As filed with the Securities and Exchange Commission on April 9, 2004



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

                                    FORM 20-F


[ ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

                                       or

[ ]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934, AS AMENDED

                   For the fiscal year ended December 31, 2003

                                       or

[x]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                        EXCHANGE ACT OF 1934, AS AMENDED

       For the transition period from October 31, 2003 to December 3, 2003


                         Commission file number: 0-23304

                                DIVERSINET CORP.

                           Province of Ontario, Canada

         2225 Sheppard Avenue East, Suite 1801, Toronto, Ontario M2J 5C2

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report: 11,043,027 Common Shares as of December 31, 2003

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, 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 [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow:

                             Item 17 [X] Item 18 [ ]



<PAGE>

                                DIVERSINET CORP.
                             FORM 20-F ANNUAL REPORT
                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
PART I                                                                                               Page
<S>               <C>                                                                                 <C>
ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS................................4

ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE..............................................4

ITEM 3.           KEY INFORMATION......................................................................4

ITEM 3. (A)       SELECTED FINANCIAL DATA..............................................................4

ITEM 3. (B)       CAPITALIZATION AND INDEBTEDNESS......................................................5

ITEM 3. (C)       REASONS FOR THE OFFER AND USE OF PROCEEDS............................................5

ITEM 3. (D)       RISK FACTORS.........................................................................5

ITEM 4.           INFORMATION ON DIVERSINET...........................................................11

ITEM 4. (A)       HISTORY AND DEVELOPMENT OF DIVERSINET...............................................11

ITEM 4. (B)       BUSINESS OVERVIEW...................................................................11

ITEM 4. (C)       ORGANIZATIONAL STRUCTURE............................................................23

ITEM 4. (D)       PROPERTY, PLANT AND EQUIPMENT.......................................................24

ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................................24

ITEM 5. (A)       OPERATING RESULTS...................................................................25

ITEM 5. (B)       LIQUIDITY AND CAPITAL RESOURCES.....................................................28

ITEM 5. (C)       RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ET CETERA...........................28

ITEM 5. (D)       TREND INFORMATION...................................................................29

ITEM 6.           DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES.........................................29

ITEM 6. (A)       DIRECTORS AND SENIOR MANAGEMENT OF THE REGISTRANT...................................30

ITEM 6. (B)       COMPENSATION........................................................................30

ITEM 6. (C)       BOARD PRACTICES.....................................................................32

ITEM 6. (D)       EMPLOYEES...........................................................................32

ITEM 6. (E)       SHARE OWNERSHIP.....................................................................32

ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...................................33

ITEM 7. (A)       MAJOR SHAREHOLDERS..................................................................33

ITEM 7. (B)       RELATED PARTY TRANSACTIONS..........................................................35

ITEM 7. (C)       INTERESTS OF EXPERTS AND COUNSEL....................................................35

ITEM 8.           FINANCIAL INFORMATION...............................................................35

ITEM 8. (A)       FINANCIAL INFORMATION...............................................................35

ITEM 8. (B)       SIGNIFICANT CHANGES.................................................................36

ITEM 9.           THE OFFER AND LISTING...............................................................36

ITEM 9. (A)       OFFER AND LISTING DETAILS...........................................................36

ITEM 9. (B)       PLAN OF DISTRIBUTION................................................................37

ITEM 9. (C)       MARKETS.............................................................................37

ITEM 9. (D)       SELLING SHAREHOLDERS................................................................37

ITEM 9. (E)       DILUTION............................................................................37

ITEM 9. (F)       EXPENSES OF THE ISSUE...............................................................37

ITEM 10.          ADDITIONAL INFORMATION..............................................................37

ITEM 10. (A)      SHARE CAPITAL.......................................................................37

ITEM 10. (B)      MEMORANDUM AND ARTICLES OF ASSOCIATION..............................................37

ITEM 10. (C)      MATERIAL CONTRACTS..................................................................38
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                  <C>
ITEM 10. (D)      EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITYHOLDERS...................38

ITEM 10. (E)      TAXATION............................................................................39

ITEM 10. (F)      DIVIDENDS AND PAYING AGENTS.........................................................43

ITEM 10. (G)      STATEMENT BY EXPERTS................................................................43

ITEM 10. (H)      DOCUMENTS ON DISPLAY................................................................43

ITEM 10. (I)      SUBSIDIARY INFORMATION..............................................................43

ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................43

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES .............................43

                                                      PART II

ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.....................................44

ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS........44

ITEM 15.          [RESERVED]..........................................................................44

ITEM 16.          [RESERVED]..........................................................................44

                                                     PART III

ITEM 17.          FINANCIAL STATEMENTS................................................................44

ITEM 18.          FINANCIAL STATEMENTS................................................................44

ITEM 19.          EXHIBITS............................................................................44
</TABLE>


                                       3
<PAGE>

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not Applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not Applicable.

ITEM 3.  KEY INFORMATION

3-A.     Selected Financial Data

The selected financial data for fiscal years ended October 31, 1999, 2000, 2001
and 2002, for the twelve months ended October 31, 2003 and for the fourteen
months ended December 31, 2003 are derived from our audited financial
statements. The selected financial data for the two months ended December 31,
2003 are derived from our unaudited financial statements. During 2003 we changed
our fiscal year from October 31st to December 31st. The following selected
financial data should be read in conjunction with the consolidated financial
statements and the notes thereto and "Operating Results" appearing in Item 5-A.
of this annual report. As a result of a number of circumstances, including the
current year financing activities, the acquisition of DSS and Caradas and the
U.S. dollar becoming the primary currency in which most of the Company's
business is transacted, effective October 1, 2003, the Company adopted the U.S.
dollar as its measurement and reporting currency for preparation of its
consolidated financial statements. In addition, except where otherwise
indicated, all financial information is presented in United States dollars.

Our financial statements have been prepared in accordance with Canadian GAAP.
These principles conform in all material respects with U.S. GAAP except as
described in Note 15 to our 2003 consolidated financial statements. The
differences between line items under Canadian GAAP and those as determined under
U.S. GAAP are not significant except that, under U.S. GAAP, our total loss would
be greater by $nil for the fourteen month period ended December 31, 2003 and the
twelve month period ended October 31, 2003, $35,000 for the year ended October
31, 2002, greater by $37,000 for the year ended October 31, 2001, greater by
$983,000 for the year ended October 31, 2000 and less by $120,000 for the year
ended October 31, 1999. Under U.S. GAAP share capital would be greater and
deficit would be less by $30,089,000 for each of the years due to the
elimination of reduction in stated capital offset against accumulated
shareholders' deficit in March of 1999.

Selected Financial Data Ended December 31, 2003 and Years Ended October 31,
2003, 2002, 2001, 2000, 1999 and 1998

                       (in $000's, except per share data)

<TABLE>
<CAPTION>
                               Fourteen                Twelve
                                Months   Two Months    Months
                                Ended       Ended       Ended
                             December 31 December 31  October 31                Fiscal Year Ended October 31
                              --------    --------    --------    --------------------------------------------------------
                                 2003       2003        2003        2002        2001        2000        1999       1998
                              --------    --------    --------    --------    --------    --------    --------    --------
                                                      (In accordance with Canadian GAAP)
<S>                           <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenue ...................   $  8,563    $  1,454    $  7,108    $    710    $    793    $  1,787    $    164    $      0
Loss from Continuing ......     (5,618)       (784)     (4,840)     (4,065)    (12,272)    (10,019)     (9,230)     (5,273)
Operations
Net loss from Discontinued           0           0           0           0           0        (170)       (190)       (470)
Operations
Net Loss ..................     (5,618)       (784)     (4,840)     (4,065)    (12,272)    (10,189)     (9,420)     (5,743)
Weighted Average no. of ...      6,478      11,043       5,715       2,972       2,638       2,353       1,674       1,533
shares (000's)
Loss Per Share - Continuing      (0.87)      (0.07)      (0.85)      (1.37)      (4.65)      (4.27)      (5.47)      (3.42)
Operations
Net Loss Per Share ........      (0.87)      (0.07)      (0.85)      (1.37)      (4.65)      (4.34)      (5.61)      (3.76)
Dividends Per Share .......       0.00        0.00        0.00        0.00        0.00        0.00        0.00        0.00
Working Capital (Deficit) .        452         452       1,114       1,752       2,253      14,135       3,389       1,709
Long-term Investment ......          0           0           0           0           0           0           0          65
Long-term Liabilities .....        300         300         300           0           0           0         966       1,329
Shareholders' Equity ......      7,647       7,647       8,462       2,950       3,835      16,223       5,338       2,428
Total Assets ..............     11,004      11,004      12,099       4,009       6,093      18,786       8,311       4,768
Share Capital .............     49,191      49,191      49,202      40,678      34,212      35,186      14,220      28,330
</TABLE>

