
($10,000) in a given month, MBI would be responsible for the payment of the monthly
minimum amount of ten thousand dollars ($10,000).

Acquisition
of Exstream Data, Inc., a California Corporation

On
September 15, 2000, the Company acquired 90.28% of the common capital stock of EDI in a
share exchange transaction. As a result of the transaction, the Company issued 2,703,036
common shares and assumed 199,515 share purchase options with exercise prices ranging from
$0.48 to $1.00. On January 19, 2001, the Company purchased the remaining 9.72% interest in
EDI from the dissenting shareholders by issuing 291,128 common shares. The Company
consolidated the accounts of EDI in its financial statements and information subsequent to
September 15, 2000.

Karwat
Agreement

The
Company entered into an employment agreement dated August 7, 2000, with Joseph Karwat
(Karwat), which was terminated for cause by the board of directors on January
29, 2002. The agreement provided that in the event of an involuntary termination by the
Company without cause, including constructive dismissal, the Company would be required to
pay to Karwat a single lump sum severance payment of $150,000.

On
April 12, 2002 Karwat, filed a demand for binding arbitration under the terms of the
agreement alleging, among other things, that the Company terminated his employment without
cause and in breach of the agreement. The Company is defending against the claims based on
the determination that the agreement was terminated for cause, and the Company has filed a
cross-claim against Karwat alleging that he breached his fiduciary duty to the Company and
violated the California Labor Code. See Legal Proceedings  Arbitration
Proceeding Regarding Joseph Karwat Agreement.

Consulting
and employment agreements

The
Company entered into management agreements with J. Erik Mustad, the Companys Chief
Executive Officer and a director, for the period March 1, 2002 through December 31, 2003,
and with Mark M. Smith, the Companys President and Chief Financial Officer and a
director, for the period March 1, 2002 to December 31, 2003. These agreements were amended
October 15, 2002. At December 31, 2002, payments under the agreements aggregate $20,000
per month. See Employment and Employee Incentive Contracts.

Premise
Leases

See
Item 2. Description of Properties for a description of the Companys
premise leases.

# RISK FACTORS

The
securities of the Company are highly speculative. A prospective investor or other person
reviewing the Company should not consider an investment unless the investor is capable of
sustaining an economic loss of the entire investment. Certain risks are associated with
the Companys business, including the following:

13

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Future
Operations and Going Concern

The
auditors report on the Companys audited financial statements for the year
ended December 31, 2002, includes an additional explanatory paragraph that states that due
to recurring losses from operations and cash flows used in operating activities,
substantial doubt exists about the Companys ability to continue as a going concern.
The audited financial statements include a future operations and going concern note that
provides further information with respect to this uncertainty and managements plans.
Management believes the Company is a going concern. However, there can be no assurance
that the Company will be able to continue as a going concern in the future. The financial
statements do not include any adjustments that might result from the outcome of this
uncertainty.

Limited
Operating History; History of Losses

The
Company has been operating since March 1991. The Company had net earnings during only one
fiscal year to date, which was net earnings of $16,646 in the year ended December 31,
1999. The Company has a history of losses before and after such fiscal year, including
losses of $1,649,696 in 2002, $2,093,471 in 2001, $265,566 in 2000, $130,479 in 1998,
$134,845 in 1997 and $1,131,542 in 1996. There can be no assurance that the Company will
generate enough revenues from its operations to generate net earnings in the future, if at
all.

Need
for Additional Resources for Growth

Subject
to the sufficiency of its cash resources, the Company intends to continue to expand its
business by entering into new markets and offering new services. If the Company expands
into new markets on a rapid basis or aggressively introduces new services, the Company may
require additional cash resources to fund its growth and operations. The Company currently
anticipates that its growth can be financed through working capital and cash flows from
operations. However, there can be no assurance that the Company will not require
additional financing or that such financing will be available on acceptable terms, if at
all.

The
Companys future performance will depend, in large part, upon its ability to
implement and manage its growth effectively. The Companys growth has placed, and in
the future will continue to place, a significant strain on its administrative, operational
and financial resources. The Company anticipates that if successful in expanding its
business, it will be required to recruit and hire a substantial number of new sales and
other personnel. Failure to retain and attract additional qualified sales and other
personnel, including management personnel who can manage the Companys growth
effectively and failure to successfully integrate such personnel could have a material
adverse effect on the Company. To manage its growth successfully, the Company will also
have to continue to improve and upgrade operational, financial, accounting and information
systems, controls and infrastructure, as well as expand, train and manage its employee
base. In the event the Company is unable to upgrade its financial controls and systems
adequately to support its anticipated growth, the Companys business and results of
operations could be materially adversely affected.

Lack
of Experience Offering Certain Electronic Media Services

The
Companys strategy for MBI includes offering additional document processing and
management services. MBI has limited experience providing document processing and
management services. To be successful, MBI must compete successfully with companies that
have greater financial resources and experience than MBI. To provide these additional
services, MBI expects that it will be necessary to negotiate agreements with software
providers in advance. MBI may be required to develop technical and marketing expertise in
other markets to effectively market and sell such additional services. In addition, the
provision of certain of these services may involve technical requirements with respect to
which MBI has little experience. The provision of these services must also be successfully
integrated into MBIs business. There can be no assurance that MBIs future
services will receive market acceptance in a timely manner, if at all, or that prices and
demand for these services will be sufficient to provide profitable operations.

Lack
of Experience Offering Certain Business Communications Services

The
Companys strategy for MBI may include offering additional Business Communications
Services, including local, voice over Internet and other Internet access services. MBI has
limited experience providing local, voice over Internet and other Internet access
services. To be successful, MBI must compete successfully with companies that have greater
financial resources and experience than MBI. To provide these additional services, MBI
expects that it will be necessary to negotiate agreements with Carriers and other service
providers in advance. MBI may be required to develop technical and marketing expertise in
other markets to effectively market and sell such additional services. In addition, the
provision of certain of these services may involve technical requirements with respect to
which MBI has little experience. The provision of these services must also be successfully
integrated into MBIs business. There can be no assurance that MBIs future
services will

14

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receive market acceptance in a timely
manner, if at all, or that prices and demand for these services will be sufficient to
provide profitable operations.

Working
Capital Requirements

As
of December 31, 2002, the Company had net working capital of $268,686. The Company
currently anticipates that it will fund its growth from revenues and cash flow from
operations. However, the Companys working capital requirements may increase
substantially in order to accommodate growth if the Company identifies new opportunities
to expand its operations and elects to aggressively pursue new markets or to offer new
services.

MBI
currently experiences negative cash flow from operations and until MBIs cash flow
from operations is sufficient to meet its working capital requirements, any shortfall must
be covered by a credit facility or other sources, such as vendor financing or the sale of
the Companys securities. There can be no assurance that sufficient financing will be
available to sustain MBIs growth.

MBI
experiences a timing gap in its billing and collection cycle arising from its obligations
to pay underlying Carriers from fifteen to thirty days prior to when MBIs clients
pay for those services delivered by MBI. The timing gap requires substantial working
capital to finance receivables, and it is anticipated that MBI may require additional
working capital to fund future growth if MBI elects to aggressively expand into new
geographical areas and to offer new services to end users. Currently, MBI believes it will
have sufficient working capital and cash flows from operations to fund its planned
operating and expansion costs. However, there can be no assurance that MBI will not
encounter delays or suffer adverse consequences if additional working capital is not
available or if the gap between the billing and collection cycle is increased.

There
can be no assurance that the Company will be successful in obtaining the required
financing for its operations or expansion strategy on terms acceptable to the Company, if
at all. If the Company cannot obtain sufficient capital to fund its planned expenditures,
some or all of its plans may be significantly delayed or abandoned.

Intense
Competition

MBI
operates in a highly competitive environment and currently does not have a significant
market share in the markets it serves. Most of its actual and potential competitors have
substantially greater financial, technical, marketing and other resources (including brand
or corporate name recognition) than MBI. Also, the continuing trend toward business
alliances in the Business Communications Services and Electronic Media Services industries
and the absence of substantial barriers to entry in the Business Communications Services
and Electronic Media Services markets could give rise to significant new competition. The
Companys success will depend upon MBIs ability to provide high-quality
services at competitive prices. See Electronic Media Services Competitors and
Business Communications Services Competitors.

In
addition, MBI faces the following specific competitive risks:

Effect
of New Rate Plans. AT&T, MCI, Sprint and other carriers have implemented new price
plans aimed at residential customers with significantly simplified rate structures, which
may have the impact of lowering overall long distance prices. There can be no assurance
that long distance carriers will not make similar offerings available to the small to
medium-sized businesses that MBI primarily serves.

The
Competitive Implications of Changes in PBX Technology. MBI will also face competition
from IP telephony providers as PBX technology, on whose vendors MBI relies for long
distance sales, transitions from circuit-switching to an Ethernet-based packet-switching
design platform using Internet protocol (IP). There can be no assurance that MBI will be
able to offer IP Long Distance services, that if it could do so that it could do so
profitably or that its interconnect distributors would continue to sell MBIs long
distance services if offered IP Long Distance services by MBIs competitors. See
Risk Factors  Business Communications Services Competitors.

The
Competitive Implications of Other Technologies. MBI will also face competition from
fixed wireless services; wireless devices that do not require site or network licensing;
cellular, personal communications service, and other commercial mobile radio service
providers; and Internet telephony. Such services may provide competitive advantages over
MBIs services, including wireless convenience, lower unit costs and increased
communications capabilities.

Entrance
of the Regional Bell Operating Companies into the In-Region Long Distance Market.
Section 271 of the Telecommunications Act prohibits any RBOC from providing long distance
service that originates (or, in certain cases, terminates) in one of its in-region states
until the RBOC has satisfied certain statutory conditions in that state and has received
the approval of the FCC. To date, the FCC has denied several

15

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applications for such approval;
however, the Company anticipates that a number of RBOCs will file additional applications
for in-region long distance authority in 2003. Once the RBOCs are allowed to offer
widespread in-region long distance services, they will be in a position to offer
single-source local and long distance service that may provide certain competitive
marketing advantages and cost efficiencies to such RBOCs.

Entrance
of Foreign Companies into U.S. Markets  Business Communications Services. New
FCC rules went into effect in February 1998 that make it substantially easier for many
non-U.S. telecommunications companies to enter the U.S. market, thus potentially further
increasing the number of competitors. See Business of the Company 
Regulation.

Intense
Competition in Business Communications Services. The market for voice and data
communications and Internet access services is extremely competitive. There are no
substantial barriers to entry, and MBI expects that competition will intensify in the
future. See Business Overview, Business of the Company 
Competition and Business of the Company  Regulation.

Effect
of Major Competitors. Major competitors have not yet entered the market for small to
medium-sized business users that MBI will target. There can be no assurance that larger
and better-financed competitors will not make similar offerings available to the small to
medium-sized businesses that MBI primarily serves.

Charging
by Internet Service Providers (ISPs). ISPs may begin to charge for e-mail delivery to
their subscribers. Because ISPs control a crucial checkpoint between marketers and
consumers they may restrict access to their subscribers or charge a fee for access to
their subscribers. Any limitation of MBIs ability to deliver e-mail messages or any
cost associated with such delivery could materially harm MBIs business and results
of operations could be materially adversely affected.

Blocking
of MBIs Services Due to Spam. ISPs, such as America On-Line, AT&T Worldnet,
Mindspring, etc. have realized that the volume of spam or junk e-mail has a significant
effect on their ability to service their users as the volume of junk e-mail traveling
through and stored on their systems increases. They have responded by blocking incoming
messages from known spammers. If a company or service provider became known as a spammer,
they would run the risk of being blocked by one or more major on-line services. If MBI, as
a service provider, were unable to send any messages to any ISP, due to spam blocking,
that would prevent MBI from providing e-mail marketing services to substantial quantities
of consumers, significantly reducing the effectiveness of MBIs.

Entrance
of Foreign Companies into U.S. Markets  Electronic Media Services. Because the
Internet is transparent, document processing and management, and e-mail broadcasting
services such as those offered by MBI can be fulfilled and delivered from anywhere in the
world. This means that the number of competitors could increase substantially as more of
the world gains access to the Internet.

Regulation
and Pending Regulation

Business
Communications Services are subject to significant regulation at the federal, state, local
and international levels, affecting MBI and its existing and potential competitors. Delays
in receiving required regulatory approvals or the enactment of new and adverse
legislation, regulations or regulatory requirements may have a material adverse effect on
the Companys financial condition, results of operations and cash flow. In addition,
future legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which the MBI is operating or intends to operate in ways that
are materially adverse to MBI. See Description of Business  Regulation
and Risk Factors  Business Communications Services Competitors.

E-mail
and fax broadcasting and Internet marketing are not currently regulated at the Federal,
State or local level. However, due to privacy issues and spam there is considerable effort
underway to legislate regulations on e-mail broadcasting and Internet marketing.
Regulatory restrictions or impositions and other new and adverse legislation, regulations
or regulatory requirements may have a material adverse effect on the Companys
financial condition, results of operations and cash flow. In addition, future legislative,
judicial and regulatory agency actions could alter competitive conditions in the markets
in which MBI is operating or intends to operate in ways that are materially adverse to
MBI.

In
particular, MBI faces the following regulatory risks:

Legal
and Administrative Burden of Compliance with Diverse State Regulations. MBIs
telecommunications operations and future operations are subject to state laws and
regulations. MBI must obtain and maintain certificates of public convenience and necessity
from regulatory authorities in most states in which it may offer intrastate service. In
most such states, MBI will be required to file and obtain prior regulatory approval of
tariffs for intrastate services. Challenges by third parties to MBIs Federal or
state tariffs and complaints about MBIs practices could cause MBI to incur
substantial legal and administrative expenses.

16

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Uncertainty
of the Impact of the Telecommunications Act and Other Regulatory Changes. In February
1996, comprehensive telecommunications legislation was enacted. The Telecommunications Act
has resulted in significant changes in the regulatory environment for the
telecommunications industry as a whole, and will have a material impact on the local
exchange industry and the competitive environment in which MBI operates. The Company
cannot predict how the relevant provisions of the Telecommunications Act will be
interpreted and implemented by the FCC, state regulators, courts and other regulatory
agencies.

Uncertainty
of the Evolving Regulatory Environment. On July 18, 1997, the United States Court of
Appeals for the Eighth Circuit overturned many of the rules the FCC had established
pursuant to the Telecommunications Act. The Eighth Circuit decision substantially limits
the FCCs jurisdiction and expands state regulators jurisdiction to set and
enforce rules governing the development of local competition. As a result, it is more
likely that the rules governing local competition will vary substantially from state to
state. If a patchwork of state regulations were to develop, it could increase MBIs
cost of regulatory compliance and could make entry into and conduct of business in some
markets more expensive than in others. The United States Supreme Court (the Supreme
Court) reviewed the decision of the Eighth Circuit and on January 25, 1999, reversed
the Eighth Circuit in part and reinstated, with one exception, all of the FCC local
competition rules. The Supreme Court vacated and remanded to the FCC for reconsideration
the rule determining which unbundled network elements much be provided by incumbent local
exchange carriers to new entrants. There can be no assurance as to how these decisions
will affect MBIs business and results of operations in fiscal year 2003 and beyond.

Federal
and state regulations and pending regulations and court decisions may have in the future
both positive and negative effects on MBI and its ability to compete. However, under
pending federal and state legislation, significant additional competitors could enter the
market for MBIs services which additional competitors have significantly greater
financial and resources than are available to the Company.

Dependence
on Billing, Customer Service and Information Systems

MBI
currently relies on external billing solutions for Business Communications Services and
internal billing solutions for Electronic Media Services. Billing for services and related
information processing capability is vital to MBIs growth and its ability to monitor
costs, bill customers, provide customer orders and achieve operating efficiencies. As MBI
continues to provide a wider variety of Electronic Media Services to a growing client
base, the need for sophisticated billing and information systems will increase
significantly. If MBI that it has exceeded the capabilities of its in-house systems there
can be no assurance that MBI will be able to obtain such services from third party vendors
on acceptable terms, if at all, and the cost of implementing such systems internally may
be substantial. Failure of the MBIs vendors and possible future vendors to deliver
the required information in a timely and effective manner and at acceptable costs, failure
of MBI to adequately identify and integrate all of its information and processing needs,
failure of MBIs data processing or information systems, or the failure of the MBI to
upgrade systems as necessary could have a material adverse effect on MBIs business
and results of operations.

MBI
is dependent upon the prompt collection of payment of its customers bills and, in
turn, upon the creditworthiness of its customers and the continued implementation of
adequate revenue assurance programs. The failure of its customers to pay their bills in a
timely manner or MBIs failure to accurately assess the creditworthiness of its
customers and implement adequate revenue assurance programs could have a material adverse
effect on MBIs business and results of operations.

Dependence
Upon Facility Based Carriers

MBIs
underlying services are provided by one or more independent companies that provide
switching and network services to MBI. These services must be operational 24 hours a day,
seven days a week and these services must be available to MBI on a cost-effective basis.
There can be no assurance that these services will be adequately provided to MBI on a
permanent or cost effective basis and the failure of these providers or their inability to
provide quality services could jeopardize the success of MBI, its business and results of
operations.

MBI
relies on other companies to supply certain key components of its service and operating
infrastructure, including telecommunications and data services, network capacity and
switching and networking equipment, which, in the quantities and quality demanded by MBI,
are available only from sole or limited sources. MBI is also dependent upon carriers to
provide Business Communications Services and facilities to MBI and its customers. MBI has
from time to time experienced delays or other problems in receiving Business
Communications Services and facilities which it requests, and there can be no assurance
that MBI will be able to obtain such services or facilities on the scale and within the
time frames required by MBI at an affordable cost, or at all. As MBI expands its service
offerings to include other services, it will compete increasingly with a variety of new
competitors, which may serve as a disincentive for such entities to cooperate with MBI.
Any

17

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failure to obtain components,
services or additional capacity required to service MBIs clients on a timely basis
at an affordable cost, or at all, would have a material adverse effect on MBIs
business and results of operations.