<PAGE>

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                                (In accordance with U.S. GAAP)

                                      Fourteen                Twelve
                                       Months   Two Months    Months
                                       Ended       Ended       Ended
                                    December 31 December 31  October 31                Fiscal Year Ended October 31
                                      -------     -------     -------     -------------------------------------------------------
                                       2003        2003        2003        2002        2001        2000        1999        1998
                                      -------     -------     -------     -------     -------     -------     -------     -------
<S>                                    <C>           <C>       <C>         <C>        <C>         <C>          <C>         <C>
Loss from Continuing .............     (5,618)       (783)     (4,834)     (4,100)    (12,309)    (11,002)     (9,110)     (2,450)
Operations
Net Loss from Discontinued .......          0           0           0           0           0        (170)       (190)       (470)
Operations
Net Loss .........................     (5,618)       (783)     (4,840)     (4,100)    (12,309)    (11,171)     (9,301)     (2,920)
Loss Per Share - Continuing ......      (0.87)      (0.07)      (0.85)      (1.38)      (4.67)      (4.68)      (5.47)      (1.57)
Operations
Net Loss Per Share ...............      (0.87)      (0.07)      (0.85)      (1.38)      (4.67)      (4.75)      (5.54)      (1.91)
Long-term Liabilities ............        300         300         300           0           0           0       1,158       1,719
Shareholders' Equity .............      6,655       6,655       7,471       1,958       2,881      15,277       5,147       2,010
Total Assets .....................     11,004      11,004      12,099       4,009       6,093      18,786       8,311       4,738
Share Capital ....................     79,281      79,281      79,291      70,767      60,348      62,119      42,261      28,893
</TABLE>


At our March 1999 Annual Meeting, our shareholders approved a resolution
providing for the reduction of our stated capital by $30,089,000. This resulted
in a reduction in our accumulated shareholders' deficit in the same amount. At
December 31, 2003, we had an accumulated deficit of $41,482,000. If our
shareholders had not approved the reduction in our stated capital, our
accumulated deficit at December 31, 2003 would have been $71,571,000 and October
31, 2002 would have been $65,953,000.

3-B.  Capitalization and Indebtedness

      Not Applicable.

3-C.  Reasons for the Offer and Use of Proceeds

      Not Applicable.

3-D.  Risk Factors

When used in this annual report, the words "may", "will", "expect",
"anticipate", "continue", "estimate", "project", "intend" "plan" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding events, conditions and financial trends that may affect Diversinet's
future plans of operations, business strategy, operating results and financial
position. All statements, other than statements of historical facts, included or
incorporated by reference in this document which address activities, events or
developments which the Company expects or anticipates will or may occur in the
future, including such things as future capital expenditures (including the
amount and nature thereof), business strategy, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. Such statements are
not guarantees of future performance and are subject to risks and significant
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. The
occurrence of any unanticipated events may cause actual results to differ from
those expressed or implied by the forward-looking statements contained herein.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors, some of which are
described in the Risk Factors below.

We have limited financial resources. Our ability to continue operations during
the next fiscal year will be dependent on our ability to obtain additional
financing. Although we have made progress in developing our products and have
completed initial consumer deployments, our revenue from operations is not
sufficient to cover our operating expenses at present and may be insufficient
within fiscal 2004. We have obtained funding for operations from private equity
placements in the past, raising approximately $49,835,000 through selling a
total of 10,421,132 common shares, but there is no assurance we will be able to
do so again in the near future despite the progress of the business. In January
2004 we completed a private placement through the issuance of 1,000,000 common
shares and 1,100,000 common share purchase warrants. We received gross proceeds
of $2,000,000 in the transaction. The warrants were comprised of 500,000
warrants exercisable at $2.00 and 600,000 at $2.05. Each warrant entitles the
holder thereof to acquire one common share for a period of three years. In June
2003 we completed a private placement with the issuance of 5,000,000 common
shares at a price of $0.62 per common share for gross proceeds of $3,100,000 to


                                       5
<PAGE>

the Company. In April 2002, we completed a private placement with the issuance
of 518,671 units at a price of $6.00 per unit for gross proceeds of $3,112,022
to the Company. Each unit is comprised of one common share and three-quarters
(3/4) of one common share purchase warrant (each whole warrant, a "Warrant").
Each Warrant entitles the holder thereof to acquire one common share at a price
of $7.20 per common share for a period of up to three years from April 4, 2002.
There is no assurance we will be able to obtain further placements in the near
future despite the progress of the business. As well, the terms of new capital,
if any, may materially dilute existing shareholders. Our failure to either raise
capital when needed or to generate revenues would leave us with insufficient
resources to continue our business.

      We have lost money in the past, we have realized insufficient revenues
from continuing operations and we expect to continue to sustain losses in the
future. We have generated insufficient revenue to date from the sales of our
solutions and licensing of our products to cover our operating costs. For the
fourteen months ended December 31, 2003, we posted a net loss of $5,618,000. For
the year ended October 31, 2003, we posted a net loss of $4,834,000, for October
31, 2002, we posted a net loss of $4,065,000 and for October 31, 2001, we posted
a net loss of $12,272,000. For the years ended October 31, 2000 and October 31,
1999, we had net losses of $10,189,000 and $9,421,000, respectively. We
generated revenue of $8,563,000 for the fourteen months ended December 31, 2003,
$7,108,000 in the twelve months ended October 31, 2003, $710,000 in the year
ended October 31, 2002, $793,000 in the year ended October 31, 2001, $1,787,000
in the year ended October 31, 2000 and $164,000 in the year ended October 31,
1999. The revenue represents the sales of our secured wireless and identity
management solutions and professional services including the initial licensing
of our Passport Certificate Server(R), Passport Authorization Product(TM) and
Connexus product together with related professional services and consulting
revenue. During fiscal 2001, 40% of our revenue was generated from one customer.
During fiscal 2002, 28% of revenue was generated from one customer although not
the same customer as in fiscal 2002, and 54% of revenue was generated from three
customers. During fiscal 2003, 30% of revenue was generated from one customer
although not the same customer as in fiscal 2001, and 50% of revenue was
generated from two customers. To date, the sales of our solutions, including
related consulting services and licensing our products to various customers and
providing them with related professional services has generated our revenues. We
cannot provide assurance that recurring revenues will arise from these
agreements. The auditors' reports on our December 31, 2003 consolidated
financial statements included additional comments for U.S. readers that states
that conditions and events exist that cast substantial doubt on our ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.

Commercial deployment. Our ability to continue operations is also dependent on
the acceptance of our security products and the adoption of transaction-based
applications using Public Key Infrastructure-based security (also known in the
industry as PKI) over wireless networks as an accepted method of commerce in
sufficient volume for us to generate enough revenues to fund our expenses and
capital requirements. The wireless mobile commerce market is in a very early
stage, and it may not develop to a sufficient level to support our business.

Our solutions are marketed to large companies and government agencies. The
implementation of our solutions by these entities typically involves a lengthy
education process and a significant technical evaluation and commitment of
capital and other resources. This process is also subject to the risk of delays
associated with customers' internal budgeting and other procedures for approving
large capital expenditures, deploying new technologies within their networks and
testing and accepting new technologies that affect key operations. As a result,
the associated sales and implementation cycles can be lengthy. Our quarterly and
annual operating results could be materially harmed if anticipated orders for a
specific customer for a particular quarter are not realized.

Many of our early licensing agreements permitted our customers to examine and
test our products with no initial up-front payments to us. These customers are
not required to make payments to us until they begin to use our product for
commercial purposes. In certain cases, we also enter into evaluation agreements,
whereby potential customers may examine our software products for a specified
period of time with no payment to us. Our licensing agreements typically require
the customer to pay a license fee attributable to the software components and
the solution and upon shipment of these items to the customer, although we have
often waived the up-front fee.

Market conditions. The general economic conditions may have a significant impact
on our ability to generate sales for our solutions. During fiscal 2002 and 2001,
we experienced decreased activity from our potential customers and generally the
adoption of wireless services has not proceeded as rapidly as previously
expected. During 2003, with the acquisitions of DSS and Caradas, we were able to
increase revenues, however there is no guarantee that sales will not decline in
the near future.