Dependence
on Distributors

MBI
does not maintain a direct sales force for Business Communications Services. It directs
its sales effort exclusively through distributors. To the extent that MBI depends on
distributors and independent marketing agents to obtain customers for its Business
Communications Services, MBI will be subject to risks associated with agent attrition or
changes in PBX technology. Many other telecommunication marketing firms utilize
independent marketing agents to sell telecommunications services , and may compete with
MBI for marketing agents. Independent marketing agents may elect to work for competitors
and solicit MBIs clients, which may adversely effect MBIs business and results
of operations. See Risk Factors  Intense Competition  The Competitive
Implications of Changes in PBX Technology.

MBI
may in the future direct substantially all of its sales effort exclusively through
distributors. To the extent that MBI depends on distributors and independent marketing
agents to obtain customers for its Electronic Media Services, MBI will be subject to risks
associated with agent attrition. Several other Electronic Media Services firms utilize
independent marketing agents to sell Electronic Media Services, and may compete with MBI
for marketing agents. Independent marketing agents may elect to work for competitors and
solicit MBIs clients, which may adversely effect MBIs business and results of
operations.

Dependence
on Third Party Agreements

To
further develop its network and to continue providing services to its existing clients,
MBI will need to maintain existing contractual and strategic relationships with third
party entities and build new strategic relationships with other third party entities that
provide capacity and other services required by MBI to implement its business strategy.
Executing MBIs business strategy will require that MBI enter into agreements, on
acceptable terms and conditions, with various providers of infrastructure capacity, in
particular, interconnection agreements with Carriers. There can be no assurance that MBI
will be able to obtain and maintain such contractual and strategic relationships on
acceptable terms. Although MBI does not believe that any existing arrangements will be
canceled or will not be renewed as needed, cancellation or non-renewal of such
arrangements could materially adversely effect MBIs business and results of
operations.

Dependence
upon Network Infrastructure

MBIs
success in attracting and retaining customers requires that MBI provide adequate
reliability, capacity and security in its network infrastructure and the service systems.
The systems and networks on which MBI depends are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security (by computer virus, break-ins
or otherwise) and other factors, certain of which may cause interruptions in service or
reduced capacity for MBIs clients. Interruptions in service, capacity limitations or
security breaches could have a material adverse effect on MBIs business and results
of operations.

Dependence
on Key Personnel

The
Company believes that its success will depend to a significant extent upon the abilities
and continued efforts of its management; particularly J. Erik Mustad, the Companys
Chief Executive Officer and Mark M. Smith, the Companys President and Chief
Financial Officer. The loss of the services of any of such individuals could have a
material adverse effect on the Company. The success of the Company will also depend, in
part, upon the Companys ability to hire and retain additional key personnel,
including senior management, technical and sales personnel, who are also being sought by
other businesses. Competition for qualified personnel is intense. Difficulty in hiring and
retaining such personnel could have a material adverse effect on the Company. The Company
does not maintain key man life insurance on any of its officers or key
employees.

Impact
of Technological Change

Both
the Business Communications Services and Electronic Medias Services industries have been,
and are likely to continue to be, characterized by rapid technological change, frequent
new service introductions and evolving industry standards. Increases or changes in
technological capabilities or efficiencies could create an incentive for additional
competitors to enter the business in which MBI currently competes or may in the future.
Existing competitors are also likely to continue to develop new services. Increased
competition and technological changes could result in lower retail rates for services,
which could have a material adverse effect on MBIs ability to price its services
competitively or profitably. Future technological changes, including changes related to
emerging wireline and wireless transmission and switching technologies and
Internet-related services and technologies, also could have a material adverse effect on
MBI. The ability of MBI to compete

18

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effectively in the future will depend
partly on MBIs ability to develop additional products and services which appeal to
its intended end users.

MBI
relies and will continue to rely in part on third parties (including certain of its
competitors and potential competitors) for the development of and access to communications
and networking technology. The effect of technological changes on the business of MBI
cannot be predicted with any degree of certainty. The Company believes that MBIs
future success will depend, in part, on its ability to anticipate or adapt to such changes
and to offer, on a timely basis, services that meet customer demands and evolving industry
standards. There can be no assurance that MBI will obtain access to new technology on a
timely basis or on satisfactory terms, or that MBI will be able to adapt to such
technological changes, offer such services on a timely basis or establish or maintain a
competitive position. Any technological change, obsolescence or failure to obtain access
to important technologies could have a material adverse effect on MBIs business and
results of operations.

Arbitration
Proceeding Regarding Joseph Karwat Agreement.

Joseph
Karwat a former officer of the Company has filed a demand for binding arbitration against
the Company and Mark M. Smith an officer and director of the Company alleging that the
Company terminated his employment without cause and therefore breached his employment
agreement. In the demand for arbitration, Karwat also alleges defamation, fraudulent
inducement, misrepresentation and violation of the California Labor Code. Karwat seeks
relief in the amount of $204,807 plus compensatory and punitive damages, attorneys
fees and interest. The Company is defending against the claims based on the board of
directors determination that the agreement was terminated for cause, and the Company
has filed a cross-claim against Karwat alleging that that he breached his fiduciary duty
to the Company and violated the California Labor Code. The arbitrator is expected to rule
on Karwats claims and the Companys cross-claims in April 2003.

The
Company has notified its insurance underwriters of the Demand for Arbitration and has
filed a claim under its Employment Practices Liability Insurance (EPLI) policy and has
notified its Directors and Officers Insurance (D&O) carrier. While the Company
believes that, in the event that all or part of the allegations are upheld in arbitration,
its financial exposure will be limited to $25,000 which is the amount of its insurance
deductible under its EPLI policy, there can be no assurance that the claim if upheld, in
whole or in part, will be paid by the Companys EPLI or D&O carrier or that all
claims may be covered under the Companys EPLI or D&O policies. Due to the
uncertain nature of the arbitration process it is impossible to forecast the total amount
that may be awarded to Karwat should Karwats Arbitration Claim be successful. To the
extent that any part of an award made to Karwat in arbitration was not covered by the
Companys EPLI or D&O policies or that the total award exceeds the Companys
coverage limits under its EPLI or D&O policies there could be a material adverse
effect on MBIs business and results of operations. See Legal Proceedings
 Arbitration Proceeding Regarding Joseph Karwat.

# ITEM 2.  DESCRIPTION OF
PROPERTIES.

On
April 25, 2001, the Company entered into a sixty-month triple net lease for 2,595 square
feet in Emeryville, California at $2.75 per square foot per month commencing June 1, 2001
(the Horton Street Lease). A security deposit in the amount of $23,407 was
paid to secure the Horton Street Lease. Under the Horton Street Lease, the Company is
responsible for its pro-rata share of operating expenses including insurance, taxes and
utilities.

On
June 28, 2001, the Company entered into a an additional lease for 1,601 square feet full
service in Emeryville, California for sixty-months at $2.85 per square foot per month
commencing August 1, 2001 (the Watergate Lease). A security deposit in the
amount of $10,000 was paid to secure the Watergate Lease. The Company has relocated its
corporate and accounting operations under the Watergate Lease.

On
February 28, 2003, the Company entered into a sublease of the Watergate Lease for its
remaining term the rate of at $1.70 per square foot per month commencing March 1, 2003
until February 29, 2004, $1.75 per square foot per month until February 28, 2005 and $1.85
per square foot [per month] until July 31, 2006.

19

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# ITEM 3.  LEGAL
PROCEEDINGS.

Arbitration
Proceeding Regarding Joseph Karwat Agreement.

On
January 29, 2002, the board of directors terminated the Employment Agreement dated August
7, 2000 with Joseph Karwat (the Karwat Agreement) for cause. The Karwat
Agreement provided that in the event of an involuntary termination by the Company other
than for cause, including constructive dismissal, the Company would pay Karwat a single
lump sum severance payment of $150,000.

The
Companys board of directors voted to terminate the Karwat Agreement for cause and
the Company believes that it has no obligation to pay to Karwat any severance or other
payments under the agreement.

On
April 12, 2002, Karwat filed a demand for binding arbitration under the terms of the
agreement, alleging, among other things, that the Company terminated his employment
without cause and breached the agreement. In the demand for arbitration, Karwat also
alleged defamation, fraudulent inducement, misrepresentation and violation of the
California Labor Code. Claims were brought against the Company and Mark M. Smith, an
officer and director of the Company. Karwat sought relief in the amount of $204,807 plus
compensatory and punitive damages, attorneys fees and interest.

The
Company notified its insurance underwriters of the demand for arbitration and filed a
claim under its Employment Practices Liability Insurance (EPLI) and Directors and Officers
Insurance (D&O) policies. The Company believed that, in the event that all or part of
the allegations are upheld in arbitration, its financial exposure will be limited to
$25,000 which is the amount of its insurance deductible under its EPLI policy.

The
arbitrator is expected to rule on the matter in April 2003.

Cross
Complaint Against Joseph Karwat

On
May 31, 2002, the board of directors of the Company approved the filing of a cross
complaint against Karwat in the Karwat arbitration proceeding on the grounds that during
the course of his employment Karwat breached his fiduciary obligation to the Company and
that he violated the California Labor Code, including but not limited to, culpable
negligence in the exercise of his duties.

Concurrently,
the board of directors, acting as Plan Administrator of the Corporations Amended and
Restated Stock Option Plan 2000, terminated 325,000 incentive stock options issued to
Karwat, and froze all further transfers of common stock held in the name of Joseph Karwat
pending the outcome of the counter claim.

The
arbitrator is expected to rule on the matter in April 2003.

Other

To
the best of its knowledge, the Company is not subject to any other active or pending legal
proceedings or claims against it or any of its properties. However, from time to time, the
Company may become subject to claims and litigation generally associated with any business
venture.

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

No
matters were submitted to a vote of security holders during the fourth quarter of 2002.

# PART II

# ITEM 5.  MARKET PRICE FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The
Companys common shares were listed for trading on the Vancouver Stock Exchange (now
known as the TSX Venture Exchange) (VSE) on December 20, 1993 under the symbol
UVT and were voluntarily delisted from the VSE on January 31, 2000. The
Companys shares began quoting on the NASD Over the Counter Bulletin Board
(OTCBB) under the symbol YDSLF on September 7, 1999. On June 20,
2000, in

20

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conjunction with the Companys
name change and change of corporate jurisdiction, the Companys shares began trading
under the symbol ECNXF. On July 31, 2002, in conjunction with the
Companys name change, the Companys shares began trading under the symbol
MBYTF.

The
following table sets forth the nature of the Companys trading market on the OTCBB
during the period from January 1, 2001 to the Company fiscal year ended December 31, 2002,
and for the period ending February 28, 2003 as quoted by the OTCBB.

NASD
Over-the-Counter Bulletin Board

|           
|-----------
|
|           
|1st Quarter
|2nd Quarter
|3rd Quarter
|4th Quarter
|           

|           
|-----------
|
|           
|1st Quarter
|2nd Quarter
|3rd Quarter
|4th Quarter
|           

|              
|--------------
|
|              
|Jan 1 - Feb 28
|              

The
above quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission.

On
March 17, 2003, the closing price quoted OTCBB for the Companys common shares was
$0.11.

The
Companys common shares are issued in registered form. Based on the records of
Pacific Corporate Trust Company, the Companys registrar and transfer agent, as of
March 7, 2003, there were one seven hundred fifty (1,750) holders of record of the
Companys common shares. Holders with United States addresses collectively held
8,457,178 common shares, or approximately fifty seven and four-tenths percent (57.4%) of
the Companys 14,739,691 issued and outstanding common shares.

The
Company has never paid dividends on its common shares and does not anticipate paying any
dividends in the foreseeable future.

See
Item 11  Security Ownership of Certain Beneficial Owners and Management and
Related Matters for information regarding securities authorized for issuance under
compensatory plans.

Recent
Sales of Unregistered Securities.

On
March 9, 2001, the Company issued 400,000 restricted common shares in a private placement
at $0.50 per share common share for total proceeds of $200,000. No commissions were paid
in connection with the private placement. The shares were issued to one non-U.S. persons
outside of the United States in reliance upon an exemption available under Regulation S of
the Securities Act of 1933, as amended. In conjunction with this private placement, the
Company issued 200,000 non-transferable warrants to purchase 200,000 common shares
exercisable at $1.00 per share. These warrants had a two-year term and expired on March 9,
2003.

On
February 28, 2002, the Company issued 1,000,000 common shares and 1,000,000 common share
purchase warrants to one of the Companys officers and directors, Mark Smith, in a
private placement under

21

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Regulation D of the Securities Act of
1933, as amended. This private placement was subject to an escrow arrangement, and the
conditions for release were satisfied during 2002. See generally Managements
Discussion and Analysis of Financial Condition and Results of Operations  Private
Placement with Affiliate.

ITEM 6.  MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

# SUMMARY FINANCIAL DATA

The
following table sets forth selected financial data regarding the Companys
consolidated operating results and financial position. The data has been derived from the
Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States (U.S.
GAAP). See Managements Discussion and Analysis of Financial Condition
and Results of Operation.

The
Company acquired 100% of USVT pursuant to a Share Exchange in July 1996 and 90.28% of EDI
and MBI in September 2000. The Company acquired the remaining 9.72% of EDI in January
2001. The financial data for the year ended December 31, 2000 consolidates EDI and MBI
from September 15, 2000 and reflects minority interest for the 9.72%. The financial data
for the year ended December 31, 2001 consolidates EDI and reflects minority interest for
the first 19 days of the year before the Company acquired the remaining 9.72%. The
following selected financial data is qualified in its entirety by, and should be read in
conjunction with, the consolidated financial statements and notes thereto included
elsewhere this Annual Report. The selected financial data and the Companys
consolidated financial statements are expressed in U.S. dollars.

|                                 
|---------------------------------
|
|                                 
|
|                                 
|Revenue                          
|General & Administrative Expenses
|Net Income (Loss) from Operations
|Net Income (Loss) for the Year   
|Net Income (Loss)  per Share     
|                                 

|                     
|---------------------
|
|                     
|
|                     
|Working Capital      
|Total Assets         
|Total Liabilities    
|Shareholders' Equity 
|Long-term Obligations
|                     

|(1) |  | On
September 15, 2000, the Company acquired 90.28% of the common capital stock
               including stock options of EDI for 2,703,036 common shares and 199,515
vested                stock options of the Company, for total consideration of
$2,640,834. This                business combination has been accounted for by the
purchase method. Accordingly,                the consolidated statements of operations
and deficit and cash flows for the                year ended December 31, 2000 and the
results of operations and cash flows of the                Company from September 15,
2000 to December 31, 2000 include the results of EDI                and reflect minority
interest for the 9.72% not yet acquired.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On
January 19, 2001, the Company acquired the remaining 9.72% of the common
               capital stock of EDI for 291,128 common capital stock of the Company with
a fair                market value of
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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| | $172,844.
           As a result, the financial statements only reflect the minority interests for
          the first 19 days of the year.
| | -------------------------------------------------------------------------------------------------------------------------------------------

You
should read the following discussion and analysis in conjunction with the audited
financial statements and notes thereto appearing elsewhere in this Form 10-KSB.

# Managements
Discussion and Analysis of Financial Condition and Results of Operations

The
following discussion and analysis discusses trends in the Companys financial
condition and results of operations for the two fiscal years ended December 31, 2002
and 2001. This discussion and analysis of the results of operations and financial
condition of the Company should be read in conjunction with the audited financial
statements and the related notes, as well as statements made elsewhere in this Form
10-KSB. The financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP) and are expressed in United States dollars. Unless
noted otherwise the presentation represents the consolidated financial results of the
Company and MBI.

# Critical Accounting
Policies

The
Companys discussions and analysis of its financial condition and results of
operations, including the discussion on liquidity and capital resources, are based upon
the Companys financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management re-evaluates its
estimates and judgments, particularly those related to the determination of the impairment
of its intangible assets. Actual results could differ from the estimates. The Company
believes the following are the critical accounting policies used in the preparation of the
consolidated financial statements.

The consolidated financial statements
have been prepared on the going concern basis, which assumes that the Company will be able
to realize its assets and discharge its obligations in the normal course of business. If
the Company were not to continue as a going concern, it would likely not be able to
realize on its assets at values comparable to the carrying value or the fair value
estimates reflected in the balances set out in the preparation of the consolidated
financial statements. The Company had a loss of $1,649,696, generated cash flow from
operations of $104,920 for the year ended December 31, 2002 but decreased its cash
position to $284,093 at December 31, 2002. For fiscal 2003, management is projecting
positive cash flow from operations, which together with working capital will be sufficient
cash to fund any anticipated cash requirements. There can be no assurance that
managements projections will be achieved.

In July 2001, the Financial
Accounting Standards Board issued SFAS No. 142 Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and indefinite life intangible assets are
no longer amortized. Separate intangible assets that are not deemed to have indefinite
life will continue to be amortized over their useful lives. SFAS No. 142 also establishes
a new method of testing goodwill and other intangible assets for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change that would reduce
the fair value of that goodwill or other intangible asset below its carrying value. The
non-amortization provision of SFAS No. 142 applying to goodwill and other tangible assets
acquired has been adopted at January 1, 2002.

The
Company accounts for stock based compensation associated with the repricing of employee
stock options in accordance with the provisions of FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation
(FIN 44). For accounting purposes, the repricing of outstanding stock options
requires variable accounting for the new options granted from the date of modification.
Variable accounting requires that the intrinsic value, being the excess of the current
market price at the end of each reporting period in excess of the exercise price of the
repriced options, be expensed as non-cash stock based compensation expense, until such
time as the repriced options are exercised, expire or are otherwise forfeited. Any
increase in the intrinsic value of the repriced options will decrease reported earnings,
and any subsequent decreases in value will increase reported earnings.

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# Results of Operations

# Year Ended December 31,
2002 (fiscal 2002) Compared to December 31, 2001 (fiscal 2001)

Revenue

Revenue
for fiscal 2002 decreased to $4,513,377 from $5,802,426 for fiscal 2001, a decrease of
22.2%. Business Communication Services revenue accounted for 84% of total revenue in
fiscal 2002 (73.5% in 2001) and Electronic Media Services revenue accounted for 16% of
total revenue in fiscal 2002 (26.5% in 2001).

Business
Communication Services revenues fell 10.8% to $3,802,214 for fiscal 2002 year down from
$4,264,570 in fiscal 2001. This continued a downward trend which began in the fiscal year
ending December 31, 1999. The reason for the fall in revenue was a combination of customer
attrition, downward pressure on pricing in the telecommunications industry as a whole,
comparatively lower retail rates on new sales and a reduction in usage on existing
accounts attributable to current economic conditions. The Company believes that, although
it continues to make new sales of Business Communication Services and has slowed down the
rate of customer attrition, the combined effects of current economic conditions and
downward pressure on pricing due to competition may cause the Company to continue to
experience a general downward trend in Business Communication Services revenue. See
Note Regarding Forward-Looking Statements and Risk Factors 
Intense Competition.

Electronic
Media Services revenue fell 53.8% to $711,163 for fiscal 2002 year down from $1,537,856 in
fiscal 2001. The fall in revenue was primarily due to customer attrition and a slow down
in customer usage of Electronic Media Services attributable to current economic
conditions. The Company believes that current economic conditions have led to a
significant decline in demand for the Companys Electronic Media Services. This
decline may be expected to persist for the foreseeable future.

While
billing rates for e-mail and fax broadcast services may decline in the future and there
may be continued slow down in Electronic Media Services spending in general, the Company
believes that its expansion into document processing and management services may allow it
to increase revenue, as a whole, in future periods, assuming adequate resources are
available. The Company continues to develop new Electronic Media Services applications
oriented toward document processing and management in an effort to reduce its dependency
on the currently diminished market demand for e-mail and fax broadcasting services. See
Note Regarding Forward-Looking Statements and Risk Factors  Need
for Additional Resources for Growth.

The
Company believes that its initiatives to introduce new services and to expand feature sets
on existing services may allow it to maintain current revenues levels and to add new
customers, assuming adequate resources are available. There can be no assurance that the
Company will be successful in commercializing its electronic document processing and
management services or that managements projections will be met. See Note
Regarding Forward-Looking Statements and Risk Factors  Need for
Additional Resources for Growth.

Current
economic conditions have caused the Company to experience a decline in its overall
revenues. The Company anticipates a modest rebound in revenues in both its Business
Communications Services and Electronic Media Services businesses at such time as current
economic conditions improve. Although not indicated in current trends, the Company
continues to believe that Electronic Media Services revenues can be made to grow relative
to Business Communication Services revenues over time. See Note Regarding
Forward-Looking Statements and Risk Factors  Need for Additional
Resources for Growth.

The
Company believes that the combined effects of i) current economic conditions, ii) a slow
down in business spending, iii) downward pressure on pricing in the telecommunications
industry, and iv) increased competition, have caused the Company to experience negative
revenue growth over the past twelve months. The Company expects that the current economic
conditions may continue to negatively impact results of operations for its fiscal year
ending December 31, 2003.

Gross
Profit and Gross Profit Margin (Revenue less Cost of Goods Sold).

Gross
profit for fiscal 2002 decreased to $1,801,657 from $2,732,377 in fiscal 2001, a decrease
of 34.1%. Gross profit margin was 39.9% of sales in fiscal 2002 as compared to 47.1% in
fiscal 2001. Gross profits declined primarily due to a drop in revenue, particularly in
Electronic Media Services revenues which produce relatively higher gross margins than
Business Communication Services. This had a material impact on the Companys results
in 2002.

Business
Communication Services gross profit consisted of 72% of total gross profits in fiscal 2002
as compared to 60% in fiscal 2001, and Electronic Media Services gross profit consisted of
28% of total gross profits in fiscal 2002 as compared to 40% of total gross profit margin
for fiscal 2001. In fiscal 2002 Business

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Communication Services gross profit
margin was 34% (2001 in 39%) as compared to Electronic Media Services gross profit margin
of 72% (2001 in 71%). Business Communication Services provide significantly lower gross
profit margins when compared to Electronic Media Services.

The
Companys total gross profit margin in fiscal 2002 decreased compared to fiscal 2001,
directly as a result of the change in the revenue distribution between Business
Communication Services and Electronic Media Services. To the extent that the Company can
reverse this trend and increase its Electronic Media Services revenue relative to its
Business Communication Services revenue, it believes that it can increase its average
gross profit margins. See Note Regarding Forward-Looking Statements and
Risk Factors  Need for Additional Resources for Growth.

The
Company believes that gross profit margins in both Business Communications and Electronic
Media Services may continue to decline as a result of downward pressure on prices as a
result of increased competition. Additionally, the Companys costs for underlying
services may increase due to recent economic events in the telecommunications industry.
These trends may have a material adverse effect on the Companys results of
operations and business.

During
fiscal 2002, the Company negotiated lower carrier rates with Qwest Communications and
assigned more of its new Business Communication Services sales to this carrier as opposed
to its primary carrier for Business Communication Services MCI/WorldCom. Even with these
measures, during fiscal 2002, the Companys transmission costs increased to 44.7% of
revenue or $2,017,246 up from 43.6% of revenue or $2,531,346 in fiscal 2001, an increase
of 2.5%. This 2.5% increase was primarily due to a drop in Business Communication Services
gross profit margins and lower relative Electronic Media Services revenue the fulfillment
of which services carry a high percentage of fixed costs for data lines and access
charges. This trend toward higher carrier costs may continue if the Company cannot
increase Electronic Media Services revenues relative to Business Communication Services,
if there is continuing retail price pressure for lower retail rates for Business
Communication Services or if carrier costs increase in general. The Company believes that
gross profit margins in Business Communication Services may decline as a result of
downward pressure on prices for long distance services as a result of increased
competition in the telecommunications industry. The Company believes that it has negative
pricing elasticity in both its Business Communication Services segment and its Electronic
Media Services segment. Therefore, any material increase in the Companys costs for
underlying services may have an adverse effect on the Companys business and results
of operations. See Note Regarding Forward-Looking Statements and Risk
Factors  Need for Additional Resources for Growth and Risk Factors
 Intense Competition.

The
Company does not anticipate that recent bankruptcies, liquidations and consolidations in
the telecommunications industry will have a material impact on its operations or disrupt
service by its underlying carriers, MCI/WorldCom and Qwest Communications. Approximately
80% of the Companys Business Communications customers are serviced by MCI/WorldCom
and 20% are serviced Qwest Communications. All of the Companys Electronic Media
Services business is serviced by Qwest Communications. The Company has prepared
contingency plans to move Business Communications customers from either of its underlying
carriers to the other if there are disruptions in services or deterioration in service
quality.

Commissions
paid increased to $352,604 or 7.8% of revenue in fiscal 2002 up from $347,495 or 6.0% of
revenue in fiscal 2001. The increase occurred due to new Business Communication Services
sales which incurred higher commissions costs and which replaced revenues on which the
Company was not paying any commissions. Due to increases in competitors commission
offerings to distributors, the Company was required to pay higher commissions to induce
its distributors to sell its services as opposed to those of its competitors. The Company
anticipates that, as it expands its distribution network to include sales of Electronic
Media Services, its commission expenses as a percentage of revenue may increase.

Other
expenses, primarily related to Business Communication Services, including costs of billing
and telecommunications usage tax preparation, were $341,870 in fiscal 2002 as compared to
$191,208 in fiscal 2001. The increase was primarily as a result of a $2,500 per month
($30,000 annual) charge incurred for additional outsourced bill processing, software
programming fees and a charge of $82,299 in unpaid USAC telecommunications fees which was
incurred as a result of an audit of the Companys prior remittances to USAC.

Personnel Expenses.

The
Companys total costs for salaries and benefits decreased to $1,217,165 or 27% of
revenue in fiscal 2002 as compared to $1,980,238 or 34.1% of revenue in fiscal 2001, a
decrease of 38.5%. The decrease in personnel costs during fiscal 2002 resulted from salary
reductions and a shift of some management costs to contract services. Salaries and
benefits costs in fiscal 2002 included $25,878 of non-cash compensation

25

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expenses related to the repricing of
stock options (there were no non-cash salaries and benefits compensation expenses in
fiscal 2001).

Because
the Companys Electronic Media Services business requires the ongoing development of
proprietary Electronic Media Services software and accompanying systems, the cost of
personnel to support this segment relative to its current sales is substantially higher
than that of the Business Communication Services segment. The Company increased the size
of its software development staff during fiscal 2002 as compared to fiscal 2001, in order
to, among other things, develop new applications and automated systems designed to
increase the productivity of its personnel. To the extent that the Company continues to
pursue development of its Electronic Media Services software and accompanying systems, it
will continue to incur personnel related costs which are substantially higher than when it
was engaged exclusively in the Business Communication Services segment.

In
the event that the Companys revenue forecasts for Electronic Media Services are not
achieved, the Company may be required to reduce or eliminate software development staff
which would slow down or eliminate the further development of applications and systems at
the expense of growth in the Electronic Media Services business. Any reduction from
current staff levels may have a material adverse effect on the Companys business and
results of operations. See Risks  Dependence on Key Personnel

Contract
and consulting services costs increased to $699,190 or 15.5% of revenue during fiscal 2002
up from $361,030 or 6.2% of revenue during fiscal 2001. Contract and consulting services
in fiscal 2002 included $431,135 of non-cash compensation expenses including $31,135 for
the issuance of stock options to non-employee contractors and a $400,000 non-cash
compensation expense related to the private placement of securities to an officer and
director of the Company. Cash based contract and consulting services fell to $268,055
during fiscal year 2002 a decrease of 25.8% as compared to $361,030 in fiscal year 2001
(there were no non-cash contract and consulting compensation expenses in fiscal 2001).

The
Company believes that non-cash compensation expenses due to the repricing of stock options
will continue to have a material impact on the Companys results of operations until
such time as all repriced stock options have been exercised, terminated or have expired.
While the impact of fluctuations in the Companys stock price on non-cash
compensation expenses due to the repricing of stock options cannot be forecasted, to the
extent that there is an increase in the Companys stock price, from reporting period
end to reporting period end, there will be a material adverse effect on the Companys
results of operations.

Amortization and Loss on Disposal of Equipment.

Amortization
during fiscal 2002 fell to $140,787 down from $341,429 in fiscal 2001. The decrease was
primarily due to amortization of goodwill associated with the acquisition of EDI in fiscal
2001 which was discontinued in fiscal 2002 as a result of adoption of SFAS No. 142. The
Company incurred a $91,724 non-cash loss during the period on the disposal of obsolete
equipment.

Legal
and Accounting, Rent, and Bad Debt.

Legal
and accounting expenditures increased to $151,860 in fiscal 2002 up from $149,736 in
fiscal 2001. Legal and accounting expenditures in fiscal 2002 included costs associated
with the defense of the Karwat arbitration. The Company has implemented internal controls
designed to lower customary legal and accounting expenditures.

Rent
decreased to $152,639 in fiscal 2002 from $222,042 in fiscal 2001. The Company has
consolidated its operations into a single location and has sublet some of its office space
which will result in a lowering of its monthly rents. The Company incurred a $98,774
non-cash loss during the period associated with the sublease.

Bad
debt expense (recovery) was a recovery of $39,783 in fiscal 2002 down from an expense of
$168,144 in fiscal 2001. The negative balance in bad debts was due to recovery of $100,000
against a charge of $121,103 taken during fiscal 2001 for non-payment of amounts due from
Prime T.V.

Other
General and Administrative Expenses  excluding write-down of
goodwill.

Other
general and administrative costs were $332,993 in fiscal 2002 down from $443,740 in fiscal
2001 a decrease of 25%. The decrease was due to the downsizing of operations. The Company
managed to maintain general and administrative costs at 7.4% (2001  7.6%) of revenue
despite a smaller revenue base indicating that the company was able to effectively manage
general and administrative costs in the face of diminishing revenues. The Company believes
that it can continue to control general and administrative costs relative to changes in
revenue. See Note Regarding Forward-Looking Statements.

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Write-down
of Goodwill.

The
Company wrote down the value of goodwill by $600,000 to $0. The Company has experienced a
significant decline in the monthly revenue of EDI since its acquisition. At December 31,
2002, the Company reviewed the carrying value of goodwill for impairment of its value.
Based upon the decline in the revenues of the Electronic Media Services business since
December 31, 2001, during 2002 the Company wrote off the remaining balance of goodwill in
the amount of $600,000.

Net
Loss.

Net
loss from operations before other income (expense) was $1,643,692 in fiscal 2002 down from
$2,129,143 in fiscal 2001, a decrease of 22.8%. Decreases in net operating loss were
primarily due to downsizing in the Companys business operations. During fiscal year
2002, the Company was able to streamline Electronic Media Services operations and reduce
losses in this segment. Operating loss in fiscal 2002 included $457,013 in non cash
compensation expenses, $140,787 in amortization expenses, $600,000 in write down of
goodwill and $190,498 in other non cash losses. Total non-cash operating expenses were
$1,388,298. The Company believes that non-cash compensation expenses may continue to have
a material impact on reported net results from operations.

The
Company had a net loss of $1,649,696 or $0.12 per share as compared to a net loss of
$2,093,471 or $0.16 per share in fiscal 2001. The Company anticipates that it may continue
to incur losses until it can successfully reverse the trend of negative revenue growth in
demand for its Electronic Media Services or lower costs in its Electronic Media Service
business.

# Liquidity and Capital
Resources.

At
December 31, 2002 (FYE 2002), the Company had working capital of $268,686
including cash and equivalent balances of $284,093 as compared to respective balances of
$752,838 (working capital) including $367,868 (cash and cash equivalents) at December 31,
2001 (FYE 2001).

A
large percentage of the change in working capital balances from FYE 2001 to FYE 2002 were
as a result of falling revenues and tighter collections policies in fiscal 2002 which
reduced carried accounts receivable balances, the extending of the Companys payables
and a total of $262,955 in unfinanced software and equipment purchases.

During
fiscal 2002, the Company generated $104,920 in cash from operations as compared to using
$460,230 in cash to fund operations in fiscal 2001. The Company believes that cost control
programs designed to reduce cash consumption related to operations are having a positive
effect on the Companys results. See Note Regarding Forward-Looking
Statements.

Accounts
receivable decreased to $577,279 at FYE 2002 down from $824,661 at FYE 2001. Accounts
receivable primarily represent collectable amounts from the previous ninety days sales.
The Company experienced an increase in doubtful accounts during fiscal 2002 (after
removing the Prime T.V. bad debt from 2001 and the related recovery in 2002) and in
response tightened its credit practices and policies. In addition the company has designed
credit issuance and real-time credit limiting tools to counter an increasingly risky
credit environment. However, there can be no assurance that political and economic
conditions will not adversely affect the Companys ability to collect accounts
receivable on a timely basis.

In
fiscal 2002, the Company increased its net capital assets by $30,444. Capital expenditures
during the period were directly related to the upgrading of the Companys network
operations center and networking equipment and in replacing obsolete fixed assets acquired
in the acquisition of EDI. The Company used $262,955 in cash on software and equipment
purchases.

Current
liabilities increased to $613,823 at FYE 2002 up from $448,914 at FYE 2001. The Company
has extended its payment practices with its carriers in order to better match cash inflows
and outflows. Therefore, despite lower revenues, accounts payable balances were higher.
Current liabilities at FYE 2002 also included $53,764 in unpaid USAC charges.

The
Company has no long-term debt or other long-term liabilities other than capital leases and
operating subleases of $92,658. These obligations are repayable over the period through
2006.

The
Company received $73,025 during fiscal 2002 from the issuance of capital stock.

The auditors
report on the Companys audited financial statements for the year ended December 31,
2002, includes an additional explanatory paragraph that states that due to recurring
losses from operations and cash flows used in operating activities, substantial doubt
exists about the Companys ability to continue as a

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going concern. The audited financial
statements include a future operations and going concern note that provides further
information with respect to this uncertainty and managements plans.

The
Company believes that its working capital together with cash flow from its operations will
be sufficient to fund its cash requirements through fiscal 2003, however, there can be no
assurance that political and economic conditions will not adversely affect revenue from
operations, collections, costs related to the Companys business or other factors,
which may affect the Companys future cash requirements. If the Company requires
additional cash to fund capital additions or operations, the Company will likely fund any
such requirements by issuing capital stock. There is no certainty that the Company will be
able to issue additional stock if required.

# Business Outlook, Risks
and Uncertainties

Economic
Uncertainties. Current economic slowdown, industry conditions, and the political
environment may affect the Companys future results of operations, which may result
in material adverse fluctuation of revenues, expenses and gross margin in future periods.
A material decline in the demand for the Companys products or services may have a
material adverse affect on the Companys results of operations and plan of operations
in its fiscal year 2003. The telecommunications industry has experienced a number of
bankruptcies, liquidations and consolidations recently that has resulted in downward
pressure on the price of stock of telecommunications companies, which may affect the
Companys ability to obtain financing on acceptable terms, if at all. The economic
and political uncertainty in the markets and industries that the Company competes makes it
difficult to predict the Companys results for fiscal year 2003.

Sufficiency
of Working Capital. Although the Company believes it has sufficient working capital
and will receive sufficient revenues from operations to fund its operations, there can be
no assurance that the Companys actual expenditures will not exceed projected
expenditures or that the Company will have sufficient revenues from operations to meet its
actual expenditure requirements. In addition, the Company may require additional working
capital if the Company elects to aggressively expand into new markets or offers new
products and services to end users. If the Companys revenues from operations are
insufficient to fund its operations, there can also be no assurance that additional
financing, if any, will be available on terms acceptable to the Company. If the actual
expenditures for such cost exceed the estimated costs or if events occur that require
additional expenditures, the Company will be required to raise additional financing or to
defer expenditures to meet other obligations. The failure to meet certain expenditures may
cause the Company to default on material obligations and such default may have a material
adverse effect on the Companys business and results of operations.

Risks
Related to Karwat Arbitration.The arbitrator is expected to rule on the claims by
Joseph Karwat, a former officer of the Company, alleging, among other things, that the
Company terminated his employment without cause and breached his employment agreement,
defamation, fraudulent inducement, misrepresentation and violation of the California Labor
Code. Karwat seeks relief in the amount of $204,807 plus compensatory and punitive
damages, attorneys fees and interest. The Company filed a cross-claim against Karwat
alleging that that he breached his fiduciary duty to the Company and violated the
California Labor Code. The arbitrator is expected to rule on Karwats claims and the
Companys cross-claims in April 2003.