Foreign exchange. Our functional currency is the U.S. dollar. Sales generated
outside Canada are generally denominated in U.S. dollars. During fiscal 2003, we
incurred a large portion of our expenses in U.S. dollars, but we also incurred a
smaller portion of our expenses in other currencies including Canadian dollars,
Pound Sterling and Hong Kong dollars. Changes in the value of these currencies
relative to the U.S. dollar may result in currency losses that may have an
adverse effect on our operating results. With the completion of our financings
in June 2003 and January 2004, we have a portion of our cash resources in U.S.


                                       6
<PAGE>

dollar short-term investments and in Canadian dollars. During fiscal 2003 we
maintained a portion of our cash resources in both U.S. and Canadian dollar term
deposits. During 2003 we with the acquisitions of DSS and Caradas, we switched
our reporting currency from Canadian dollars to U.S. dollars.

We may not be successful if we fail to retain our key technical personnel.
During 2003, in order to reduce our largest single expenditure, salaries and
benefits, we reduced our headcount of employees in the Toronto office. During
September 2001, we substantially reduced our headcount and curtailed certain
sales and marketing activities, particularly in the United States. During 2002
and 2003, we continued to review our cost structure and have continued to reduce
our headcount. Workforce reductions may have a detrimental effect on the morale
of remaining employees, impeding their performance levels. In addition, our
ability to attract potential new employees in the future may suffer if our
reputation was hurt by this staff reduction.

We currently have seven senior officers and 124 employees and contractors. We
may not be able to improve our products or create new products if we lose any of
our key employees or contractors. The contract with our CEO, Mr. Nagy Moustafa,
had a term of five years, commencing September 29, 1997, and has been renewed on
a year-to-year basis. None of our other employment agreements has a specified
term. We do not maintain key person life insurance policies on any of our
employees. Skilled technical personnel can be difficult to attract depending on
the strength of the economy and competitive opportunities. We may not be able to
retain our current employees if they receive better job offers from other
employers. The weakened economy through 2002 and 2003 may not alleviate this
risk in the future.

We are involved in litigation which could result in judgments against us which,
in the aggregate, could total more than our combined current assets, working
capital and net assets. There are currently two material claims pending against
us. If we lose either of these suits or enter into settlements requiring us to
pay cash or issue any of our common shares, our liquidity and financial position
will be adversely affected, and our shareholders' ownership may be diluted.

We have been sued, along with other individuals and corporations, by Silva Run
Worldwide Ltd. in connection with Silva Run's purchase of 21,250 common shares
(850,000 common shares prior to reverse splits in May 1997 and January 2003) in
1995 for a purchase price of $3,700,000. Silva Run is seeking to cancel the
stock purchase and reimbursement of the $3,700,000 purchase price, plus
interest, attorneys' fees and costs. Silva Run has alleged that we, directly or
as the control person of other defendants, violated the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended.

In May 2000 we were sued, along with our wholly owned Barbados subsidiary, in an
action in which the plaintiff is seeking damages of $1,533,950 for breach of an
October 25, 1995 dealer agreement with our previous printing business regarding
the distribution of printing equipment and damages of $25,000,000 for loss of
reputation and loss of opportunity, pre-judgment and post-judgment interest, and
costs.

In July 2003, we were sued in the Ontario Superior Court of Justice by two
former employees who claim, inter alia, that each was terminated, while on short
term disability, in a manner that exhibited bad faith and unfair dealings. One
is seeking against Diversinet $125,000 in special, general, punitive and
exemplary damages. The other is seeking against Diversinet $350,000 in special,
general, punitive and exemplary damages.

In January 2004, we and an officer of the Company were sued in the Ontario
Superior Court of Justice by a former employee who claims, inter alia, that he
was wrongfully terminated in a manner that exhibited bad faith and unfair
dealings. He is seeking a total of Cdn$450,000 against us and our officer in
aggravated, general, punitive and exemplary damages.

We have limited experience in the wireless Internet security software field and
we are therefore subject to risks inherent in establishing a new business. We
have been in the wireless Internet security software field since fiscal 1997 and
the identity management solutions field since 2001, and we have only generated
minimal revenues from this business. We are not sufficiently established to
fully evaluate or forecast our prospects, and we are subject to the risks
inherent in establishing a new business enterprise in an early market
environment.

We are dependent on the adoption of transaction-based applications over wireless
networks as an accepted method of commerce. In order for us to be successful,
transaction-based applications using wireless security infrastructure over
wireless networks must be adopted as a means of trusted and secure
communications and commerce to a sufficient extent and within a reasonable time
frame, particularly considering our existing financial resources and future
capital needs. Since trusted and secure communications and commerce over these
networks is new and evolving, it is difficult to predict with any assurance the
size of this market and its growth rate, if any.

If the market for trusted and secure communications and commerce utilizing PKI
over these networks fails to develop or develops more slowly than expected, we
may have difficulty selling products or generating sufficient revenues to
support our business.


                                       7
<PAGE>

Our ability to keep pace with the rapid technological changes and frequent new
product introductions common in the electronic commerce industry will determine
our ability to remain competitive and affect the viability of our products. To
succeed in the mobile e-commerce and the identity management solutions business,
we believe that we will have to continuously improve the performance, features
and reliability of our products and be the first to the market with new products
or enhancements to existing products. We cannot provide assurance that we will
be able to improve our products in a timely manner. The emerging market for
security solutions for mobile e-commerce and the identity management is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. We anticipate this evolution will
also occur in the mobile e-commerce and the identity management solutions market
in which we focus our technological developments. The adoption of new standards,
or the informal adoption of certain standards by a significant percentage of the
computer security and related industries, could require us to reconfigure our
products. We may not be able to counter challenges to our current products or to
introduce product offerings that keep pace with the technological changes
introduced by competitors or persons seeking to breach information security. We
are not currently aware of any significant new technologies either under
development or about to be introduced in the mobile e-commerce or the identity
management solutions security field.

The highly competitive nature of the electronic commerce field could prevent us
from achieving success. Our solutions are targeted at the new and rapidly
evolving market for authentication and authorization products for wireless
electronic commerce, telecommunications and identity management. This market is
not mature. We anticipate that it will be intensely competitive, subject to
rapid change and significantly affected by new solution, product and service
introductions and other market activities of industry participants. Many of our
competitors and potential competitors have a longer operating history, greater
name recognition, larger installed customer base and significantly greater
financial, technical and marketing resources than we have. As a result, they may
be able to adapt more quickly to new or emerging technologies and changes in
customer requirements, and they could therefore render our technologies and
products obsolete.

Because of the broad potential application of our authentication and
authorization software and identity management solutions, we compete with
vendors offering a wide range of computer security products. These competitors
include Entrust Technologies, VeriSign, Certicom and RSA Security. There also
may be other potential entrants to the market of whom we are not yet aware.

Our licensing revenues are dependent on our customers' acceptance and use of our
software products, and we expect our sales cycle to be lengthy. We often enter
into evaluation agreements, whereby potential customers may examine our software
products for a specified period of time with no payment to us. Our current
licensing agreements typically require the customer to pay a license fee
attributable to the software components and the development toolkit and upon
shipment of these items to the customer, until early in fiscal 2000, we
generally waived the up-front fee.

Customers often cannot simply license our solutions and begin using them
immediately in their businesses as our solutions are often part of an overall
application environment. This can make our solutions work with a particular
customer's application complex, expensive and, in certain cases, an ultimately
unsuccessful process. This process may also require the customer to make
significant commitments of time and money. Based on discussions with our
customers, we believe that a customer's required cycle of testing, internal
approval and network modifications can reasonably take between six and nine
months or longer. Therefore, we expect our sales cycle, or the time between
entering into an agreement and when we begin to receive revenue, to be six to
nine months or longer. Also, the amount of revenue can be very limited until the
customer's product is made generally available and adopted. Our sales are also
subject to significant risks over which we have little or no control, including
customers' budgetary constraints and internal acceptance procedures regarding
security-related matters.

We lack experience in marketing and sales, and we depend on our relationships
with more established corporations to assist in marketing and selling our
product. We have limited sales and marketing experience and limited money to
fund marketing. A significant part of our business strategy is to form strategic
relationships with more established companies to expose our solutions to a
larger customer base than we could reach through a direct sales and marketing
force. Our existing relationships have not resulted in any significant revenues
to date and may not result in any revenues in the future.

As a result of our emphasis on these relationships, our success will partially
depend on both the ultimate success of the third parties with whom we have these
relationships and the ability of these third parties to market our products and
services successfully.