The
Company has notified its insurance underwriters of the Demand for Arbitration and has
filed a claim under its Employment Practices Liability Insurance (EPLI) policy and has
notified its Directors and Officers Insurance (D&O) carrier. The Company has taken a
reserve of $25,000, which is the amount of its insurance deductible under its EPLI policy,
in connection with the Karwat arbitration. There can be no assurance that the claim if
upheld, in whole or in part, will be paid by the Companys EPLI or D&O carrier or
that all claims may be covered under the Companys EPLI or D&O policies. Due to
the uncertain nature of the arbitration process, the Company is unable to predict if the
arbitrator will rule in favor of the Company. To the extent that any part of an award made
to Karwat in arbitration was not covered by the Companys EPLI or D&O policies or
that the total award exceeds the Companys coverage limits under its EPLI or D&O
policies, the Company may be required to pay damages which will have a material adverse
effect on MBIs business and results of operations. See Legal Proceedings
 Arbitration Proceeding Regarding Joseph Karwat.

# OTHER MATTERS

Moving
Bytes Inc. was formed under the Canada Business Corporations Act. Prior to June 19, 2000
the Company was incorporated under the Company Act of British Columbia, Canada. The
Companys financial results are quantified in U.S. dollars and a majority of the
Companys obligations and expenditures with respect

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to its operations are incurred in
U.S. dollars. In the past, the Company has raised equity funding through the sale of
securities denominated in Canadian dollars, and the Company may in the future raise
additional equity funding or financing denominated in Canadian dollars. Although the
Company does not believe it currently has any materially significant market risks relating
to its operations resulting from foreign exchange rates, if the Company enters into
financing or other business arrangements denominated in currency other than the U.S.
dollar, variations in the exchange rate may give rise to foreign exchange gains or losses
that may be significant.

The
Company currently has no long-term debt obligations. The Company does not use financial
instruments for trading purposes and is not a party to any leverage derivatives. In the
event the Company experiences substantial growth in the future, the Companys
business and results of operations may be materially effected by changes in interest rates
and certain other credit risk associated with its operations.

Stock
Option Repricing

The
Company has repriced stock options previously granted to directors, officers and employees
of the Company. Due to changes in the exercise price for certain Stock Option granted
under the Stock Option Plan, those options will be accounted for using variable plan
accounting under Accounting Principles Boards Opinion No. 25, Accounting for Stock
Issued to Employees and the related interpretations (APB 25). Therefore, the
Company recognizes compensation expense were the fair value of the Companys stock
exceeds the adjusted exercise price. The Companys accounting for stock options is
significant because the effect the compensation expense has on the Companys results.
The compensation expense associated with the Companys stock options has a
significant effect on its ability to incur positive net results.

The
Company recognized compensation expenses of $25,878 associated with the repricing of stock
options during the year ended December 31, 2002.

The
Company believes that non-cash compensation expenses due to the repricing of stock options
will continue to have a material impact on the Companys results of operations until
such time as all repriced stock options have been exercised, terminated or have expired.
While the impact of fluctuations in the Companys stock price on non-cash
compensation expenses due to the repricing of stock options cannot be forecasted, to the
extent that there is an increase in the Companys stock price, from reporting period
end to reporting period end, there will be a material adverse effect on the Companys
results of operations.

Private
Placement with Affiliate

On
February 25, 2002, the Board of Directors approved a private placement to an officer and
director of the Company. Under the terms of the private placement, the Company would issue
1,000,000 common shares at $0.05 per share and issue warrants to purchase up to an
additional 1,000,000 common shares at $0.05 per share which are exercisable until March 1,
2007. The Company received the $50,000 proceeds in cash and the private placement closed
on February 28, 2002.

On
August 1, 2002, the board of directors approved a resolution to amend the Escrow Agreement
between the Company and an officer and director of the Company. The amendment provided for
the release of the securities held in escrow in the event that the Company reported two
consecutive fiscal quarters of positive earnings before interest, taxes, depreciation and
amortization charges once all non-cash expenses are removed from the calculation of
earnings, (Adjusted EBITDA). During the fiscal quarters ended March 31, 2002
and June 30, 2002, the Company reported positive Adjusted EBITDA. As a result, the
conditions necessary for the release of the securities from escrow had been satisfied.

At
August 1, 2002, compensation expense of $400,000, representing the intrinsic value of the
shares and warrants eligible for release from escrow was recorded by a charge to
contracting and consulting services.

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# ITEM 7.  FINANCIAL
STATEMENTS

Consolidated Financial Statements
(Expressed in United States dollars)

MOVING BYTES INC. (Formerly E*Comnetrix Inc.)

Years ended December 31, 2002 and 2001 
(with Independent Auditors' Report Thereon)

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# INDEPENDENT
AUDITORS REPORT

The Board of Directors
Moving Bytes Inc.

We have audited the accompanying
consolidated balance sheets of Moving Bytes Inc (formerly E*Comnetrix Inc.) as of December
31, 2002 and 2001, and the related consolidated statements of operations and deficit 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 referred to above present fairly, in all material respects, the
financial position Moving Bytes Inc. Inc. as of December 31, 2002 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.

As described in note 3(d) to the
financial statements, the Company changed its method of accounting for goodwill in 2002.

The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As
discussed in note 2 to the financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are also described in note 2.
The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.

/s/ KPMG LLP

Chartered Accountants 
Vancouver, Canada 
February 25, 2003

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MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Consolidated Balance Sheets
(Expressed in United States dollars)

December 31, 2002 and 2001

|                                                                       
|-----------------------------------------------------------------------
|
|                                                                       
|Assets                                                                 
|                                                                       
|Current assets:                                                        
|Cash and cash equivalents                                              
|Accounts receivable, less allowance for doubtful accounts              
|of $53,950 in 2002 and $35,522 in 2001                                 
|Prepaid expenses                                                       
|                                                                       
|                                                                       
|                                                                       
|Equipment and leasehold improvements (note 4)                          
|                                                                       
|Other assets                                                           
|                                                                       
|Goodwill (net of accumulated amortization and write-down of $2,076,914;
|2001 - $1,476,914) (notes 3(d) and 6)                                  
|                                                                       
|                                                                       
|                                                                       
|Liabilities and Shareholders' Equity                                   
|                                                                       
|Current liabilities:                                                   
|Accounts payable                                                       
|Payroll accrued liabilities                                            
|Commissions payable                                                    
|Telecom taxes payable                                                  
|Current portion of obligations under capital lease and                 
|operating sub-lease (note 5)                                           
|                                                                       
|                                                                       
|                                                                       
|Obligations under capital lease and operating sub-lease (note 5)       
|                                                                       
|Shareholders' equity:                                                  
|Capital stock (note 8)                                                 
|Additional paid-in capital (note 8)                                    
|Deficit                                                                
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       

Future operations (note 2)
Commitment (note 11) 
Contingencies (note 12) 
Subsequent event (note 14)

See accompanying notes to
consolidated financial statements.

32

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Consolidated Statements of Operations and Deficit
(Expressed in United States dollars)

Years ended December 31, 2002 and 2001

|                                                                
|----------------------------------------------------------------
|
|                                                                
|Revenue                                                         
|                                                                
|Cost of goods sold:                                             
|Transmissions and services                                      
|Commissions                                                     
|Other                                                           
|                                                                
|                                                                
|                                                                
|                                                                
|Gross margin                                                    
|                                                                
|Expenses (recovery)                                             
|Salaries:                                                       
|Other                                                           
|Non-cash compensation                                           
|Consulting services:                                            
|Other                                                           
|Non-cash compensation                                           
|Rent                                                            
|Legal and accounting                                            
|Amortization                                                    
|Insurance                                                       
|Advertising and promotion                                       
|Telephone                                                       
|Travel and entertainment                                        
|Office supplies and sundry                                      
|Bank charges                                                    
|State franchise tax                                             
|Dues and subscriptions                                          
|Postage and freight                                             
|Miscellaneous                                                   
|Bad debt expense (recovery) (note 10)                           
|Write-down of goodwill (notes 3(d) and 6)                       
|Loss on disposal of equipment                                   
|Loss on operating sub-lease                                     
|                                                                
|                                                                
|                                                                
|                                                                
|Loss before undernoted                                          
|                                                                
|Other income (expense):                                         
|Interest income                                                 
|Interest expense                                                
|Other income                                                    
|                                                                
|                                                                
|                                                                
|                                                                
|Loss before income taxes and minority interests                 
|                                                                
|Income taxes (note 7)                                           
|                                                                
|                                                                
|Loss before minority interest                                   
|                                                                
|Minority interest                                               
|                                                                
|                                                                
|Loss for the year                                               
|                                                                
|Accumulated deficit, beginning of year                          
|                                                                
|                                                                
|Accumulated deficit, end of year                                
|                                                                
|                                                                
|Loss per share - basic and diluted (note 3(b))                  
|                                                                
|Weighted average number of shares outstanding, basic and diluted
|                                                                

See accompanying notes to
consolidated financial statements.

33

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Consolidated Statements of Cash Flows
(Expressed in United States dollars)

Years ended December 31, 2002 and 2001

|                                                                   
|-------------------------------------------------------------------
|
|                                                                   
|Cash provided by (used in):                                        
|                                                                   
|Operations:                                                        
|Loss for the year                                                  
|Items not involving cash:                                          
|Amortization                                                       
|Minority interest                                                  
|Write-down of goodwill                                             
|Stock-based compensation                                           
|Loss on disposal of equipment                                      
|Loss on disposal of operating sub-lease                            
|Change in non-cash operating working capital:                      
|Accounts receivable                                                
|Prepaid expenses                                                   
|Accounts payable                                                   
|Payroll accrued liabilities                                        
|Commissions payable                                                
|Telecom taxes payable                                              
|                                                                   
|Cash flows provided by (used in) operating activities              
|                                                                   
|Investments:                                                       
|Purchase of equipment                                              
|Acquisition of subsidiary                                          
|Other assets                                                       
|                                                                   
|Cash flows used in investing activities                            
|                                                                   
|Financing:                                                         
|Issuance of common shares for cash                                 
|Capital lease obligation payments                                  
|                                                                   
|Cash flows provided by financing activities                        
|                                                                   
|                                                                   
|Decrease in cash and cash equivalents                              
|                                                                   
|Cash and cash equivalents, beginning of year                       
|                                                                   
|                                                                   
|Cash and cash equivalents, end of year                             
|                                                                   
|                                                                   
|Supplementary information:                                         
|Interest received                                                  
|Interest paid                                                      
|Income taxes paid                                                  
|Non-cash transactions:                                             
|Acquisition of equipment under capital lease                       
|Value assigned to common shares issued on acquisition              
|of EDI (note 6)                                                    
|Value assigned to performance escrow stock returned                
|to treasury (note 8)                                               
|Value assigned to Perell escrow stock returned to treasury (note 8)
|                                                                   

See accompanying notes to
consolidated financial statements.

34

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MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|1. | Operations:
|-- | -----------

| | Moving
Bytes Inc. (the Company or Moving Bytes) is incorporated under the
Canada Business Corporations Act and is listed on the National Association of Securities
Dealers over-the-counter Bulletin Board under the symbol MBYTF. The Company,
through its wholly owned subsidiary MBI, sells telecommunication and data, transmission
and access services (Business Communications Services), and electronic
customer relationship management, electronic document delivery and Internet marketing
solutions (Electronic Media Services) to commercial customers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
July 16, 2002 the Company changed its name from E*Comnetrix Inc. to Moving Bytes Inc.
| | ----------------------------------------------------------------------------------------

| | The
consolidated financial statements include the accounts of Moving Bytes and the following
subsidiaries from their respective dates of acquisition or formation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | Wholly
owned operating subsidiary at December 31, 2002:
            
Moving Bytes, Inc. (MBI)
| | -----------------------------------------------------------------------------------------------

| | Wholly
owned subsidiaries that operated during fiscal 2001:
            Exstream Data, Inc. (EDI)
            Layer 427, Inc.
            USV Telemanagement Inc.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | All
material intercompany balances and transactions have been eliminated on consolidation.
| | ------------------------------------------------------------------------------------------

|2. | Future
operations:
|-- | ------------------

| | These
consolidated financial statements have been prepared on a going concern basis, which
assumes that the Company will be able to realize its assets and discharge its obligations
in the normal course of business. The Company incurred net losses of $1,649,696 and
$2,093,471 in 2002 and 2001, respectively. The net income was, in part, impacted by the
accounting for repriced stock options (note 8(e)) and write off of goodwill (notes 3(d)
and 6). The Company also generated cash from operations in 2002 of $104,920 compared to
used cash to fund operations of $460,230 in 2001. The Company had working capital at
December 31, 2002 of $268,686.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
is projecting that the investments in the business made in 2002 will result in future
revenue growth and the return to sequential quarterly profitability, net of non-cash
items, in fiscal 2003. Management is also projecting that the Companys cash at
December 31, 2002 of $284,093 will be sufficient, when taken in combination with projected
operating cash flow, to fund its operations and any investments required in the balance of
fiscal 2003, although the Company will continue to seek additional cash resources through
equity issuances in order to position the Company for possible future opportunities for
additional acquisitions or investments in equipment and technology. If external financings
become required, there can be no assurance that funds will be available on an economic
basis to the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|2. | Future operations (continued):
|-- | ------------------------------

| | The
ability of the Company to continue as a going concern and realize the carrying value of
its assets is dependent on the Companys ability to increase its revenue and reduce
its operating costs so that the Company achieves projected operating cash flow.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
financial statements do not reflect any adjustments that would be necessary should the
Company be unable to continue as a going concern and therefore be required to realize its
assets and discharge its liabilities in other than the normal course of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Significant
accounting policies:
|-- | --------------------------------

| | (a) | Basis
of presentation:
| | --- | ----------------------

| | These
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Net earnings (loss) per share:
| | --- | ------------------------------

| | Net
earnings (loss) per share has been calculated using the weighted average number of shares
outstanding during the period. Diluted earnings (loss) per common share are computed
similar to basic earnings (loss) per share except that the weighted average number of
common shares outstanding is increased to include additional common shares from the
assumed exercise of options and warrants, if dilutive. Dilutive loss per share
is the same as basic loss per share in all periods, since the impact of
outstanding options and warrants is dilutive. The following securities could potentially
dilute basic earnings per share in the future:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     
|---------------------
|
|                     
|Options (note 8(d))  
|Warrants (note 8 (c))
|                     

| | (c) | Stock based compensation  options and performance escrow shares:
| | --- | -----------------------------------------------------------------

| | The
Company applies the intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations to account for its employee stock options
plans. Under this method, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the exercise price. SFAS No. 123,
Accounting for Stock-Based Compensation, established accounting and
disclosure requirements using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described above, and has
adopted the disclosure requirements of SFAS No. 123 for employee stock option grants.
Option grants to non-employees will be recognized at their fair value as the
services are provided and the options earned.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------

| | (c) | Stock based compensation  options and performance escrow shares           (continued):
| | --- | ---------------------------------------------------------------------------------------

| | The
Company accounts for stock based compensation associated with the repricing of employee
stock options in accordance with the provisions of FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation
(FIN 44). For accounting purposes, the repricing of existing stock options
requires variable accounting for the new options granted from the date of modification.
Variable accounting requires that the intrinsic value, being the excess of the current
market price at the end of each reporting period in excess of the exercise price of the
repriced options, be expensed as non-cash stock based compensation expense, until such
time as the repriced options are exercised, expire or are otherwise forfeited. Any
increase in the intrinsic value of the repriced options will decrease reported earnings,
and any subsequent decreases in value will increase reported earnings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
closing price of the Companys common stock on December 31, 2002 was $0.09 per share
and therefore the Company recognized employee non-cash compensation expense charges of
$25,878 for the year ended December 31, 2002 related to repriced stock options.
There is a potential for such a variable non-cash charges in each reporting period
until all of the Companys repriced stock options are exercised, forfeited or expire.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
performance escrow shares are treated as a compensatory arrangement. Compensation expense
will be recognized in the statement of operations equal to the fair value of the shares
released to a shareholder that provides services as an officer, director, employee,
consultant or contractor.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Had
the Company  determined  compensation  cost based on the fair value at the grant date for
its stock options under SFAS No.          123, the  Company's  net loss would have been
 increased to the pro forma amounts  indicated  below.  If the fair value method
         had been used  compensation  for stock options granted to directors,  officers
and employees of $76,690 (2001 - 260,403) would          have been  recorded,  reducing
net earnings or increasing  the reported loss by such amount.  Accordingly,  the pro
forma loss          and loss per share for the years presented would be $1,726,386 (2001
- $2,353,874) and $0.12 (2001 - $0.18), respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of employee  options granted during the year was estimated using the
 Black-Scholes  option-pricing  model with          the following  weighted average
 assumptions:  risk-free  interest rate of 4.50% (2001 - 4.00%) no annual dividends;
 expected          lives equal to one-half the option lives; and volatility of 312% (2001
- 221% to 252%).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------

| | (d) | Goodwill:
| | --- | ---------

| | The
Company prospectively adopted SFAS 142  Goodwill and Other Intangible
Assets on January 1, 2002. Under these recommendations, goodwill is no longer
amortized and is tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. In prior years, the Company
amortized goodwill straight-line over a period of five years.  The impairment test is
carried out in two steps. In the first step, the carrying amount of the reporting unit is
compared with its fair value. If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not to be impaired and the second
step of the impairment step is unnecessary. The second step is carried out when the
carrying amount of a reporting unit exceeds its fair value, in which case the implied
fair value of the reporting units goodwill is compared with its carrying value to
measure any the amount of the impairment loss, if any. The implied fair value of goodwill
is determined in the same manner as the value of the goodwill is determined in a business
combination, using the fair value of the reporting unit as if it was the purchase price.
When the carrying amount reporting unit goodwill exceeds the implied fair value, an
impairment loss is recognized in an amount equal to the excess and is presented as a
separate line item in the statement of earnings before extraordinary items and
discontinued operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On adoption, all goodwill was assigned to the electronic media services reporting
unit.  The Company completed the transitional impairment test at January 1, 2002
and concluded that no impairment charge was required at that time. The Company
completed its annual impairment test on December 31, 2002 and determined that an
impairment charge was required (see note 6).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Cash and cash equivalents:
| | --- | --------------------------

| | Cash equivalents are represented by highly liquid investments having terms to maturity
of 90 days or less when acquired.
| | ------------------------------------------------------------------------------------------------------------------------

| | (f) | Equipment and leasehold improvements:
| | --- | -------------------------------------

| | Equipment
and leasehold improvements are stated at cost. Amortization is provided on a straight-line
basis over the following estimated useful lives:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

|                             
|-----------------------------
|
|                             
|Furniture and fixtures       
|Computer and office equipment
|Test and other equipment     
|Equipment under capital lease
|Leasehold improvements       
|                             

38

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------

| | (g) | Revenue recognition:
| | --- | --------------------

| | Revenue,
for long distance reselling, is recognized and billed monthly to customers based upon
customer usage as determined by the Companys telecommunications carriers electronic
switching and billing systems.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue,
for electronic document delivery, is recognized and billed monthly to customers based upon
customer usage as determined by the Companys internal billing systems.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Income taxes:
| | --- | -------------

| | The
Company follows the asset and liability method for accounting for income taxes. Under this
method, deferred income taxes are recognized for the future income tax consequences
attributable to differences between the financial statement carrying values of assets and
liabilities and their respective income tax bases (temporary differences) and loss carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is included in income in the period that includes the
substantive enactment date. Deferred income tax assets are evaluated and if realization is
not considered more likely than not, a valuation allowance is provided.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Foreign currency translation:
| | --- | -----------------------------

| | The
functional currency of the Company and its subsidiaries is considered to be the
US dollar as substantially all operating, financing and investing transactions are
made in that currency. Accordingly, monetary assets and liabilities and non-monetary items
carried at market values which are denominated in Canadian dollars, have been translated
into US dollars using exchange rates in effect at the balance sheet date. Statement
of operations items are translated at weighted average exchange rates. Exchange gains or
losses are included in the determination of net earnings (loss) for the year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (j) | Use of estimates:
| | --- | -----------------

| | The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of the assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Significant
areas requiring the use of management estimates relate to the determination of
collectibility of accounts receivable, recoverability of equipment and goodwill and rates
for amortization.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------

| | (k) | Recently adopted accounting standards
| | --- | -------------------------------------

| | (i) | In August 2001, the Financial Accounting Standards Board (FASB)
                    issued FAS No. 143, Accounting or Asset RetirementObligations (SFAS
No. 143), which requires entities to                     record the fair value of a
liability for an asset or an asset retirement                     obligation in the
period in which it is incurred and a corresponding increase in                     the
carrying amount of the related long-lived asset. SFAS No. 143 is effective
                    for fiscal years beginning after June 15, 2002.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | In July 2002, the FASB released SFAS No. 146, Accounting
for costs                     associated with Exit or Disposal Activities, (SFAS
No.                     146), which addresses the financing accounting and
reporting for costs                     associated with exit or disposal activities. SFAS
No. 146 relates to the                     recognition of a liability for a cost
associated with an exit or disposal                     activity and requires that a
liability be recognized for these costs only when                     the liability is
incurred., that is, when it meets the definition of a liability                     under
FASB conceptual framework. SFAS No. 146 also established fair value
                    as the objective for initial measurement of liabilities related to
exit or                     disposal activities. As a result, SFAS 146 significantly
reduces an                     entitys ability to recognize a liability for future
expenses related to                     restructuring. SFAS 146 is effective for exit and
disposal activities initiated                     after December 31, 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | In December 2002, the FASB released SFAS No. 148, Accounting
for                     Stock-based Compensation  Transition andDisclosure.
                    This statement amends FASB Statement No. 123. Accounting for
                    Stock-based Compensation, to provide alternative methods of
transition                     for a voluntary change to the fair value base method of
accounting for                     stock-based compensation. In addition, this Statement
amends the disclosure                     requirements of Statement 123 to require
prominent disclosures in both annual                     and interim financial statements
about the method of accounting for stock-based                     compensation and the
effect of the method used on reported results. The                     Statement is in
effect for fiscal years ending after December 15, 2002.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not believe that the adoption of SFAS No. 143 or SFAS No. 146,
will have a material affect on the Companys reported financial results.
The disclosure requirements in SFAS No. 148 have been adopted in these consolidated
financial statements (see note 3(c)).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|4. | Equipment:
|-- | ----------

|                             
|-----------------------------
|
|                             
|Furniture and fixtures       
|Computer and office equipment
|Test and other equipment     
|Equipment under capital lease
|Leasehold improvements       
|                             
|                             
|                             

|                             
|-----------------------------
|
|                             
|Furniture and fixtures       
|Computer and office equipment
|Test and other equipment     
|Equipment under capital lease
|Leasehold improvements       
|                             
|                             
|                             

| | Amortization
expense for the year is $140,787 (2001  $117,018). Amortization of equipment under
capital leases is $9,183 (2001  $6,122).
| | ------------------------------------------------------------------------------------------------------------------------------------------

|5. | Obligations under capital lease and operating sub-lease:
|-- | --------------------------------------------------------

|                                                   
|---------------------------------------------------
|
|                                                   
|Year ending December 31,

     2003                
|2004                                               
|2005                                               
|2006                                               
|                                                   
|                                                   
|Total minimum lease payments                       
|Amount representing interest at 19.33%             
|                                                   
|                                                   
|Present value of net minimum capital lease payments
|Current portion of obligation                      
|                                                   
|                                                   
|                                                   

| | Interest
of $8,077 (2001  $5,268) relating to capital lease obligations has been included in
interest expense.
| | ---------------------------------------------------------------------------------------------------------------

| | The
operating sub-lease obligation represents the loss on sub-lease of office space which has
been recorded in the current year (note 14(a)).
| | ---------------------------------------------------------------------------------------------------------------------------------------------

41

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|6. | Acquisition of Exstream Data, Inc. and goodwill:
|-- | ------------------------------------------------

| | On
September 15, 2000, the Company acquired 90.28% of the common stock of Exstream Data, Inc.
(EDI), a California corporation, for 2,703,036 common shares of the Company
with a fair value of $2,324,610 and assumed 38,000 EDI employee share purchase options
which were converted into 199,515 vested stock options of the Company. The fair value of
the options issued was $143,381 calculated by an option pricing model.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 19, 2001, the Company issued 291,128 common shares in exchange for 9.72% of the
common capital stock of EDI, bringing the Companys interest in EDI to 100%. As
consideration, the Company issued 291,128 common shares of the Company with a fair value
of $172,844. No commissions were paid in connection with this issuance of Company common
shares. The Company common shares were issued in a private transaction to certain
shareholders of EDI in reliance upon an exemption available under Section 4(2) of the
Securities Act of 1933, as amended.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
acquisition has been accounted for using the purchase method and is summarized as
follows:
| | -----------------------------------------------------------------------------------------------

|                                                    
|----------------------------------------------------
|Net assets acquired:                                
|Current assets                                      
|Equipment                                           
|Goodwill                                            
|                                                    
|                                                    
|Liabilities assumed:                                
|Current liabilities                                 
|                                                    
|                                                    
|                                                    
|Consideration:                                      
|Common shares                                       
|Stock options recorded as additional paid-in capital
|                                                    
|                                                    
|                                                    

| | Goodwill
represented the excess purchase price paid on the acquisition of Exstream Data, Inc.
(EDI) over the fair value of the net assets acquired. The remaining net book
value recorded at December 31, 2002 is nil (December 31, 2001  $600,000).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2001, the Company reviewed the carrying value of goodwill acquired on
acquisition of EDI. The review was initiated as monthly revenues from EDI reduced
throughout 2001 and the Companys share price declined significantly in 2001 and
indicated that the value of the Companys net assets had also declined. The Company
wrote-down the goodwill by $1,195,161 to its estimated fair market value of $600,000. The
fair market value estimate was based on two sources of evidence  the fair market
value of the Companys net assets as estimated by the market capitalization of the
Company using trading prices at December 31, 2001; and the estimated discounted cash flows
from the electronic document delivery business.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements

(Expressed in United States dollars)

---

|6. | Acquisition of Exstream Data, Inc. and goodwill (continued):
|-- | ------------------------------------------------------------

| | In accordance with its stated accounting policy described in note 3(d), the
Company completed its annual impairment test on December 31, 2002.  Based upon
the decline in the revenues of the electronic document delivery business since
December 31, 2001 and the impact these declines have on expected future net cash
flows from this reporting unit, the Company has estimated the fair value of the
reporting unit to reflect the carrying value of the net identifiable assets
resulting in a write off the remaining balance of goodwill in the amount of
$600,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization
of goodwill was recorded for the years ended December 31, 2002 and 2001 of nil and
$219,561, respectively. Net loss and loss per share adjusted for the non-amortization of
goodwill for the twelve months ended December 31, 2002 and 2001 would have been $1,649,696
and $1,873,910, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Income taxes:
|-- | -------------

| | Income
tax expense (recovery) attributable to earnings (loss) from operations differs from the
amounts computed by applying the Canadian Federal tax rate of approximately 38% to
earnings (loss) before income taxes as a result of the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               
|---------------------------------------------------------------
|
|                                                               
|At statutory rates                                             
|Non-deductible items, primarily goodwill and stock compensation
|Change in valuation allowance                                  
|State income tax paid                                          
|                                                               

| | The
tax effects of temporary differences that give rise to significant portions of the future
tax assets and facilities are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------

|                                               
|-----------------------------------------------
|
|                                               
|                                               
|                                               
|Deferred tax assets:                           
|Losses carried forward                         
|Accounting amortization in excess of tax       
|Other                                          
|Deferred tax liabilities:                      
|Tax amortization in excess of accounting       
|                                               
|Total gross deferred tax assets and liabilities
|Valuation allowance                            
|                                               
|Net deferred tax asset                         
|                                               

43

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|7. | Income taxes (continued):
|-- | -------------------------

| | In
assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the future tax assets will be realized.
The ultimate realization of the deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become
deductible. A valuation allowance equal to the net deferred tax asset balance has been
recorded, as the realization of such losses at the balance sheet dates during the carry
forward period cannot be considered to be more likely than not.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiary have the following non-capital losses available to reduce
future taxable income, expiring as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                                                           
|-----------------------------------------------------------
|Losses of Canadian parent (stated in US dollars):
     2003
|2004                                                       
|2005                                                       
|2006                                                       
|2007                                                       
|                                                           
|                                                           
|                                                           
|Losses of US operating subsidiary:
     2010               
|2011                                                       
|2012                                                       
|2015                                                       
|2016                                                       
|2017                                                       
|                                                           
|                                                           
|                                                           
|Total losses                                               
|                                                           

|8. | Capital stock:
|-- | --------------

| | (a) | Authorized:
| | --- | -----------

| |  | Unlimited number
of common stock, no par value.
| |  | -----------------------------------------------

| |  | 10,000,000  class A preferred stock, no par value. No class A preferred shares have been issued as of
December 31, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------

| |  | 20,000,000  class
B preferred shares, with no par value. No class B preferred shares have been issued as of
December 31, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------

44

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|8. | Capital stock (continued):
|-- | --------------------------

| | (b) | Issued
and fully paid common shares:
| | --- | ------------------------------------

|                                                   
|---------------------------------------------------
|
|                                                   
|Balance, December 31, 2000                         
|                                                   
|Issued for cash on private placement (note 8(c)(i))
|Performance escrow stock returned to               
|treasury (note 8(c)(ii))                           
|Issued to acquire 9.72% interest in EDI (note 6)   
|Stock returned to treasury on settlement           
|of Perell lawsuit (note 8(c)(iii))                 
|                                                   
|                                                   
|Balance, December 31, 2001                         
|                                                   

|                                           
|-------------------------------------------
|
|                                           
|Balance, December 31, 2001, brought forward
|                                           
|Shares issued during the period:           
|For cash pursuant to private               
|placements (note 8(c)(iv))                 
|Options exercised                          
|                                           
|Stock-based compensation - options and     
|escrow shares released                     
|                                           
|                                           
|Balance, December 31, 2002                 
|                                           

| | (c) | Private placement:
| | --- | ------------------

| | (i) | On March 9, 2001 the Company closed a $200,000 restricted stock private
                    placement financing at $0.50 per share, the market price at the date of the
                    arrangement. The financing was placed with private
                    funding sources outside of the United States. Stock issued under the private
                    placement carries a one-year trading restriction from the date of issue. In
                    addition the Company issued 200,000 non-transferable share purchase warrants
                    exercisable at $1.00. The warrants have a two-year term and are exercisable for
                    restricted common stock.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | The issued shares at December 31, 2000 included 750,000 performance escrow
                    shares. On November 7, 2000, the officers and directors voluntarily terminated
                    the escrow agreement with the Company and returned the performance escrow shares
                    to treasury on January 5, 2001. The Company terminated the shares reducing
                    capital stock and increasing additional paid in capital by $5,700.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | As a contingency to closing the EDI acquisition, the Company and certain
                    shareholders of EDI entered into an escrow agreement (the Perell Lawsuit
                    Escrow Agreement) established to mitigate both the costs and outcome of a
                    shareholder (Perell) lawsuit against EDI (the Perell
                    Lawsuit). Under the terms of the Perell Lawsuit Escrow Agreement,
                    1,400,000 common shares of the Company issued as part of the acquisition of EDI
                    were put into escrow (the Escrowed Shares).
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 19, 2001, the Company, Perell and certain other parties entered into a Share
Exchange Agreement pursuant to which the Company purchased from Perell 56,053 shares of
the common stock of EDI in exchange for 291,128 restricted common shares of the Company,
bringing the Companys ownership of EDIs common stock to 100%.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|8. | Capital stock (continued):
|-- | --------------------------

| | (c) | Private placement (continued):
| | --- | ------------------------------

| | (iii) | Continued:
| | ----- | ----------

| | On
March 13, 2001, the Perell Lawsuit Escrow Agreement was terminated under its terms. As a
result, the Company received 34,000 common shares of its common stock in recovery of
certain legal expenses incurred to defend the Perell Lawsuit. The 34,000 shares were
returned to treasury on March 22, 2001 at a deemed value of $1.00 per share, the market
price at the date of the arrangement, and a $34,000 expense recovery was applied
against legal expenses. The remaining Escrowed Shares were returned to the
beneficial holders of the Escrowed Shares.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | On February 25, 2002, the Board of Directors approved a private placement to an
                    officer and director of the Company. The terms of the private placement are that
                    the Company would issue 1,000,000 common shares at $0.05 per share and issue
                    warrants to purchase up to an additional 1,000,000 common shares at $0.05 per
                    share which are exercisable until March 1, 2007. These shares and warrants will
                    be held in escrow and released only in the event of certain events or
                    conditions, specified by the escrow agreement. The Company received the $50,000
                    proceeds in cash and the private placement closed on February 28, 2002.   The market
                        price at the date of issuance of the shares was $0.25.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 1, 2002, the board of directors approved a resolution to amend the escrow between
the Company and an officer and director of the Company. The amendment provided for the
release of the securities held in escrow in the event that the Company reported two
consecutive fiscal quarters of positive earnings before interest, taxes, depreciation and
amortization charges once all non-cash expenses are removed from the calculation of
earnings, (Adjusted EBITDA). During the fiscal quarters ended March 31, 2002
and June 30, 2002 the Company reported positive Adjusted EBITDA (as defined by the board
of directors). As a result, the conditions necessary for the release of the securities
from escrow have been satisfied as of August 1, 2002. At August 1, 2002, compensation
expense of $400,000, representing the intrinsic value of the shares and warrants eligible
for release from escrow has been recorded.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Stock options:
| | --- | --------------

| | The
Company has a stock option plan, which allows the Company, at the discretion of the board
of directors, to issue options to employees, directors and consultants to purchase up to a
maximum of 8,000,000 common shares of the Company. Stock purchase options are granted
having exercise prices based on the market price at the date of grant. The outstanding
stock options expire at various dates ranging from January 25, 2003 to March 22, 2007 and
vest according to the terms of the Companys stock option plan as may be amended by
the individual stock option agreements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|8. | Capital stock (continued):
|-- | --------------------------

| | (d) | Stock options (continued):
| | --- | --------------------------

| | The
following summarizes changes in stock options for the twelve months ended December 31,
2002 and prior fiscal year reporting periods:
| | ----------------------------------------------------------------------------------------------------------------------------------------

|                              
|------------------------------
|
|
|
|                              
|Outstanding, beginning of year
|Granted                       
|Exercised                     
|Forfeited                     
|                              
|Outstanding, end of year      
|                              

| | The
Company has the following stock options outstanding and vested at December 31, 2002:
| | ----------------------------------------------------------------------------------------

|                            
|----------------------------
|
|                            
|Officers/directors/employees
|Directors                   
|Employees                   
|Employees                   
|Employees                   
|Employees                   
|Employees                   
|Officers/directors          
|Consultants                 
|Consultants                 
|Officer/director            
|Employees                   
|Directors                   
|Officer/director            
|Officer/director            
|Employees                   
|Employees                   
|Employees                   
|Directors                   
|Consultants                 
|Employees                   
|Directors                   
|Employees                   
|Officer/Director            
|Officer/Director            
|Directors                   
|Employees                   
|                            
|Total                       
|                            

47

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements

(Expressed in United States dollars)