In the past, we have concentrated our sales efforts marketing to application
service providers. This strategy has lead to no commercial deployments. As a
result and due to some success experienced by us in Hong Kong, we are focussing
our efforts on working to establish the necessary infrastructure first. We have
jointly developed Mobile e-Cert with Hongkong Post. Hongkong Post will support
the Mobile e-Certs through its Mobile Certification Authority and mobile
operators will act as the Registration Authorities for the authentication of the


                                       8
<PAGE>

identity of Mobile e-Cert subscribers. Hongkong Post is the first recognized
public certificate authority in Hong Kong. Hutchinson, the largest and leading
mobile operator in Hong Kong, has been appointed the first certified
Registration Authority for the registration of Hongkong Post Mobile e-Cert
digital certificates to mobile users. The company believes that this appointment
also marks the first time worldwide a mobile operator is acting as a
Registration Authority for the issuance of wireless digital certificates. After
this was successfully accomplished, we have been working with application
service providers who will develop applications that will have our software
embedded and will utilize Mobile e-Cert. Furthermore, with our recent
acquisitions of DSS and Caradas, we believe that we have mitigated our risk by
diversifying our solution offering.

We cannot provide assurance that we will be able to enter into additional, or
maintain our existing, strategic relationships on commercially reasonable terms,
if at all. Our failure to do so would require us to devote substantially more
resources to the distribution, sales and marketing of our products and services.
Also, these strategic relationships do not afford us any exclusive marketing or
distribution rights. The third parties may reduce their commitments to us in the
future or pursue alternative technologies.

The nature of our products subjects us to product liability risks, potential
lost revenues and adverse publicity in the event of product failure. Our
customers may rely on our products to prevent unauthorized access to computer
networks. Malfunctions or design defects of our products could:

      o     cause interruptions, delays or cessation of services to our
            customers,
      o     result in product returns,
      o     result in liability for damages,
      o     adversely affect the market's perception of the security offered by
            our product, resulting in a lack of demand for our products, or
      o     require us to make significant expenditures of capital or other
            resources to alleviate the problem.

Our license agreements may not be adequate to limit our liability. A large
number of claims by our customers could subject us to significant liability as
well as limit the demand for our solutions and products. In most cases our
license and support agreements attempt to limit our liability to the total
amount of the licensing and support fees paid during the twelve-month period
preceding an alleged error in or failure of our software. This contractual
provision may not always be enforceable. Courts have held that contractual
limitations of liability of this type, or the "shrink-wrap licenses" in which
they are sometimes embodied, are unenforceable because the licensee does not
sign them. If these contract provisions limiting our liability are not
enforceable, we could be obligated to pay significant damages resulting from
customer claims.

If computer hackers find ways to circumvent our products, our products would not
perform their essential function. Any compromise of the security offered by our
products, in a single incident or a series of incidents, would make our products
less attractive to our customers. Software error or failure may result from a
hacker seeking unauthorized access to a computer network. The methods used by
hackers are evolving rapidly and generally are not recognized until they are
launched against one or more systems. We are unable to anticipate hackers'
tactics. The publicity surrounding any security breaches could adversely affect
the public perception of the security offered by our authentication and
authorization products and make it more difficult for us to sell our products.

Technical advances in the information security market may make our products
obsolete. Our products are based on PKI technology and identity management
technology and depend in part on the application of certain mathematical
principles forming the basis of the encryption technology that we license and
embed in our products. Any significant advance in techniques for decoding or
cracking encrypted computer information could render our products obsolete or
unmarketable.

Our PKI products use algorithms, or mathematical formulae, to encrypt and secure
information. The security afforded by our products is predicated on the
assumption that these mathematical formulae are very difficult to solve. This
assumption is based on the fact that years of theoretical and empirical research
by leading mathematicians have not resulted in any efficient solutions to these
problems. There can be no assurance, however, that future research will not
uncover efficient solutions to these problems.

Also, even if no breakthrough in solving these problems is discovered, they may
eventually be solved by computer systems having sufficient speed and power. If
improved techniques for decoding encrypted information are developed or made
possible by the increased availability of powerful computing resources, our
products could be rendered obsolete.

We might not always be able to enforce our intellectual property rights. Our
success depends significantly upon our proprietary technology and our means of
protecting our proprietary and intellectual property rights may not be adequate.
We rely on a combination of patent and trademark laws, trade secrets,
confidentiality agreements and contractual provisions to protect our proprietary
rights. We have two U.S. patents, which will be in effect until at least August
22, 2017, and three patents granted in Israel in effect until 2017 and 2021, as
well as 13 applications pending in Israel, the United States and Canada. We
cannot provide assurance that any of our applications will be approved, that any
new patents will be issued, that we will develop proprietary products or
technologies that are subject to patent, that any issued patent will provide us
with any competitive advantages or will not be challenged by third parties.
Furthermore, we cannot provide assurance that the patents of others will not
have a material adverse effect on our business and operating results. There is
also a risk that our competitors will independently develop similar technology,
duplicate our products or design around our patents or other intellectual
property rights.

                                       9
<PAGE>

If our technology or products were determined to infringe upon the rights of
others, we would be required to obtain licenses to use that technology. If we
are not able to obtain a license in a timely manner on acceptable terms or at
all, we may have to stop producing our product until we can develop an
alternative that does not infringe the rights of others.

Patent disputes are common in technology-related industries. We cannot provide
assurance that we will have the financial resources to enforce or defend a
patent infringement or proprietary rights action. As the number of products and
competitors in our target markets grows, the likelihood of infringement claims
also increases. Any claims or litigation may be time-consuming and costly, cause
product shipment delays or require us to redesign our product or require us to
enter into royalty or licensing agreements. Any of these events could have a
material adverse effect on our business and operating results. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to use our proprietary information and software.
In addition, the laws of some foreign countries do not protect proprietary and
intellectual property rights to as great an extent as do the laws of Canada and
the United States.

We have focused our sales and marketing efforts in Asia and Hong Kong. In 2003,
several economies in Asia, including Hong Kong, have been negatively affected by
the outbreak of severe acute respiratory syndrome, or SARS. Some industries in
Hong Kong were been hit hard by the SARS outbreak. The dramatic decline in the
business has had a negative effect on the economy of Hong Kong for 2003. The
Government of Hong Kong and business communities have taken various measures to
stimulate the economic recovery of Hong Kong. While the ultimate impact of SARS
is unclear at this time, the effects of these measures are crucial to Hong
Kong's future financial condition and economic developments, which would in turn
affect our financial condition and results of operations.

Changes in the export regulation of encryption-based technologies may restrict
our ability to sell or license our products. Our products are subject to export
controls under Canadian and U.S. laws and regulations. These laws and
regulations may be revised from time to time in ways that may materially and
adversely affect our ability to sell our products abroad or to make products
available for sale or license via international computer networks such as the
Internet, although pursuant to an international treaty, a number of countries
have relaxed, or are in the process of relaxing, their export rules as
applicable to products licensed by us. Canadian and U.S. government controls on
the export of encryption technologies which we license from third parties and
which are embedded in our products may, if subject to revision, be amended and
subsequently restrict our ability to freely export our products. As a result,
foreign competitors subject to less stringent export controls on their products
may be able to compete more effectively than we can in the global information
and computer security market.

Our articles of incorporation authorize us to issue an unlimited number of
common shares, which could result in dilution to our shareholders. Subject to
regulatory and/or shareholder approval, shareholders may experience dilution or
limitations in takeover attempts because our articles of incorporation allow us
to issue an unlimited number of common shares. Our shareholders have no right to
purchase additional common shares when we issue new shares. As of February 15,
2004, we had 12,043,027 common shares issued and outstanding.

In addition, our ability to issue an unlimited number of common shares may have
the effect of delaying, deferring or preventing a takeover attempt by a third
party attempting to acquire control of us.

If our common shares should become ineligible for continued quotation on the OTC
BB or a public trading market does not continue for any reason, holders of our
common shares may have difficulty selling their shares. Our common shares became
ineligible for continued quotation on the NASDAQ SmallCap Market and are now
trading on the Over the Counter Bulletin Board; therefore holders of our common
shares will have difficulty selling their shares. Our common shares were quoted
on the NASDAQ SmallCap Market from June 1995 through late April 2003.

Our common shares may continue to be penny stock, which may adversely affect the
liquidity of our common shares. The United States Securities and Exchange
Commission has adopted regulations that define a penny stock to be any equity
security that has a market price, as defined in those regulations, of less than
$5.00 per share, subject to certain exceptions. Our common shares are currently
penny stock.



                                       10
<PAGE>

Generally, for any transaction involving a penny stock, a broker-dealer is
required to deliver, prior to the transaction, a disclosure schedule relating to
the penny stock market as well as disclosure concerning, among other things, the
commissions payable, current quotations for the securities and information on
the limited market in penny stocks.

The liquidity of our common shares may be materially and adversely affected if
our common shares continue to be penny stock due to the administration
requirements imposed by these rules.

It may be difficult for our shareholders to enforce civil liabilities under the
U.S. federal securities laws because we are incorporated in Canada. Diversinet
is incorporated under Canadian law and the majority of our directors and
executive officers are Canadian citizens or residents. All, or a substantial
portion, of these persons' assets and substantially all of our assets are
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon those
persons or Diversinet or to enforce against them judgments of U.S. courts
predicated upon civil liabilities under U.S. federal or state securities laws.
Also, there is uncertainty as to the enforceability in Canada, in original
actions or in actions for enforcement of judgments of the U.S. courts, of civil
liabilities predicated upon U.S. federal or state securities laws.

ITEM 4.  INFORMATION ON DIVERSINET

4-A. History and Development of Diversinet

Diversinet Corp. (formerly The Instant Publisher Inc.) was formed on December 8,
1993 through the amalgamation of The Instant Publisher Inc. with Lombard
Consolidated Resources Inc., an Ontario corporation. We are regulated in
accordance with the Ontario Business Corporations Act. Our registered and
principal office is located at 2225 Sheppard Avenue East, Suite 1801, Toronto,
Ontario, Canada, M2J 5C2 (telephone: 416-756-2324; fax: 416-756-7346).

The following table provides the amount spent on capital expenditures for the
fourteen-month period ended December 31, 2003 and the last two fiscal years
ended October 31, 2002 and 2001:

                  YEAR                        AMOUNT
                  ----                        ------
                  2003                        $75,000
                  2002                        $21,000
                  2001                       $719,000

There have been no major capital divestitures during the fourteen-month period
ended December 31, 2003 or the two-year period ended October 31, 2002. A large
portion of the capital expenditures have been computer hardware and software
required for our continued growth. Most of these expenditures have occurred at
our head office. We currently have no significant capital expenditures or
divestiture projects in process. All capital expenditures have been financed
through working capital.

4-B.     Business Overview

We are a security software product company that develops, markets and
distributes wireless security and identity management solutions and professional
services to the enterprise, financial services, government and gaming and
wagering marketplace. As part of providing these solutions we perform
professional services to install, support and integrate our solutions with other
applications. Our solutions encompass all aspects of commercial transaction
security requirements, covering the authentication and authorization of
individuals involved, the integrity of the information being sent and the
non-repudiation or legalization of the transaction.

We are a pioneer in providing security products and solutions for mobile
commerce over wireless networks and are striving to become the leading provider
of wireless security solutions. Our strategy to achieve this objective involves:
targeting emerging m-commerce markets, expanding strategic partnerships and
sales channel relationships, maintaining a leadership position in terms of
products and research and development and building awareness of the Diversinet
brand.

Security solutions are becoming important to a wide range of parties - service
providers, applications developers, certification authorities, enterprises,
content providers and end-users - as organizations increasingly utilize public
and private networks for confidential and high-value transactions. The highly
publicized security breaches associated with communications, the storage of
confidential information and transactions over communications networks have
accentuated the need for security solutions that address the critical network
security needs.

We believe that the enactment of the Electronic Signatures in Global and
National Commerce Act by the United States in June 2000, together with similar
legislation emerging throughout the world, is increasing the demand for security
in mobile commerce to parallel that of the bricks-and-mortar world.

A wide range of products and services has been introduced recently to address
the security needs of mobile users. However, the lack of flexibility,
scalability and comprehensiveness inherent in many of these solutions led
companies such as Diversinet to develop a combination of public-key encryption
and digital certification systems in a PKI design to address all critical
network security needs.



                                       11
<PAGE>

Even as standards for wireless security develop, an efficient implementation of
mobile security is required to:

     -    make efficient use of the available bandwidth,

     -    effectively utilize a mobile device to provide a rich experience while
          offering efficient access to information and applications,

     -    manage the constraints of devices such as battery life, memory and
          processing power, and wireless network coverage,

     -    enable a seamless experience allowing the user to move across wireless
          technologies from public wide-area networks to private, local area
          networks, and,

     -    provide strong security for wired and wireless applications via a
          single infrastructure.

Global investment in PKI products and services will grow from $436 million in
2000 to $3.4 billion in 2006. [SOURCE: Datamonitor, May 2, 2001 "eSecurity: PKI
the way forward."] An especially large growth area will be the mobile sector. It
is forecasted the total number of wireless subscribers will exceed 2 billion by
2007 (In-Stat MDR) and the number of WLAN hotspots will exceed 100,000 by early
2005 (Pyramid Research), providing a large addressable market for Diversinet
products

There are a number of significant demand drivers for PKI security-related
solutions:

     -    laws recognizing electronic signatures and signed transactions as
          being legally equivalent to paper-based transactions,

     -    a rise in electronic and mobile commerce transactions,

     -    recognition that accredited digital certificates are necessary to
          confidently identify parties to an electronic transaction,

     -    increased interest from business users in wireless office
          applications, healthcare, and business-to-business scenarios,

     -    the launch of 2.5G and 3G mobile networks that offer faster data
          speeds, and an always-on connection,

     -    and the emergence of security and wireless industry standards.

Industry forecasters predict that there will be many more wireless devices (e.g.
smart phones, pagers and personal digital assistants or "PDAs") than computers
accessing the Internet in the future. In addition, wireless devices can
communicate directly with one another without going over the Internet (referred
to as peer-to-peer) or wireless devices can communicate directly with
enterprises.

Our solutions are designed to address the unique needs of wireless devices,
networks and applications. We have invested significant engineering resources in
developing technology we acquired in fiscal 1996. Our main wireless security
products are Passport ONE and Passport Certificate Server(R), which enable the
implementation of a PKI solution for mobile communications and e-commerce. We
believe that Passport ONE and Passport Certificate Server(R) offer advantages in
terms of privacy, efficiency, scalability and flexibility over conventional
solutions. We also develop the Passport Authorization Product(TM), which extends
the functionality of digital certificates by granting privileges, through
digital permits, to the holder of either a Diversinet certificate, or other
selected vendor certificates. Our main identity management product is the
Connexus(TM) Platform. This provides turnkey solutions for smart card-based
application security systems using a suite of Caradas developed and third-party
technology components.

In February 2004 we announced that Passport ONE supports RIM's S/MIME Support
Package v1.5 for BlackBerry. The solution provides government agencies and
departments and corporate enterprises the ability to leverage the S/MIME (Secure
Multipurpose Internet Mail Extensions) security protocol for wireless email on
their BlackBerry handhelds from Research In Motion. Java(TM)-based BlackBerry
handhelds can use the Diversinet Passport ONE email plug-in, so that the
security certificates can be used in the email applications, providing a secure
solution for mobile applications.

In fiscal 2003 we announced the launch of Passport SMS Messenger, a zero-client
solution that enables application providers and enterprises to extend mobile
connectivity to key business and consumer applications. Passport SMS Messenger
provides a solution for mobilizing Internet-aware applications by using current
mobile phones and widely available text messaging services.

We continue to have early market success deploying our products in the Hong Kong
market. Over the past few years, Hongkong Post, the first recognized mobile
certification authority in Hong Kong, launched Mobile e-Cert mobile certificates
jointly developed based on our wireless security products.

During 2003, together with Hongkong Post and MobileTech Limited, we announced
the availability of a new Secure Mobile Email service. This new email service



                                       12
<PAGE>

leverages Hongkong Post's Mobile e-Cert digital certificates to ensure the
secure exchange of corporate email over wireless networks. Consumer users will
also have access to this secured email service to ensure confidence that
messages from personal accounts are communicated securely. The creation of this
service is an extension of our strong relationship with the Hongkong Post, and
provides a new business-focused application for use with Hongkong Post Mobile
e-Cert digital certificates.

In South America, we made headway in opening the market through Consist
International, Inc. who has signed on to market Diversinet's security products
and solutions in Brazil and Argentina. In addition to Consist's direct sales
force engaging banking, telecom and government clients in Brazil and Argentina.

In the gaming and wagering arena, during 2003 we announced that an application
partner has signed an OEM and marketing agreement to take advantage of our
expertise in mobile security by integrating our security solutions into its
proprietary mobile-based gaming and entertainment solutions, including lottery
and gaming applications. Under the agreement, we will work closely with the
application partner on the development and marketing of their applications and
the integration of the security needed to deploy them.