---

|8. | Capital stock (continued):
|-- | --------------------------

| | (e) | Repriced options:
| | --- | -----------------

| | On
February 25, 2002, the Companys Board of Directors approved a stock option repricing
program for options to purchase a total of 5,281,300 common shares. Under the repricing
program, certain holders of stock options, including directors and officers, were entitled
to exchange their existing stock options, which had an exercise price of $0.25 per share,
for repriced stock options with the same terms, except the exercise price was reduced to
$0.10 per share. Holders of 4,510,100 options elected to have their options repriced. At
this repricing date, the new exercise price equaled the market price of the Companys
common shares. At December 31, 2002, 4,294,850 repriced stock options remain outstanding.
These repriced stock options are accounted for as variable in accordance with note 3(c).
Incremental stock-based compensation recognized during the year ended December 31, 2002
for employee awards subject to variable accounting due to repricing transactions totaled
$25,878.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following summarizes the repricing of options during the period. The above weighted
average exercise prices reflect the revised exercise prices.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

|         
|---------
|
|         
|360,000  
|355,000  
|2,045,100
|1,000,000
|750,000  
|         
|4,510,100
|         

|9. | Related party transactions:
|-- | ---------------------------

| | (a) | Payments:
| | --- | ---------

| | During
the year, the Company paid consulting fees of $150,000 (2001  $185,000 ; 2000 
$235,000) to a company controlled by a director of the Company.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Consulting
Agreements:
| | --- | ----------------------

| | (i) | On January 1, 2002, the Company amended a consulting services agreement dated
                    January 1, 2000 as amended April 19, 2000 (the Interven 2000
                    Agreement) between Interven Capital Corporation (Interven), a
                    company controlled by an officer and director of the Company (the January
                    2002 Amendment). Under the terms of the January 2002 Amendment, Interven
                    would be paid $10,000 per month through June 30, 2002 and $20,000 per month
                    thereafter of which Interven would defer $5,000 per month in consideration due
                    to Interven under the Interven 2000 Agreement. No consideration, contingent or
                    otherwise, was or will be paid to Interven to induce Interven to enter into the
                    January 2002 Amendment.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|9. | Related party transactions (continued):
|-- | ---------------------------------------

| | (b) | Consulting
Agreements (continued):
| | --- | ----------------------------------

| | (i) | Continued:
| | --- | ----------

| | On
March 1, 2002, the Company entered into a consulting services agreement with Interven for
the period March 1, 2002 to December 31, 2003 (the Interven 2002 Agreement).
The Interven 2002 Agreement superceded and replaced all prior agreements between the
Company and Interven including the Interven 2000 Agreement as amended. Pursuant to the
Interven 2002 Agreement, Interven will provide certain services to the Company in
consideration of $13,750 per month through June 30, 2002 and $12,500 per month from July
1, 2002 through December 31, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Interven 2002 Agreement will expire December 31, 2003 (the Initial Term) and
will be automatically renewed for additional one year terms unless earlier terminated. In
the event of termination by the Company during the Initial Term other than for cause, the
Company must pay to Interven the full balance of fees which would have been payable to
Interven had the Consultant been engaged for the entire Initial Term, payable at a rate of
$13,750 per month for the first four months of the Initial term and $12,500 per month for
the remaining 18 months of the Initial Term. In the event of termination other than for
cause, Interven will be paid a severance payment in the amount of $50,000 in addition to
any other fees due under the Interven 2002 Agreement (the Severance Payment).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 15, 2002 the Company amended the Interven 2002 Agreement (the October 2002
Amendment). The October 2002 Amendment increased the amount due Interven to $15,000
per month during the Initial Term and any renewals thereof, beginning in the month in
which the Company should receive gross equity financing of $2,000,000 or more and
eliminated the Severance Payment due Interven in the event it is terminated other than for
cause. At December 31, 2002, the Company had not secured gross equity financing of
$2,000,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | On March 1, 2002, the Company entered into a consulting services agreement with
                    J. Erik Mustad (Mustad) for the period March 1, 2002 to December 31,
                    2003 (the Mustad 2002 Agreement). The Mustad 2002 Agreement
                    superceded and replaced all prior agreements between the Company and Mustad.
                    Pursuant to the Mustad 2002 Agreement, Mustad will provide certain services to
                    the Company in consideration of $6,000 per month through December 31, 2002 and
                    $7,500 per month from January 1, 2003 through December 31, 2003.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Mustad 2002 Agreement will expire December 31, 2003 (the Initial Term) and
will be automatically renewed for additional one year terms unless earlier terminated. In
the event of termination by the Company during the Initial Term other than for cause, the
Company must pay to Mustad the full balance of fees which would have been payable to
Mustad had the Consultant been engaged for the entire Initial Term, payable at a rate of
$6,000 per month for the first ten months of the Initial term and $7,500 per month for the
remaining 12 months of the Initial Term. In the event of termination other than for cause,
Mustad will be paid a severance payment in the amount of $50,000 in addition to any other
fees due under the Mustad 2002 Agreement (the Severance Payment).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|9. | Related party transactions (continued):
|-- | ---------------------------------------

| | (b) | Consulting
Agreements (continued):
| | --- | ----------------------------------

| | (ii) | Continued:
| | ---- | ----------

| | On
October 15, 2002 the Company amended the Mustad 2002 Agreement (the October 2002
Amendment). The October 2002 Amendment increased the amount due Mustad to $9,000 per
month through December 31, 2002 and $10,000 per month for the remaining Initial Term and
any renewals thereof, beginning in the month in which the Company should receive gross
equity financing of $2,000,000 or more and eliminated the Severance Payment due Mustad in
the event it is terminated other than for cause. At December 31, 2002, the Company had not
secured gross equity financing of $2,000,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Bad debt recovery:
|--- | ------------------

| | In
May 2001, the Company filed a complaint in the Superior Court of the State of California
in the county of Alameda against Prime T.V., LLC, Gatelinx Corporation, Gatelinx Financial
Corporation, Gatelinx Solutions Corporation and Thomas OHanlon (jointly and
severally Prime T.V.) alleging that Prime T.V. committed breach of contract,
fraud and intentional tort associated with the non-payment of $119,313 in services
provided to Prime T.V. by EDI during March and April 2001. The complaint sought relief of
$144,313 plus additional sums plus interest accrued thereon and attorney fees.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 3, 2002 the Company agreed to an out of court settlement with Prime TV in the amount
of $100,000 in cash, in exchange for which the Company withdrew its complaint. As at
December 31, 2002, all of this amount has been received. The recovery has been included in
bad debt expense (recovery) on the consolidated statements of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | Commitment:
|--- | -----------

| | Lease
commitments:
| | ------------------

| | At
December 31, 2002, the Company is committed under operating leases for office premises.
Minimum lease payments are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------

|    
|----
|2003
|2004
|2005
|2006
|    

50

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|12. | Contingencies:
|--- | --------------

| | (a) | Arbitration proceeding regarding Joseph Karwat agreement:
| | --- | ---------------------------------------------------------

| | On
January 29, 2002, pursuant to an employment agreement (the Karwat Agreement)
dated August 7, 2000, between Joseph Karwat (Karwat) and the Company, the
board of directors terminated the Karwat Agreement. Under the Karwat Agreement, in the
event of the termination of the Karwat Agreement by the Company other than for cause,
including constructive dismissal, the Company would be required to pay to Karwat a single
lump sum severance payment of $150,000 (the Severance Pay) and, in the event
of the termination of Karwat by the Company, other than for cause, $37,500 under a 90 day
notice requirement (the Notice Pay).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that it terminated the Karwat Agreement for cause and that it therefore
has no obligation to pay to Karwat the Severance Pay or the Notice Pay described in the
Karwat Agreement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the Karwat Agreement, on April 12, 2002 Karwat filed a demand for binding
arbitration (the Demand for Arbitration) alleging that the Company terminated
his employment without cause and therefore breached his employment agreement. In the
Demand for Arbitration, Karwat also alleges defamation, fraudulent inducement,
misrepresentation and violation of the California Labor Code. Karwat seeks relief in the
amount of $204,807 plus compensatory and punitive damages, attorneys fees and
interest (the Arbitration Claim).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that the allegations made by Karwat will not be upheld. The Company
intends to vigorously defend itself against all allegations made in the Arbitration Claim.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has notified its insurance underwriters of the Demand for Arbitration and has
filed a claim under its Employment Practices Liability Insurance (EPLI)
policy. The Company believes that, in the event that all or part of the allegations are
upheld in arbitration, its financial exposure will be limited to $25,000 which is the
amount of its insurance deductible under its EPLI policy.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has recognized a $25,000 expense against the Arbitration Claim.
| | ---------------------------------------------------------------------------

| | (b) | Cross Complaint Against Joseph Karwat:
| | --- | --------------------------------------

| | On
May 31, 2002 the board of directors of the Company approved the filing of a cross
complaint against Karwat on the grounds that during the course of his employment Karwat
breached his fiduciary obligation to the Company and that he violated the California Labor
Code, including but not limited to, culpable negligence in the exercise of his duties.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concurrently,
the board of directors, acting as Plan Administrator of the Corporations Amended and
Restated Stock Option Plan 2000, terminated 325,000 incentive stock options issued to
Karwat, and froze all further transfers of common stock held in the name of Joseph Karwat
pending the outcome of the counter claim.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company did not stipulate the amount of relief sought under the counter-claim.
| | ----------------------------------------------------------------------------------

51

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|12. | Contingencies (continued):
|--- | --------------------------

| | (c) | Finders
fee agreement:
| | --- | ----------------------

| | The
Company entered into a Finders Fee Agreement on June 14, 2002 with Glenara Associates of
Panama City, Panama (the Glenara Finder Fee Agreement), under which the
Company would pay to Glenara Associates a fee equal to $2,500 plus five percent (the
(Monetary Finders Fee) of any proceeds it receives as a result of money raised
from a prospective financing by Kalnes A/S (Kalnes). In addition, the Company
would issue to Glenara Associates 333,333 shares of its restricted common stock upon
receipt of the first $500,000 in financing by Kalnes A/S and 666,667 shares of its
restricted common stock upon receipt of an additional $1,000,000 in financing by Kalnes
A/S.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 15, 2002 the Company amended the Glenara Finder Fee Agreement. Under the amended
terms the Monetary Finders Fee was limited to the first $15,000,000 in financing received
from Kalnes on the basis of $2,500 plus 1% of any amounts received up to $5,000,000 and 2%
of any amounts received in excess of $5,000,000 and up to $15,000,000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | Segmented information:
|--- | ----------------------

| | The
Company operates two business segments:
| | -------------------------------------------

| | (a) | the purchase of telecommunication transmission time in bulk, on a wholesale
               basis from third party carriers, and reselling of time and access to business
               end users  business communication services; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | electronic document delivery and electronic marketing solutions 
               electronic media services.
| | --- | -------------------------------------------------------------------------------------------------------------

| | Operating
information related to the Companys material operating segments are as follows:
| | ------------------------------------------------------------------------------------------

|                        
|------------------------
|
|                        
|                        
|Revenue                 
|Gross margin            
|Amortization            
|Segment assets          
|Expenditures for segment
|equipment               
|                        

|                        
|------------------------
|
|                        
|                        
|Revenue                 
|Gross margin            
|Amortization            
|Segment assets          
|Expenditures for segment
|equipment               
|Goodwill                
|                        

52

---

MOVING BYTES INC. (Formerly E*Comnetrix Inc.) 

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

---

|13. | Segmented information (continued):
|--- | ----------------------------------

| | The
Company operates primarily in the United States through MBI, its US subsidiary. All
of the Companys revenues are generated in the United States. The following table
sets out the location of the Companys assets for the years presented:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    
|----
|
|    
|2002
|2001
|    

|14. | Subsequent event:
|--- | -----------------

| | (a) | Sublease:
| | --- | ---------

| | On
February 28, 2003, the Company entered into a sub-lease of vacated office space located in
Emeryville, CA for a period commencing March 1, 2003 until July 31, 2006. As the Company
vacated the office space in December 2002, the Company has recorded a loss on the
sub-lease space based on the amount of future lease payments less estimated
sub-lease receipts for a
loss of $98,774 (note 5).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | March 9, 2001 Warrants:
| | --- | -----------------------

| | On
March 9, 2003, 200,000 non-transferable share purchase warrants issued on March 9, 2001
expired under their terms (note 8(c)(i)).
| | ------------------------------------------------------------------------------------------------------------------------------------

53

---

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

None.

# PART III

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

All
of the directors of the Company are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors are duly
elected and qualified, unless they sooner resign or cease to be directors in accordance
with the Companys Articles or the Canada Business Corporations Act. The
Companys last annual regular general meeting was held on May 31, 2002. The
Companys executive officers are appointed by and serve at the pleasure of the Board
of Directors.

As
of December 31, 2002, the following persons were directors and/or executive officers
of the Company:

|                                    
|------------------------------------
|
|                                    
|J. Erik Mustad                      
|Green Brae, California U.S.A        
|Chief Executive Officer and Director
|                                    
|Mark M. Smith                       
|Sparks, Nevada U.S.A                
|President, Chief Financial Officer  
|and Director                        
|                                    
|Jim Miller(1)                       
|                                    
|Stuart Rogers (1)                   
|Coquitlam, B.C. Canada              
|Director                            
|                                    
|Ernie Kelly(1)(3)                   
|                                    
|                                    
|                                    
|Thomas Wharton                      
|Vancouver, B.C. Canada              
|Director                            
|                                    

|(1) |  | Member
of the Companys audit committee.
|--- |  | ----------------------------------------

|(2) |  | Directors
serve until their successors are nominated and elected by the
                    shareholders and Officers serve until their successors are nominated
and                     appointed by the Board of Directors.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On
September 30, 2002 Trevor Gibbs, a director resigned from the Board of
                    Directors. In accordance with the Companys Articles and the
Canada                     Business Corporations Act, on October 1, 2002 the Board of
Directors appointed                     Ernie Kelly to the Board of Directors to replace
Trevor Gibbs.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

54

---



# J. Erik Mustad, Chief
Executive Officer and Director, Age 62

Mr.
Mustad has over 32 years of experience in the telecommunications services
          industry, serving in a broad range of executive positions with several public
          and privately held companies. Since 1975, he has been an investor in various
          start-up ventures.

Mr.
Mustad was a founder of Centex Telemanagement, Inc. and participated in its
          initial public offering in 1987. Centex was acquired by WorldCom, Inc.
          (NASDAQ:WCOM) in 1995.

Mr.
Mustad was an investor in Phoenix Network, Inc. and responsible for all sales
          and marketing during a time when Phoenix Network experienced 400% growth within
          a 2-year time frame. Phoenix Network, Inc. was acquired by Qwest Communications
          International Inc. (NASDAQ:Q) in 1998.

In
1975, he formed his own interconnect company, TCI, Inc. Under his leadership, TCI was
acquired in 1981 by Inter-Tel, Inc. (NASDAQ:INTL). Mr. Mustad served as director of
Inter-Tel from 1982 to 1984.

# Mark M. Smith,
President, Chief Financial Officer and Director, Age 44

Mr.
Smith has over 17 years of experience in the telecommunications and venture
          capital industries, and has served in a variety of executive positions with
          several public and privately held companies. He has been a financial consultant
          providing strategic planning in public markets and finance. He joined the
          Company as its acting Chief Financial Officer in 1996 and subsequently assumed
          the role of President in September 1999.

Mr. Smith
has experience advising small cap public companies with respect to the           public
markets and has negotiated international agreements with large
          telecommunications and investment banking firms.

From
1990 to 1992, he was Professor of Corporate Finance at California State University. Prior
to this position, he was associated with Richland Partners, a venture capital firm
specializing in technology investments. Mr. Smith performed research for the Pension
Research Institute in 1989 and 1990 and received his Masters degree in International
Finance in 1990. For his research work in global asset management, he received a Wall
Street Journal Award. Mr. Smith is a member of the Association for Investment Management
and Research.

# Jim Miller, Director,
Age 53

Mr.
Miller is a business consultant and entrepreneur and a Founding Director of the
          International Seakeepers Society a 501(c) (3) registered non-profit. He has
          served on several boards of directors including Phoenix Network, Inc. from 1990
          to 1991. Mr. Miller was with the U.S. Securities and Exchange Commission
(S.E.C)           from 1974 through 1978 and was a S.E.C., Regional Counsel from
1980-1981. He           began his law career as an attorney in the Office of the General
Counsel of the           S.E.C. in Washington DC. He received his B.A. degree from the
College of William           and Mary and his J.D. degree from the University of San
Diego School of Law           where he was Editor-in-Chief of the San Diego Law Review.

# Stuart Rogers, Director,
Age 46

Mr.
          Rogers is founder of his own investment banking firm West Oak Capital Group,
          Inc.. West Oak Capital Group is primarily focused on arranging public listings
          through mergers or initial public offerings on the TSX Venture Exchange in
          Canada.

Mr.
         Rogers is currently a Director of Vancan Capital Corp., listed on the TSX
          Venture Exchange and OTC Bulletin Board. AVC Venture Capital Corporation listed
          on the TSX Venture Exchange, Cusil Venture Corporation listed on the TSX
Venture           Exchange, Strathclair  Ventures Ltd listed on the TSX Venture
Exchange, and           Consolidated Global Cable Systems, Inc. listed on the TSX Venture
Exchange.

Mr.
         Rogers served as a Director of Leopardus Resources Ltd. (1993 to 1999) listed on
          the TSX Venture Exchange.

55

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# Ernie Kelly, Director,
Age 52

Mr.
         Kelly is currently a consultant for the KDW Group, in Washington D.C, providing
          business and financial consulting to telecommunications, Internet and related
          entities. From 1993 through 2002 he was President of the Association of
          Communications Enterprises in Washington, D.C. a trade association representing
          over 800 telecommunications companies with hundreds of billions of dollars in
          assets.

From
1977 through 1992 Mr. Kelly was the Director of Government Relations and Manager of
Congressional Affairs for Communications Satellite Corporation (COMSAT) and from 1974
through 1976 he was Legislative Assistant to the Hon. Ted Stevens, U.S. Senator.

# Thomas Wharton,
Director, Age 59

Mr.
Wharton is a professional in the medical field. Since 1983, Mr. Wharton has been
          a principal of T. Wharton and Associates, Ltd., a consulting firm that focuses
          on policy review, operations procedures, quality assurance and executive
          evaluation in private sector healthcare.

Mr.
Wharton is currently a director of Telesis North Communications, Inc. and Cusil
          Venture Corporation both listed on the TSX Venture Exchange.

Members
of the Board of Directors are elected by the holders of the Companys common shares
to represent the interests of all shareholders. The Board of Directors meets periodically
to review significant developments affecting the Company and to act on matters requiring
Board approval. Although the Board of Directors delegates many matters to others, it
reserves certain powers and functions to itself.

Board
Committees

The
only standing committee of the Board of Directors of the Company is an Audit Committee.
The Audit Committee of the Companys Board of Directors currently consists of three
(3) individuals each an outside director, being Jim Miller (chairman of the Audit
Committee), Stuart Rogers, and Ernie Kelly. This committee is directed to review the
scope, cost and results of the independent audit of the Companys books and records,
the results of the annual audit with management and the adequacy of the Companys
accounting, financial and operating controls; to recommend annually to the Board of
Directors the selection of the independent auditors; to consider proposals made by the
Companys independent auditors for consulting work; and to report to the Board of
Directors, when so requested, on any accounting or financial matters. Such reviews are
carried out with the assistance of the Companys auditors and senior financial
management. None of the Companys directors or executive officers are parties to any
arrangement or understanding with any other person pursuant to which said individual was
elected as a director or officer of the Company.

Board
and Committee Meetings

During
2002, the Board of Directors met 11 times including participants by telephone and by
consent. During 2002, the Audit Committee met once.

From
December 31, 2002 to February 28, 2003, the Board of Directors of the Company has met 0
times. The Company believes that the Board of Directors will meet in March of 2003 to
discuss, among other things, the timing of an annual general meeting of shareholders for
2003.

There
are no arrangements or understandings among any of the directors or officers of the
Company regarding their election as directors or officers.

Section
16(a) Beneficial Ownership Reporting Compliance

Federal
securities laws require the Companys directors and executive officers and persons
who own more than 10% of the Companys common stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in ownership of
any securities of the Company.

To
the Companys knowledge all of the Companys directors, executive officers, and
greater-than-10% beneficial owners made all required filings on a timely basis for the
fiscal year ended December 31, 2002.

56

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# ITEM 10.  EXECUTIVE
COMPENSATION.

The Company
grants stock options to directors, executive officers and employees. See Options
Grants and Option Exercises.

The
following table sets forth the compensation for the years indicated paid to J. Erik
Mustad, Chief Executive Officer of the Corporation, and each executive officer of the
Company that earned a salary and bonus for such fiscal year in excess of $100,000 (each, a
Named Executive Officer).

|                 
|-----------------
|
|
|
|                 
|J. Erik Mustad   
|Chairman & Chief 
|Executive Officer
|                 
|Mark M. Smith    
|President        
|Chief Financial  
|Officer          
|                 
|Joseph Karwat(5) 
|President        
|MBI              
|                 

|(1) |  | All
dollar amounts are in US dollars.
|--- |  | -------------------------------------

|(2) |  | SAR or
stock appreciation right means a right           granted by the Company, as
compensation for services rendered, to receive a           payment of cash or an issue or
transfer of securities based wholly or in part on           changes in the trading price
of publicly traded securities of the Company. Does           not include 250,000 SARs
formerly granted to Mr. Smith on March 10, 2000           and which were cancelled
effective November 7, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | LTIP or
long term incentive plan means any plan           that provides compensation
intended to serve as incentive for performance to           occur over a period longer
than one financial year, but does not include option           or stock appreciation
right plans or plans for compensation through restricted           shares or restricted
share units.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Compensation
expense of $400,000 representing the intrinsic value of           shares and warrants
recorded to contracting and consulting services.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The
Company terminated the employment of Mr. Karwat on January 29,           2002.
|--- |  | ----------------------------------------------------------------------------------

The
aggregate direct remuneration paid or payable by the Company and its subsidiaries to the
directors and Named Executive Officers of the Company, for their services in all
capacities, during the fiscal year ended December 31, 2002 was $234,500.

# DIRECTOR COMPENSATION

The
Company has no standard arrangement pursuant to which any of the other directors are
compensated by the Company for their services in their capacity as directors except for
the granting from time to time of incentive

57

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stock options. Directors are entitled
to reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors. The Board of Directors
makes separate remuneration to any director undertaking services on behalf of the Company
other than services ordinarily required of a director. No director received any
compensation for his services as a director, including any committee participation or
special assignments.

The
Companys independent directors receive stock options to purchase common shares of
the Company as compensation for their service as directors. The terms of stock option
grants made to independent directors are determined by the Board of Directors. See
Option Grants.

# OPTION GRANTS

The
following table sets forth information regarding stock option grants to the Companys
executive officers and directors during the year ended December 31, 2002:

|                           
|---------------------------
|
|                           
|
|                           
|
|                           
|J. Erik Mustad             
|                           
|Mark M. Smith              
|                           
|Jim Miller                 
|                           
|                           
|West Oak Capital Group Inc.
|(Stuart Rogers)            
|                           
|Ernie Kelly                
|                           
|Thomas Wharton             
|                           
|                           

# OPTION EXERCISES.

The
following table sets forth details of each exercise of stock options during the financial
year ended December 31, 2002 by any of the directors and Named Executive Officers, and the
financial year end value of unexercised options on an aggregate basis. During the
Companys most recently completed fiscal year ended December 31, 2002, and through
the period ending March 7, 2003, no options and other rights to purchase securities of the
Company were exercised by the directors and executive officers of the Company other than
as set forth below.

|              
|--------------
|
|              
|J. Erik Mustad
|              
|              
|Mark M. Smith 
|              
|              
|Jim Miller    
|              
|              

58

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|                           
|---------------------------
|
|                           
|West Oak Capital Group Inc.
|(Stuart Rogers)            
|                           
|Ernie Kelly                
|                           
|                           
|Thomas Wharton             
|                           
|                           
|Joseph Karwat(3)           
|                           
|                           
|Trevor Gibbs(4)            
|                           
|                           

|(1) |  | Based
on NASD OTCBB closing price on the date of exercise.
|--- |  | ----------------------------------------------------------

|(2) |  | In-the-money
options are those where the market value of the underlying                securities at
the fiscal year-end exceeds the exercise price of the options. The                closing
price of the Companys shares on December 31, 2002, being the last
               day the Companys common shares traded during 2002 on the NASD Over
the                Counter Bulletin Board, was $0.09.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The
Company terminated the employment of Mr. Karwat on January 29, 2002.
|--- |  | ------------------------------------------------------------------------

|(4) |  | Mr.
Gibbs resigned from the Board of Directors of the Company on           September 29,
2002.
|--- |  | ----------------------------------------------------------------------------------------------

Report
on Repricing of Options

On
February 25, 2002, the Companys board of directors approved a stock option repricing
program for the Company. Under the repricing program, certain holders of stock options,
including directors and officers, were entitled to exchange their existing stock options,
which had an exercise price of $0.25 per share, for repriced stock options with the same
terms, except the exercise price is reduced to $0.10 per share. At this repricing, the new
exercise price exceeded the market price of the Companys common shares. Each
repriced stock option has terms substantially equivalent to the terms of the original
grant, including the same vesting terms, number of shares and expiration date. Options to
purchase a total of 4,510,100 common shares were repriced.

Repricing
of Options

During
the Companys fiscal year ended December 31, 2002, options previously granted to two
(2) Named Executive Officers were amended as to exercise price.

By
agreement dated January 25, 2000, the Company granted to J. Erik Mustad options to
purchase up to five hundred thousand (500,000) common shares at a price of four dollars
and forty three and three quarters cents ($4.4375) per common share (the January 25,
2000 Mustad stock options). Pursuant to amendments to the agreement in fiscal year
2000 the exercise price of the January 25, 2000 Mustad stock options was reduced to one
dollar ($1.00) per share, and March 16, 2001, the exercise price was reduced to fifty
cents ($0.50) per common share, and on October 24, 2001, the exercise price was reduced to
twenty five cents ($0.25) per common share, and on February 25, 2002, the exercise price
was reduced to ten cents ($0.10) per common share.

By
agreement dated June 26, 2000, the Company granted to J. Erik Mustad options to purchase
up to two hundred and fifty thousand (250,000) common shares at a price of one dollar
($1.00) per common share (the June 26, 2000 stock options). Pursuant to an
amendment to the agreement, on March 16, 2001, the exercise price of the June 26, 2000
stock options was reduced to fifty cents ($0.50) per common share, and on October 24,
2001, the exercise price was reduced to twenty five cents ($0.25) per common share, and on
February 25, 2002, the exercise price was reduced to ten cents ($0.10) per common share.

By
agreement dated September 15, 2000, the Company granted to J. Erik Mustad options to
purchase up to one hundred thousand (100,000) common shares at a price of one dollar
($1.00) per common share (the September 15, 2000 Mustad stock options).
Pursuant to an amendment to the agreement, on March 16, 2001, the exercise price of the
September 15, 2000 Mustad stock options was reduced to fifty cents ($0.50) per common
share, and on October 24, 2001, the exercise price was reduced to twenty five cents
($0.25) per common share, and on February 25, 2002, the exercise price was reduced to ten
cents ($0.10) per common share.

By
agreement dated September 29, 2000, the Company granted to J. Erik Mustad options to
purchase up to three hundred seventy five thousand (375,000) common shares at a price of
one dollar ($1.00) per common share (the September 29, 2000 Mustad stock
options). Pursuant to amendments to the agreement in fiscal year 2000

59

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Pursuant to an amendment to the
agreement, on March 16, 2001, the exercise price of the September 29, 2000 Mustad stock
options was reduced to fifty cents ($0.50) per common share, and on October 24, 2001, the
exercise price was reduced to twenty five cents ($0.25) per common share, and on February
25, 2002, the exercise price was reduced to ten cents ($0.10) per common share.

By
agreement dated January 25, 2000, the Company granted to Mark M. Smith options to purchase
up to five hundred thousand (500,000) common shares at a price of four dollars and forty
three and three quarters cents ($4.4375) per common share (the January 25, 2000
Smith stock options). Pursuant to amendments to the agreement in fiscal year 2000,
the exercise price of the January 25, 2000 Smith stock options was reduced to one dollar
($1.00) per share, and on March 16, 2001, the exercise price was reduced to fifty cents
($0.50) per common share, and on October 24, 2001, the exercise price was reduced to
twenty five cents ($0.25) per common share, and on February 25, 2002, the exercise price
was reduced to ten cents ($0.10) per common share.

By
agreement dated March 10, 2000, the Company granted to Mark M. Smith options to purchase
up to seven hundred and fifty thousand (750,000) common shares at a price of seven dollars
($7.00) per common share (the March 10, 2000 stock options). Pursuant to
amendments to the agreement in fiscal year 2000 the exercise price of the March 10, 2000
stock options was reduced to one dollar ($1.00) per share, and on March 16, 2001, the
exercise price was reduced to fifty cents ($0.50) per common share, and on October 24,
2001, the exercise price was reduced to twenty five cents ($0.25) per common share, and on
February 25, 2002, the exercise price was reduced to ten cents ($0.10) per common share.

By
agreement dated June 26, 2000, the Company granted to Mark M. Smith options to purchase up
to two hundred and fifty thousand (250,000) common shares at a price of one dollar ($1.00)
per common share (the June 26, 2000 Smith stock options). Pursuant to an
amendment to the agreement, on March 16, 2001, the exercise price of the June 26, 2000
Smith stock options was reduced to fifty cents ($0.50) per common share, and on October
24, 2001, the exercise price was reduced to twenty five cents ($0.25) per common share,
and on February 25, 2002, the exercise price was reduced to ten cents ($0.10) per common
share.

By
agreement dated September 15, 2000, the Company granted to Mark M. Smith options to
purchase up to one hundred thousand (100,000) common shares at a price of one dollar
($1.00) per common share (the September 15, 2000 Smith stock options).
Pursuant to an amendment to the agreement, on March 16, 2001, the exercise price of the
September 15, 2000 Smith stock options was reduced to fifty cents ($0.50) per common
share, and on October 24, 2001, the exercise price was reduced to twenty five cents
($0.25) per common share, and on February 25, 2002, the exercise price was reduced to ten
cents ($0.10) per common share.

By
agreement dated September 29, 2000, the Company granted to Mark M. Smith options to
purchase up to six hundred twenty five thousand (625,000) common shares at a price of one
dollar ($1.00) per common share (the September 29, 2000 Smith stock options).
Pursuant to an amendment to the agreement, on March 16, 2001, the exercise price of the
September 29, 2000 Smith stock options was reduced to fifty cents ($0.50) per common
share, and on October 24, 2001, the exercise price was reduced to twenty five cents
($0.25) per common share, and on February 25, 2002, the exercise price was reduced to ten
cents ($0.10) per common share.

By
agreement dated December 6, 2001, the Company granted to Mark M. Smith options to purchase
up to two hundred forty thousand (240,000) common shares at a price of twenty five cents
($0.25) per common share (the December 6, 2001 Smith stock options). Pursuant
to an amendment to the agreement dated February 25, 2002, the exercise price of the
December 6, 2001 Smith stock options was reduced to ten cents ($0.10) per common share.

Amendment
of Expiration Dates

During
the Companys fiscal year ended December 31, 2002, options previously granted to two
(2) Named Executive Officers were amended as to expiration date.

By
agreement dated January 25, 2000, the Company granted to J. Erik Mustad options to
purchase up to five hundred thousand (500,000) common shares expiring on January 25, 2003.
Pursuant to an amendment to the agreement dated February 25, 2002 the expiration date was
changed to January 25, 2005.

By
agreement dated January 25, 2000, the Company granted to Mark M. Smith options to purchase
up to five hundred thousand (500,000) common shares expiring on January 25, 2005. Pursuant
to an amendment to the agreement dated February 25, 2002 the expiration date was changed
to January 25, 2007.

60

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Stock
Option Plans

On
May 17, 1999, the board of directors of the Company approved the Companys Stock
Option Plan (1999) (the 1999 Plan). The 1999 Plan subsequently received
shareholder approval. Under the 1999 Plan, options may be granted to directors, officers,
employees and others providing substantial services to the Company and its affiliates to
purchase from the Company such number of its common shares as the board of directors of
the Company may designate. Options may be granted to acquire common shares up to but not
exceeding an aggregate of 1,900,000 common shares under the 1999 Plan. Pursuant to section
11 of the 1999 Plan, the Board of Directors has the power to amend the 1999 Plan.

On
March 30, 2000, the board of directors of the Company amended the Companys 1999 Plan
and renamed it the Amended and Restated Stock Option Plan (2000) (the 2000
Plan). The 2000 Plan increased the number of common shares available for issuance
from the 1,900,000 common shares available under the 1999 Plan to a total of 5,000,000
common shares available under the 2000 Plan. The 2000 Plan, received shareholder approval
at the Companys annual meeting held on May 3, 2000. On November 3, 2000, the board
of directors of the Company amended the 2000 Plan (the Amended 2000 Plan). The
Amended 2000 Plan increased the number of common shares available for issuance from the
5,000,000 common shares available under the 2000 Plan to a total of 8,000,000 common
shares available under the Amended 2000 Plan. The Amended 2000 Plan, received shareholder
approval at the Companys annual meeting held on June 22, 2001.

As
of December 31, 2002, there were options to purchase 2,267,940 common shares issued and
outstanding under the Amended 2000 Plan, 4,096,080 common shares have been issued pursuant
to options granted, 150,000 options have expired unexercised, 230,250 options have been
exercised, 1,447,890 options have been cancelled and 4,284,170 common shares were
available to be granted after December 31, 2002 under the Amended 2000 Plan. All of the
remaining options available for grant pursuant to the terms of the Amended 2000 Plan may
be granted without further regulatory or shareholder approvals.

Employment
and Employee Incentive Contracts

The
Company has no plan or arrangement whereby any Named Executive Officer may be compensated
in an amount exceeding $100,000 in the event of that officers resignation,
retirement or other termination of employment, or in the event of a change of control of
the Company or a subsidiary or a change in the Named Executive Officers
responsibilities following such a change of control, except as set out below:

Pursuant
to a consulting services agreement (the Mustad Agreement) dated March 1, 2002,
between J. Erik Mustad (Mustad) and the Company will provide certain services
to the Company in consideration of $6,000 per month through December 31, 2002 and
$7,500 per month thereafter. The Mustad Agreement will expire December 31, 2003 (the
Initial Term) and will be automatically renewed for additional one year terms
unless earlier terminated. In the event of termination by the Company during the Initial
Term other than for cause, the Company must pay to Mustad the full balance of fees which
would have been payable to Mustad had Mustad been engaged for the entire Initial Term,
payable at a rate of $6,000 per month through December 31, 2002 and at a rate of
$7,500 from January 1, 2003 through December 31, 2003. In the event of termination other
than for cause, Mustad will be paid a severance payment in the amount of $50,000 in
addition to any other fees due under the Mustad Agreement.

Pursuant
to an amendment of the Mustad Agreement dated October 1, 2002 (the Mustad Agreement
Amendment), effective October 1, 2002, in the event of an equity or equity like
financing of the Company in a minimum amount of Two Million US dollars ($2,000,000) (the
Financing) the Company will increase the amount payable to Mustad under the
Mustad Agreement to Nine Thousand US dollars (US$9,000) per month through
December 31, 2002 and Ten Thousand US dollars (US$10,000) per month through December
31, 2003, and on any renewal thereof. The change in compensation would take effect in the
month in which the Financing is received by the Company. In addition, the stipulation
requiring the Company to pay Mustad a severance payment in the amount of $50,000 in the
event of a termination of the agreement prior of the end of its Initial term, other than
for cause, was canceled.

Pursuant
to a consulting services agreement (the Smith Agreement) dated January 1, 2000
and as amended April 19, 2000 with an effective date of June 1, 2000, between Interven
Capital Corporation (Interven), Mark M. Smith (Smith) (Interven
and Smith are referred to collectively as the Consultant) and the Company, the
Consultant will provide certain services to the Company in consideration of the Company
paying to Consultant $13,750 per month through June 30, 2002 and $12,500 per month
thereafter. The Interven Agreement will expire

61

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December 31, 2003 (the Initial
Term) and will be automatically renewed for additional one year terms unless earlier
terminated. In the event of termination by the Company during the Initial Term other than
for cause, the Company must pay to Interven the full balance of fees which would have been
payable to Interven had Consultant been engaged for the entire Initial Term, payable at a
rate of $13,750 per month through June 30, 2002 and $12,500 per month from July 1, 2002
through December 31, 2003. In the event of termination other than for cause, Interven will
be paid a severance payment in the amount of $50,000 in addition to any other fees due
under the Interven Agreement.

Pursuant
to an amendment of the Smith Agreement dated October 1, 2002 (the Smith Agreement
Amendment), effective October 1, 2002, in the event of an equity or equity like
financing of the Company in a minimum amount of Two Million US dollars ($2,000,000) (the
Financing) the Company will increase the amount payable to Interven under the
Smith Agreement to Fifteen Thousand US dollars (US$15,000) per month through December 31,
2003, and on any renewal thereof. The change in compensation would take effect in the
month in which the Financing is received by the Company. In addition, the stipulation
requiring the Company to pay Mustad a severance payment in the amount of $50,000 in the
event of a termination of the agreement prior of the end of its Initial term, other than
for cause, was canceled.

ndemnification
of Directors, Officers and Others

The
by-laws of the Company provide that subject to the provisions of the Canada Business
Corporations Act, the Company may indemnify a director or officer or former director or
officer of the Company or of a corporation of which the Company is or was a shareholder or
creditor and the heirs and legal representatives of any such person against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him or them in respect of any civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason of his being or
having been a director or officer of the Company or a director or officer of such
corporation, including any action brought by the Company or any such corporation. Each
director or officer of the Company, upon being elected or appointed, shall be deemed to
have contracted with the Company on the terms of the indemnity set forth in the
Companys by-laws.