Acquisition of DSS Software Technologies

In early January 2003, Diversinet acquired all of the capital stock in DSS
Software Technologies ("DSS"), a system integrator headquartered in Fremont,
California. DSS provides technical consulting services to tier one customers
including financial, enterprise and technology companies such as Cisco Systems,
Lucent, Oracle, Sun Microsystems and Wells Fargo in the areas of systems
integration, software development, and Enterprise Resource Planning (ERP) and
Customer Relationship Management (CRM) implementation. The aggregate purchase
price was $1,301,038 consisting of $300,000 in cash, $26,998 in the costs
associated with the acquisition, $600,000 of promissory note payable in
instalments of $300,000 on January 2, 2004 and $300,000 on January 2, 2005 and
120,000 share purchase warrants with a value of $374,040. The share purchase
warrants vest equally on January 2, 2003, 2004 and 2005 and are exercisable at
$3.75 per share for five years. Additional future cash consideration in the
amount of $800,000 is payable based on the achievement of certain financial
targets over the next two years and will be recorded with an increase to
goodwill if and when the targets have been met. In February 2004, we amended the
DSS Software Technologies share purchase agreement. The promissory note in the
amount of $600,000 payable in instalments of $300,000 on January 2, 2004 and
$300,000 on January 2, 2005 has been replaced by the issuance of 200,000
Diversinet common shares and cash payments of $50,000 in February 2004, $50,000
on April 2004 and $100,000 on January 2005. The existing 120,000 warrants
exercisable at $3.75 have been replaced by issuance of 120,000 warrants
exercisable at $2.05, exercisable after January 1, 2005 expiring on December 31,
2006. The common shares cannot be re-sold in the public markets until a
registration statement has been filed and declared effective by the U.S.
Securities and Exchange Commission.

The Company expects that the addition of DSS' services suite will enhance
Diversinet's ongoing strategy to provide greater depth and breadth in its
product and service offering. Combined, DSS and Diversinet's technical and
industry expertise can offer integrated solutions and full services offerings.
The Company believes its acquisition of DSS will strengthen its position in the
U.S. through the addition of a comprehensive line of services that will help it
to better address rapidly growing demands for security in telecommunication
services.

The synergy between the two companies is expected to provide the infrastructure
and capability to expand into new markets and convey a unique opportunity to
deliver products and services that will meet the specific needs of enterprise
customers.

With DSS' professional services focuses, high profile customers in our target
markets (enterprise, financial, et cetera), complementary skill sets
(application development, wireless), and a U.S. sales force, the combined
company can provide technical consulting services to companies in the areas of
system integration, software development, and ERP and CRM implementation, which
are all natural extensions of wireless technology, and require enhanced
security.

DSS' operations will be integrated with Diversinet as a wholly owned subsidiary
of Diversinet, and DSS will become the principal office for Diversinet's U.S.
operations. The purchase of DSS will be accounted for using the purchase method
the results of operations will be consolidated into Diversinet from the date of
acquisition.

Acquisition of Caradas, Inc.

In September 2003, Diversinet acquired all of the capital stock of Caradas, Inc.
("Caradas"), a digital ID and authentication management provider headquartered
just outside Boston, Massachusetts. Caradas provides `smart card enablement' to
the financial, retail, enterprise, government and other markets looking for
open, secure, multi-application solutions. Caradas technology answers the need
for multi-application smart card technology, essential for managing critical
business processes.



                                       13
<PAGE>

Caradas focuses on smart card-based application security systems within the
financial services industry, particularly as a vehicle for managing
relationships between issuers and cardholders. Caradas offers a suite of
solutions and services to define and implement secure application
infrastructures.

     o    The Caradas Connexus(TM) Platform Caradas provides turnkey solutions
          for smart card-based application security systems using a suite of
          Caradas developed and third-party technology components.

     o    Visa and MasterCard Issuer Solutions: Caradas adds value to Visa and
          MasterCard issuer projects, by working closely on architecture and
          design, providing integration services, followed by test and
          operational transfer as the deployment occurs. The smart Visa and
          MasterCard oneSmart Solutions are based upon established
          methodologies, third-party technologies and the Caradas Connexus(TM)
          Platform technology.

     o    Caradas Services: Caradas provides a set of professional integration
          services for the strategy and support behind the technology. The
          Caradas team has developed a methodology for implementing application
          security systems.

     o    Caradas Labs(TM): Caradas provides benchmarking and evaluation of core
          technologies through the testing center.

The Company expects that the addition of Caradas will enhance its ongoing
strategy to provide greater depth and breadth in its product and service
offering, namely in the financial services and government verticals. Combined,
Caradas and Diversinet's technical and industry expertise can offer integrated
solutions and full services offerings. The Company believes the acquisition of
Caradas will strengthen its position in the U.S. through expanded access to key
customers and the addition of a comprehensive line of services that will help us
to better address rapidly growing demands for security in telecommunication
services.

The synergy between the two companies is expected to provide the infrastructure
and capability to expand into new markets and convey a unique opportunity to
deliver products and services that will meet the specific needs of financial
service and government customers.

With Caradas' focus on smart card technology in the Company's target markets
(financial, government, et cetera) the complementary skill sets (application
development and wireless), and a U.S. sales force, the combined company can
provide technical consulting services to companies in the areas of smart
card-based application security systems and software development, which are
natural extensions of wireless and require enhanced security.

Industry Background

In recent years, the wireless data industry has been growing on many fronts. The
worldwide growth of the wireless data industry is being propelled by the
explosive growth of the Internet and the consequent demand for wireless access
to the Internet, high penetration rates for users of mobile telephones, intense
price competition among wireless network operators and the emergence of
worldwide standards for wireless communications.

Security has and will continue to be a major concern for the wireless data
community. The increasing number of consumers and businesses that expect the
ability to securely access confidential information and conduct transactions
wirelessly has created the interest and demand for mobile security.

The wireless market and its existing wired solutions are not readily adaptable
to its networks, applications and devices. Wireless networks are fundamentally
different from wired networks. In wired networks, the Intel chip in a PC is the
common device platform, Microsoft Windows is the dominant operating system and
the browser is the common graphical user interface. In wired networks data and
content reside largely in databases, and data is extracted by the user on a
simplified query basis using search engines - the user must either find or know
where to get the information for which he or she is looking.

Wireless networks currently have no such standards for client platforms,
operating systems or user interfaces. The wireless device may be a PDA, a
two-way pager or a smart phone. Multiple operating systems are being employed.

Wireless industry standards are emerging, and we are a member and contributor to
many of the standard-setting bodies. One of the main standards setting forums is
the Open Mobile Alliance (formerly the WAP or Wireless Application Protocol
Forum). The objective of this association is to develop standards intended to
bring Internet content to wireless devices by creating global wireless protocol
specifications and standards that work across all wireless network technologies.
In addition to the Open Mobile Alliance Forum, we are members of Hong Kong PKI
Forum, The Open Group, Bluetooth, Consortium for Efficient Embedded Security,
Mobile Electronic Transactions organization, Mobile Execution Environment Forum,
Standards for Efficient Cryptography Group and Liberty Alliance Project.



                                       14
<PAGE>

Need For Secure Transactions

The openness and accessibility that have stimulated the adoption and growth of
the Internet, and of wireless and wired public and private networks, also create
threats to the privacy and integrity of information that is transmitted across
or stored on the networks. According to The Yankee Group's May 2002 Corporate
Wireless Survey, security continues to be the top inhibitor of wireless
enterprise deployments. Well-publicized Internet fraud experienced by VISA
International and e-Bay and attacks resulting in overloading of popular
e-business web sites by hackers have highlighted the need for improved security.
Enhanced security is critical for such wireless applications as banking,
brokerage, database access, and corporate and consumer purchases.

The security risks associated with communications and commerce over the
Internet, and over wireless and wired public and private networks, have
accentuated the need for information security solutions that address five
critical network security needs:

Authorization - Only authorized users should be able to view or modify certain
data. Confidentiality - Data in transit over the network or in storage should
not be disclosed to unauthorized persons. Integrity - Data should not be altered
or compromised by unauthorized manipulation. Authentication - The identity of
the data sender and receiver should be verified. Non-Repudiation - The sender of
a transmission should not be able to deny or repudiate the message.

A wide range of products and services has been introduced to address one or more
of these five critical network security needs. For example, products such as
firewalls and password tokens, which limit network access only to users having
recognized addresses or entering recognized passwords, provide access control.
These products are generally limited in their flexibility and do not directly
address such requirements as confidentiality, integrity, authentication and
non-repudiation. Encryption devices and programs provide confidentiality, but
are device-dependent and generally do not address issues of authorization,
integrity, authentication and non-repudiation.

The lack of flexibility and scalability inherent in these solutions has led to
the development of public-key encryption and digital certification systems
combined in a PKI, designed to address all five critical network security needs.