The
by-laws of the Company further provide that the failure of a director or officer of the
Company to comply with the provisions of the Canada Business Corporations Act or of the
articles or the by-laws of the Company shall not invalidate any indemnity to which he is
entitled to under the Companys by-laws.

The
by-laws of the Company further provide that the directors of the Company may cause the
Company to purchase and maintain insurance for the benefit of any person who is or was
serving as a director, officer, employee or agent of the Company or as a director,
officer, employee or agent of any corporation of which the Company is or was a shareholder
and his heirs or personal representatives, against any liability incurred by him as such
director, officer, employee or agent.

Under
the Canada Business Corporations Act, except in respect of an action by or on behalf of
the Company to procure a judgment in its favor, the Company may indemnify a director or
officer of the Company, a former director or officer of the Company or a person who acts
or acted at the Companys request as a director or officer of a body corporate of
which the Company is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a party by
reason of being or having been a director or officer of the Company or body corporate if
he acted honestly and in good faith with a view to the best interests of the Company and,
in the case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

Further
under the Canada Business Corporations Act, the Company may, with the approval of a court,
indemnify a director or officer of the Company, a former director or officer of the
Company or a person who acts or acted at the Companys request as a director or
officer of a body corporate of which the Company is or was a shareholder or creditor, and
his heirs and legal representatives, in respect of an action by or on behalf of the
Company or body corporate to procure a judgment in its favor, to which he is made a party
by reason of being or having been a director or an officer of the Company or body
corporate, against all costs, charges and expenses reasonably incurred by him in
connection with such action if he acted honestly and in good faith with a view to the best
interests of the Company and, in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing
that his conduct was lawful.

62

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Further
under the Canada Business Corporations Act, a director or officer of the Company, a former
director or officer of the Registrant or a person who acts or acted at the Companys
request as a director or officer of a body corporate of which the Company is or was a
shareholder or creditor, and his heirs and legal representatives, is entitled to indemnity
from the Company in respect of all costs, charges and expenses reasonably incurred by him
in connection with the defense of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a director or
officer of the Company or body corporate, if the person seeking indemnity was
substantially successful on the merits in his defense of the action or proceeding and if
he acted honestly and in good faith with a view to the best interests of the Company and,
in the case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

Further
under the Canada Business Corporations Act, the Company may purchase and maintain
insurance for the benefit of a director or officer of the Company, a former director or
officer of the Company or a person who acts or acted at the Companys request as a
director or officer of a body corporate of which the Company is or was a shareholder or
creditor, and his heirs and legal representatives, against any liability incurred by him
in his capacity as a director or officer of the Registrant, except where the liability
relates to his failure to act honestly and in good faith with a view to the best interests
of the Company, or in his capacity as a director or officer of another body corporate
where he acts or acted in that capacity at the Companys request, except where the
liability relates to his failure to act honestly and in good faith with a view to the best
interest of the body corporate.

The
Company maintains Directors and Officers Liability Insurance for its
directors.

Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.

# ITEM 11.  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The
Company is authorized to issue an unlimited number of common shares without par value
(Common Shares), and 10,000,000 are Class A Preferred Shares (the Class
A Preferred Shares) without par value, and 20,000,000 Class B Preferred Shares (the
Class B Preferred Shares) without par value. As of December 31, 2002 and March
7, 2003, 14,739,691 Common Shares and no Preferred Shares were issued and outstanding.

Rule
13d-3 under the Securities Exchange Act defines the term, beneficial
ownership. Under this rule, the term includes shares over which the indicated
beneficial owner exercises voting and/or investment power. The rules also deem common
shares subject to options currently exercisable, or exercisable within 60 days, to be
outstanding for purposes of computing the percentage ownership of the person holding the
options but do not deem such stock to be outstanding for purposes of computing the
percentage ownership of any other person.

The
following table sets forth information concerning the beneficial ownership of the
Companys outstanding common shares as of March 7, 2003 for, each of the
Companys directors and executive officers individually, each person or group that
the Company knows owns beneficially more than 5% of the Companys common shares, and
all directors and executive officers as a group. Except as otherwise indicated, the
Company believes the beneficial owners of the common shares listed below, based on
information furnished by them, have sole voting and investment power over the number of
shares listed opposite their names.

63

---

|             
|-------------
|
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|Common Shares
|             
|             

|(1) |  | Based
on the 14,739,691 shares outstanding as of March 7, 2003.
|--- |  | ---------------------------------------------------------------

|(2) |  | Includes
705,800 common shares and vested options to acquire 1,125,000 common
               shares of the Company exercisable within sixty days of March 7, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
1,100,000 common shares and vested options to acquire 2,465,000 common
               shares of the Company exercisable within sixty days of March 7, 2003 and
               1,000,000 share purchase warrants exercisable within sixty days of March
7,                2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
5,000 common shares and vested options to acquire 75,000 common shares                of
the Company exercisable within sixty days of March 7, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Less
than one percent (1%).
|--- |  | ---------------------------

|(6) |  | Consists
of vested options to acquire 85,000 common shares of the Company
               exercisable within sixty days of March 7, 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Consists
of vested options to acquire 50,000 common shares of the Company
               exercisable within sixty days of March 7, 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Consists
of vested options to acquire 50,000 common shares of the Company
               exercisable within sixty days of March 7, 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes
1,553,427 common shares.
|--- |  | ---------------------------------

|(10) |  | Includes
3,359,227 common shares and vested options to acquire 3,850,000 common
               shares of the Company within sixty days of March 7, 2003.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

There
are no arrangements known to the Company that may, at a subsequent date, result in a
change in control of the Company.

# Securities Authorized
for Issuance Under Compensatory Plans

The
following table includes information as of December 31, 2002 for all compensatory plans
previously approved by the Companys security holders and all compensatory plans not
previously approved by the Companys security holders.

64

---

Equity
Compensatory Plan Information

|                             
|-----------------------------
|
|
|                             
|Equity Compensation Plans    
|Approved by Security Holders 
|                             
|Equity Compensation Plans Not
|Approved by Security Holders 
|                             
|Total                        
|                             

|(1) |  | Includes
1,090,070 options held by officers and directors.
|--- |  | ----------------------------------------------------------

|(2) |  | Includes
2,749,930 options held by officers and directors and 1,000,000           warrants held by
an officer and director.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

Description
of Stock Option Plans

See
Item 10  Executive Compensation  Stock Option Plans for a
description of the Companys stock option plans.

# ITEM 12.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

Except
for (a) the transactions described below, (b) the ownership of the Companys
securities, (c) the compensation described herein, and (d) advances to and by certain
officers to or from the Company to cover expenses, all of which were reimbursed or repaid
without interest, none of the directors, executive officers, holders of ten percent of the
Companys outstanding Common Shares, or any associate or affiliate of such person,
have, to the knowledge of the Company, had a material interest, direct or indirect, during
the two fiscal years ended December 31, 2002 and 2001, in any transaction or proposed
transaction which may materially affect the Company.

Private
Placement to Executive Officer

On
February 28, 2002 in consideration of $50,000, the Company issued 1,000,000 units to Mark
Smith (Smith), an Officer and Director of the Company (the Smith Unit
Private Placement). Each unit consists of one Company common share and one
non-transferable share purchase warrant which is exercisable to acquire one Company common
share at a price of $0.05 per share until March 1, 2007. The common shares issued had a
deemed price of $0.05. On February 25, 2002, the day that the transaction was approved by
the board of directors of the Company, the closing price of the Companys common
shares on the NASD OTCBB was $0.10.

The
securities issued in the Smith Unit Private Placement and the cash consideration paid by
Smith in the Smith Unit Private Placement were subject to the terms and conditions of an
escrow agreement dated February 28, 2002 by and among the Company, Mark Smith, and J. Erik
Mustad, an Officers and Directors of the Company (the Escrow Agreement). Under
the Escrow Agreement, J. Erik Mustad acts as escrow agent.

On
August 1, 2002, the board of directors approved a resolution to amend the Escrow Agreement
between the Company and an officer and director of the Company. The amendment provided for
the release of the securities held in escrow in the event that the Company reported two
consecutive fiscal quarters of positive earnings before interest, taxes, depreciation and
amortization charges once all non-cash expenses are removed from the calculation of
earnings, (Adjusted EBITDA). During the fiscal quarters ended March 31, 2002
and June 30, 2002, the Company reported positive Adjusted EBITDA. As a result, the
conditions necessary for the release of the securities from escrow had been satisfied.

65

---

At
August 1, 2002, compensation expense of $400,000, representing the intrinsic value of the
shares and warrants eligible for release from escrow was recorded.

Repricing
of Stock Options

On
February 25, 2002, the Companys board of directors approved a stock option repricing
program for the Company. Under the repricing program, certain holders of stock options,
including directors and officers, were entitled to exchange their existing stock options,
which had an exercise price of $0.25 per share, for repriced stock options with the same
terms, except the exercise price is reduced to $0.10 per share. At this repricing, the new
exercise price exceeded the market price of the Companys common shares. Each
repriced stock option has terms substantially equivalent to the terms of the original
grant, including the same vesting terms, number of shares and expiration date. Options to
purchase a total of 4,510,100 common shares were repriced.

Extension
of Stock Option Expiration Dates

During
the Companys fiscal year ended December 31, 2002, options previously granted to two
(2) Named Executive Officers were amended as to expiration date. The Company extended the
expiration date of options to purchase up to five hundred thousand (500,000) common shares
granted to J. Erik Mustad from January 25, 2003 to January 25, 2005. The Company extended
the expiration date of options to purchase up to five hundred thousand (500,000) common
shares granted to Mark M. Smith from January 25, 2003 to January 25, 2005.

# ITEM 13.  EXHIBITS AND
REPORTS ON FORM 8-K.

|(a) | Exhibits
|--- | --------

EXHIBIT INDEX

|Exhibit No. | Description
|----------- | -----------
|
|
|3.1         | (1)        
|            |            
|
|3.2         | (1)        
|            |            
|
|3.3         | (1)        
|
|3.4         | (1)        
|            |            
|
|3.5         | (1)        
|            |            
|
|10.1        | (1)        
|            |            
|            |            
|
|10.2        | (1)        
|            |            
|
|10.3        | (1)        
|            |            
|            |            
|
|10.4        | (1)        
|            |            

66

---

|Exhibit No. | Description
|----------- | -----------
|
|
|10.5        | (1)        
|            |            
|            |            
|
|10.6        |            
|            |            
|            |            
|
|10.7        |            
|            |            
|            |            
|
|10.8        | (1)        
|            |            
|
|10.9        |            
|            |            
|            |            
|
|10.10       | (1)(2)     
|            |            
|            |            
|
|10.11       |            
|            |            
|
|10.12       |            
|            |            
|            |            
|
|10.13       | (1)        
|            |            
|
|10.14       | (1)        
|            |            
|
|10.15       | (1)        
|            |            
|
|10.16       | (1)        
|            |            
|            |            
|
|10.17       | (1)        
|            |            
|
|10.18       | (1)        
|            |            
|
|10.19       | (4)        

67

---

|Exhibit No. | Description
|----------- | -----------
|
|
|10.20       | (5)        
|            |            
|
|10.21       | (5)        
|            |            
|
|10.22       | (5)        
|            |            
|            |            
|
|10.23       | (5)        
|            |            
|            |            
|
|10.24       | (5)        
|            |            
|            |            
|
|10.25       | (5)        
|            |            
|
|10.26       | (5)        
|            |            
|            |            
|
|10.27       | (5)        
|            |            
|
|10.28       | (5)        
|            |            
|
|10.29       | (6)        
|            |            
|
|10.30       | (6)        
|            |            
|
|10.31       | (6)        
|            |            
|
|10.32       | (6)        
|            |            
|
|10.33       | (6)        
|            |            
|
|10.34       | (6)        
|            |            
|
|10.35       | (6)        
|            |            

68

---

|Exhibit No. | Description
|----------- | -----------
|
|
|10.36       | (6)        
|            |            
|            |            
|
|10.37       | (6)        
|            |            
|
|10.38       | (7)        
|            |            
|
|10.39       | (7)        
|            |            
|
|10.40       | (7)        
|            |            
|
|10.41       | (8)        
|
|10.42       | (8)        
|
|10.43       | (8)        
|            |            
|
|10.44       | (8)        
|            |            
|
|10.45       | (8)        
|
|10.46       | (8)        
|            |            
|
|10.47       | (8)        
|            |            
|
|10.48       | (8)        
|            |            
|
|10.49       | (8)        
|            |            
|            |            
|
|10.50       | (8)        
|            |            
|
|10.51       | (9)        
|
|10.52       | (9)        
|
|10.53       | (9)        
|
|10.54       | (10)       
|            |            
|
|10.55       | (10)       
|            |            

69

---

|Exhibit No. | Description
|----------- | -----------
|
|
|10.56       | (10)       
|            |            
|
|21.1        |            
|
|23.1        |            
|
|99.1        |            
|
|99.2        |            

_________________

|(1) |  | Previously
filed on Form 20-F dated April 20, 1999.
|--- |  | ---------------------------------------------------

|(2) |  | Confidential
treatment has been requested with respect to portions of this exhibit pursuant to an
application for               confidential treatment filed with the Commission under Rule
24(b)-2(b) of the Securities Exchange Act of 1934, as               amended.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Previously
filed on Form 20-F/A dated June 4, 1999.
|--- |  | ---------------------------------------------------

|(4) |  | Previously
filed on Form S-8 dated September 8, 1999.
|--- |  | -----------------------------------------------------

|(5) |  | Previously
filed on Form S-8 dated May 31, 2000.
|--- |  | ------------------------------------------------

|(6) |  | Previously
filed on Form 20-F dated June 12, 2000.
|--- |  | --------------------------------------------------

|(7) |  | Previously
filed on Form S-8 dated November 16, 2000.
|--- |  | -----------------------------------------------------

|(8) |  | Previously
filed on Form 10-KSB dated May 8, 2001.
|--- |  | --------------------------------------------------

|(9) |  | Previously
filed on Form 10-QSB dated August 14, 2001.
|--- |  | ------------------------------------------------------

|(10) |  | Previously
filed on Form 10-KSB dated March 28, 2002
|---- |  | ----------------------------------------------------

|(b) | Reports
on Form 8-K.
|--- | --------------------

The Company filed no reports on Form
8-K during the fourth fiscal quarter ended December 31, 2002.

# ITEM 14.  CONTROLS AND
PROCEDURES.

The Company maintains disclosure
controls and procedures that are designed to ensure that information required to be
disclosed in the Companys Securities Exchange Act of 1934 reports is recorded,
processed, summarized and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to the
Companys management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.

Within 90 days prior to the date of
this report, the Companys management carried out an evaluation, under the
supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon the foregoing, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective in connection with the filing of this Annual Report
on Form 10-KSB for the year ended December 31, 2002.

There were no significant changes in
the Companys internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any significant
deficiencies or material weaknesses of internal controls that would require corrective
action.

70

---

# SIGNATURES

Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
certifies that it meets all of the requirements for filing on Form 10-KSB and has duly
caused this annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|Date:  March 28, 2003 | MOVING BYTES INC./s/ Mark Smith
Mark M. Smith, President and Chief Financial Officer
|--------------------- | ------------------------------------------------------------------------------------

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report to be signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

|Signature                               | Title                                                                          | Date          
|--------------------------------------- | ------------------------------------------------------------------------------ | --------------
|                                       
|/s/ J. Erik Mustad
J. Erik Mustad       | Chief Executive Officer and Director                                           | March 28, 2003
|                                       
|/s/ Mark M. Smith
 Mark M. Smith        | Chief Financial Officer, President
 and Director
(principal financing officer) | March 28, 2003
|                                       
|/s/ Jim Miller
 Jim Miller              | Director                                                                       | March 28, 2003
|                                       
|/s/ Stuart Rogers
 Stuart Rogers        | Director                                                                       | March 28, 2003
|                                       
|/s/ Ernie Kelly
 Ernie Kelly            | Director                                                                       | March 28, 2003
|                                       
|/s/ S. Thomas Wharton
S. Thomas Wharton | Director                                                                       | March 28, 2003

71

---

# SECTION 302
CERTIFICATION

I, J. Erik Mustad, certify that:

1.        I
have reviewed this annual report on Form 10-KSB of MOVING BYTES INC.;

2.         Based
on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements
were                made, not misleading with respect to the period covered by this
annual report;

3.         Based
on my knowledge, the financial statement, and other financial information
               included in this annual report, fairly present in all material respects
the                financial condition, results of operations and cash flows of the
registrant as                of, and for, the periods presented in this annual report;

4.                        The
registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

|a) |  | designed
such disclosure controls and procedures to ensure that material
               information relating to the registrant, including its consolidated
subsidiaries,                is made known to us by others within those entities,
particularly during the                period in which the annual report is being
prepared;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated
the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this
annual                report (the Evaluation Date); and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented
in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation of the
Evaluation                Date;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.                        The
registrants other certifying officers and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the
audit                committee of registrants board of directors (or persons
performing the                equivalent function):

|a) |  | all significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weakness in internal controls; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

|/s/ J. Erik Mustad
J. Erik Mustad
Chief Executive Officer | Date:  March 28, 2003
|--------------------------------------------------------- | ---------------------

---

# SECTION 302
CERTIFICATION

I, Mark Smith, certify
that:

1.                        I
have reviewed this annual report on Form 10-KSB of MOVING BYTES INC.;

2.                        Based
on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements
were                made, not misleading with respect to the period covered by this
annual report;

3.                        Based
on my knowledge, the financial statement, and other financial information
               included in this annual report, fairly present in all material respects
the                financial condition, results of operations and cash flows of the
registrant as                of, and for, the periods presented in this annual report;

4.                        The
registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

|a) |  | designed
such disclosure controls and procedures to ensure that material
               information relating to the registrant, including its consolidated
subsidiaries,                is made known to us by others within those entities,
particularly during the                period in which the annual report is being
prepared;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated
the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this
annual                report (the Evaluation Date); and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | resented
in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation of the
Evaluation                Date;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.                        The
registrants other certifying officers and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the
audit                committee of registrants board of directors (or persons
performing the                equivalent function):

|a) |  | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weakness in internal controls; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

|/s/ Mark Smith
Mark Smith
Chief Financial Officer | Date:  March 28, 2003
|------------------------------------------------- | ---------------------

---