Public-key systems offer the ability to create digital signatures. A user
applies his or her private key to the date to be signed, creating a digital
signature. Subsequently, anyone can certify the correctness of the signature
using the user's public key. If the signature verifies, then the signer must
possess the correct private key. In addition, it proves that the data signed has
not been modified thus satisfying the security needs listed above.

Because a digital signature allows a user to prove only that he or she holds the
private key that matches a particular public key, additional data is necessary
to use signature validation to create an assurance of identity. This is
accomplished with digital certificates, which are signed messages that bind a
name or other attributes of the holder of a given private key to the
corresponding public key. Each certificate is signed by a trusted third party
known as the certificate authority, or CA; the CA vouches that a given user is
the sole holder of the private key matching the corresponding public key. The
signature from the CA allows the binding of the name to the public key to be
trusted. This allows a relying party to validate the identity of a user or
server by first checking the validity of the certificate and then verifying the
signature against the certified public key. A CA may cooperate with a
registration authority. The registration authority is responsible for validating
a user's identity, on behalf of the CA, before a certificate is issued. The
collection of certificate authorities, registration authorities, policies, and
procedures associated with the management of public keys is known as public-key
infrastructure. Enterprises have adopted PKI because it offers proven, tested
information security standards leading to greater confidence in the resulting
applications and lower integration costs for developers.

Market Acceptance of Digital Certification

The use of digital certificates has gained significant market acceptance in
particular sectors where information security is critical, such as government,
finance, health care and telecommunications. The acceptance of digital
certificates in the United States escalated upon the signing of the Electronic
Signatures in Global and National Commerce Act (commonly referred to as the
E-Signature Act) on June 30, 2000. Former President Clinton signed into federal
law the E-Signature Act which legalizes contracts "signed" with electronic
signatures, thus giving the same legal validity of written contracts to
electronic contracts. We believe the new law is a significant step to provide
consumers and businesses with greater confidence regarding the security of
transactions made over wireless and wired networks. The E-Signature Act also
provides a uniform legal framework across state lines so that electronic
transactions can be conducted with the assurance that contracts signed
electronically will be valid throughout the 50 states. Similar legislation is
emerging throughout the world.

In August 1996, the United States passed the Health Insurance Portability and
Accountability Act to reduce administrative costs and burdens in the health care
industry through the use of electronic communication. Health Insurance
Portability and Accountability Act requires the Department of Health and Human
Services to adopt national uniform standards for the electronic transmission of
certain health information. One important aspect of Health Insurance Portability
and Accountability Act is the mandate to adopt standards for secure electronic
health transactions, including the protection of information exchanged between
healthcare providers, such as claims, enrollment, eligibility, payment, and
coordination of benefits.



                                       15
<PAGE>

Since the E-Signature Act was signed, it opened the door for other electronic
applications to utilize digital certificates as a legal way of conducting
transactions. In the healthcare industry, medical professionals are starting to
use wireless communications to access patient records and medical reports, as
well as to input information into these files and write electronic prescriptions
for patients.

Need for Wireless Security

The increasing acceptance of digital certificates is beginning to give rise to
numerous products and services that issue digital certificates or that are able
to work with digital certificates. However, the mere issuance of digital
certificates does not ensure that a user's access is properly monitored, that
privileges associated with access are accurately and currently defined, or that
the certificates in question have not been withdrawn or replaced.

Indeed, the proliferation of users and certificates greatly complicates
management of these issues, which is critical to maintaining an effective secure
environment across and between enterprises. To address these needs, enterprises
generally require a robust PKI that supplements certificate issuance functions
with full life cycle management of public and private keys, including issuance,
authentication, storage, retrieval, backup, recovery, updating and revocation,
in an easy-to-use, cost-effective manner. We believe that demand for this class
of product will increase during the next few years.

Market Size

PKI has been predicted to boom for the past years, but is only now is it
starting to be taken up by businesses, which want to be able to conduct
eCommerce in a secure and trusted environment. According to a May 2001
Datamonitor report, PKI is now at the beginning of what will be solid growth
until 2006, with global investment in PKI products and services growing from
$436 million in 2000 to $3.4 billion in 2006. As the uptake of eBusiness
strengthens, so the business case for PKI increases. PKI will be crucial for
many organizations, across the vertical markets and size bands enabling them to
conduct secure communications for a range of eBusiness applications, be it via
the Internet, intranets or extranets.

Datamonitor predicts that an especially large growth area for PKI will be in the
mobile sector. In 2000, mobile devices accounted for just 1% of overall PKI
revenues. However, after 2003, when the mass market begins to take up 3G
devices, wireless PKI will become a major industry, accounting for up to 45% of
total PKI revenues in 2006. This trend will continue as the uptake of the mobile
Internet accelerates.

Demand Drivers

We believe that the four significant drivers of demand for m-commerce security
related products and services are as follows:

1.       Rise of e-commerce over the Internet

There were 600 million people worldwide with Internet access as of Q3 2002.
International Data Corporation (IDC) is forecasting an increase in the number of
Internet users and the value of annual e-business activity. According to IDC,
almost 1 billion people around the world will be using the Internet by 2005
driving e-commerce revenues to over $5 trillion by 2005, up from $354 billion in
2000. Online spending worldwide will more than triple from almost $22 billion in
2000 to $69 billion in 2005. Industry forecasts expect similar growth rates to
apply to m-commerce based on the forecasted penetration of wireless devices. It
should be noted that these industry forecasts have been missed which is
reflected in our internal forecasts being missed as well.

2.       Data over wireless networks and the emergence of the wireless Internet

According to Accenture research, by 2005 there will be 1.7 billion mobile
connections, allowing the number of wireless devices capable of Internet access
in the global market to increase by an astronomical 630 per cent.

Mobile voice communications has reached high penetration levels of 80% to 90% in
Asia, 50% to 60% in Europe and 30% to 40% in North America. Voice communications
represent approximately 98% of traffic on the wireless networks that hosted the
communications. Competition by network operators for the voice customers is
intense and has reduced revenue growth per customer. These wireless network
operators are expected to implement new value-added services, such as
m-commerce, to maintain revenue growth in the face of competition from other
voice network operators.

3.       Wireless standards, technology improvements and awarding wireless
         spectrum licenses

Worldwide initiatives are evolving for wireless standards, such as OMA/WAP, that
enhance the attractiveness for wireless device and m-commerce application
developers to create products and services to operate on wireless networks.
Network operators are also preparing for the opportunities that m-commerce holds
by upgrading their networks to maximize available capacity and providing
wireless device connection to the Internet that is always on rather than having
to establish an Internet connection when needed.



                                       16
<PAGE>

4.       Lack of security as an impediment to m-commerce and e-commerce growth

Security is often regarded as the primary impediment to the mainstream adoption
of the Internet as a business tool. Given the importance attached to the
Internet and wireless networks and the related potential for cost reduction and
revenue generation, the issue of security becomes one of fundamental need and
importance. The majority of respondents to a recent survey conducted by Deloitte
& Touche cited the following barriers to e-commerce: lack of security, other
priorities, immature technology and no proven benefits. VISA International has
stated publicly that although only two percent of its credit card business
relates to Internet transactions, fifty percent of its disputes and discovered
fraud are in that area. VISA also stated that the problem of authentication has
become one of the most important issues facing e-commerce in the financial
industry. In another well-publicized demonstration of the security issues
involved in conducting commercial transactions over the Internet, e-Bay, an
Internet-based on-line auction site, recently had a third party fraudulently
execute an auction purchase under the name and password of one of e-Bay's
customers. This security breach demonstrates the issues relating to the
authentication of customers. Recent overloading of e-business web sites by
hackers and the hacking of hundreds of thousands of credit cards has served to
highlight the need for strong security.

Strategy

We strive to be a leader in providing security products for m-commerce over
wireless networks and other networks, including corporate networks,
telecommunications systems and the Internet.

Our revenue model consists of (i) license fees from the licensing of our
Passport ONE, Passport Certificate SERVER(R) and Passport Authorization Product,
which are one-time fees typically recorded upon execution of the license
agreement and the shipment of the software as long as all vendor obligations
have been satisfied and collection of the license fee is probable (although a
licensee may ultimately require additional servers and pay additional fees),
(ii) recurring royalties from the provision of certificates and permits, (iii)
annual support fees (for phone assistance and product updates) and (iv)
consulting fees (advice regarding the integration of our software with a
client's application). In certain cases, we have waived the first year support
fees for certain of our customers (usually amounting to approximately 15% of
aggregate license fees). As our business evolves, we expect that most of our
revenue will be generated through recurring royalties. This revenue stream is
dependent on the adoption of transaction-based applications over wireless
networks.

The key elements of our strategy to achieve this objective include the
following:

Target emerging m-commerce markets. Our sales and marketing activities are
primarily targeted at emerging markets for enterprise, financial and government
markets, in addition to more traditional forms of e-commerce over wireless
networks. Within these markets, our customers and partners include device
manufacturers, network infrastructure manufacturers, application developers,
certificate authorities and network operators. Our business plan is dependent of
the cooperation of numerous parties to a transaction. The original equipment
manufacturers, or OEMs, must integrate our software into their hardware and
software products. These personal digital assistants, or PDAs, are then sold to
consumers or enterprise customers. Application developers also integrate our
technology into their solution. Once this software is embedded into a PDA and
the end user performs an action, a digital certificate or digital permit will be
issued. A certificate authority, or CA must also be PKI enabled and issue these
certificates. A CA may cooperate with a registration authority. The registration
authority is responsible for validating a user's identity, on behalf of the CA,
before a certificate is issued. It is through all these parties working together
that our vision is realized.

Expand strategic relationships. We have formed relationships in the areas of
sales, marketing and technology with industry leaders, and expect to continue to
form such relationships in the future, to encourage widespread acceptance of our
authentication and authorization products. These include relationships with such
companies as:

                  Ericsson                               Microsoft
                  Gemplus                                Research In Motion
                  Hewlett-Packard                        SchlumbergerSema
                  Hongkong Post                          Scotiabank
                  Hutchison

Maintain what we believe to be a leadership position in terms of research and
development of technology. In late 1996, we acquired technology that consists of
concepts and methods that relate to automatic and safe public information
communication systems and methods for secure distribution of information. This
technology, as well as our root rollover and permit technology, forms the
primary foundation on which we base our current product developments. We have
invested, and intend to continue to invest, significantly in the development of
our technology. We will base future development of our technology on wireless
security market requirements. In January 1999, we were issued a patent for this
technology by the U.S. Patent and Trademark Office that will be in effect until
August 22, 2017. In April 2001 we received an U.S. patent for our technology
relating to the handling of permissions. In June 2001 we received an Israeli
patent that will be in effect until 2021 for our technology relating to safe
communications handshake and data transfer. On July 11, 2003, we received a
patent from the State of Israel Patent Office for our "System and Method for
Reliable Key Transfer". This patent will be effective until 2021. This system
and method provides for an automated method to securely update root CA keys and
certificates (basis for root rollover) and combine domains. On August 5, 2003,
we received a trademark from the U.S. Patent and Trademark Office for our
Diversinet logo. This trademark will be effective until 2013. On November 2,
2003, we received a patent from the State of Israel Patent Office for our
"System and Method for Handling Permits". This patent will be effective until
2017. The patented technology provides for a unique permit separation model that
enhances the security and privacy of wired and wireless e-commerce systems by
improving the management of personal privileges in advanced PKI security
environments.



                                       17
<PAGE>

Build awareness of the Diversinet brand. Our goal is to establish our brand as a
leader for security products for all transactions over wireless networks. We
plan to achieve this goal through a variety of programs that will generate brand
awareness. These include regular press and investor sessions, an ongoing
pro-active speaking program by senior management and regular interaction with
major market influencers.

Strengthening our Presence in the US Market. We believe the U.S. market will be
an active and growing market for our solutions and services. To strengthen our
position in this important market Diversinet acquired two U.S. based companies
in 2003, Caradas and DSS. The professional resources, U.S. customer
relationships and products obtained through these acquisitions will help improve
our presence in the U.S. and provide an expanded offering in international
markets.

Products and Product Development

Products

We develop, market and distribute six primary products: Passport Certificate
Server, (R) Passport ONE, Connexus Platform, Passport SMS Messenger, Passport
Authorization Product, and Passport Wireless VPN, that together provide, what we
believe to be, a comprehensive security solution with a focus on wireless
applications including Palm, RIM, Symbian, Microsoft's WinCE and Pocket PC
operating systems; WAP devices; Smart Cards; and GSM/SIM (Subscriber Identity
Module) based devices. Our products are designed to address the unique needs of
wireless devices, networks and applications. When integrated with an
enterprise's specific application, our products enable these enterprises to
effectively manage secure communications across a wide range of applications.

Passport Certificate Server(R) and Passport ONE software address the five
critical network security needs of enterprises (authentication, non-repudiation,
integrity, privacy and authorization) and allow for consistent enterprise-wide
security policy management, permitting any enterprise or service provider to
establish its own flexible and highly reliable PKI. Passport ONE and Passport
Certificate Server(R) issue digital certificates, consisting of public and
private keys to authenticate users of business applications in real time.
Passport Certificate Server(R) digital certificates are based on Diversinet's
proprietary compact micro-certificate format. Micro-certificates are designed
for use in lower-bandwidth network environments, with mobile devices that have
limited battery life, and lower data processing and storage capabilities.
Passport ONE issues Internet digital certificates suitable for use with mobile
and Internet devices that comply with this industry standard. Such support for
standards allows Passport ONE to issue certificates for use with SSL, WTLS and
WAP security. Passport Certificate Server(R) enables user anonymity through the
use of globally unique identifiers, such that permissions or private information
and credentials belonging to the digital certificate owners are stored
separately. Passport Certificate Server and Passport ONE run on Microsoft
Windows(R) 2000, Windows NT or UNIX platforms. The Passport Certificate Server
includes a developer toolkit for client software development.

Our current product offerings include encryption technology that is sourced from
third-party vendors. Diversinet currently uses its own encryption technology and
also licenses encryption technology from RSA Security, one encryption technology
vendor who service the wireless and the e-commerce security markets. Under the
terms of the open-ended licensing arrangement, we pay a royalty to the licensor
when we derived recurring revenue from the deployment of our products.

We believe that the our Passport ONE and Passport Certificate Server(R) offers
the following advantages over conventional authentication solutions that make it
well suited for wireless devices and wired networks:

Privacy

     o    Our public-key certificates do not contain personal information,
          thereby ensuring anonymity Efficiency

     o    The Passport Certificate Server(R) certificate is small in size, since
          only relevant, and not private, information is included



                                       18
<PAGE>

     o    It uses a compact encoding scheme and RSA encryption keys

     o    Root Key Rollover provides a safe way, with minimal downtime, to
          update all certificates issued in a PKI realm

     o    On-line validation of certificates, which is more efficient than other
          methods (such as revocation lists)

Scalability

     o    It accommodates practically any number of certificates

     o    Support for wide range of wireless devices (Palm, RIM, Symbian,
          Microsoft's WinCE and Pocket PC operating systems; WAP devices; Smart
          Cards; and GSM/SIM (Subscriber Identity Module) based devices)

Flexibility

     o    The client globally unique identifier within a public-key certificate
          can be associated with one or more attribute certificates

     o    Companies can set up environments to be closed or open, such as
          allowing clients to reserve their own globally unique identifier

     o    A functional attribute can be assigned to a public-key certificate for
          a specific application function

     o    Aliases can be assigned to client's globally unique identifier We
          believe that our products are ideally suited to m-commerce security
          using wireless devices. Some of the important characteristics and
          challenges of these wireless devices compared to personal computers
          are:

     o    the devices have a less powerful central processing unit

     o    they contain less memory they have a more restricted power supply

We believe our technology and approach to secure m-commerce have several
distinct advantages over existing security methods. Most notably, our solutions
were developed specifically for the wireless environment. Our digital
certificate technology minimizes demands placed on scarce device resources such
as processor and memory, and as a result assists in conserving battery life. Our
technology achieves this goal by using a digital certificate format designed to
eliminate non-essential information such as user name fields, which often is
also confidential. As a result, our digital certificate consumes approximately
one-tenth the storage requirements of digital certificates designed for wired
networks, while also preserving the anonymity of the user. Our digital
certificate can be easily stored on the wireless device, allowing for end-to-end
security from device through to the application provided on the wireless
network.

Our technology also minimizes the amount of data sent over the network and the
number of steps required to achieve a secure connection, which optimizes
consumer network resources.

The Connexus(TM) platform integrates enterprise applications, application
security, and smart devices to enable customers to manage their own
multi-application smart device business environment. The Connexus(TM) Platform
is a solution for user authentication and management of smart device-based
applications. It consists of proprietary and 3rd party connector technology. The
technology basis is driven by open standards including Microsoft .NET, XML,
SOAP, Open Platform, Java and JavaCard, EMV (Europay, MasterCard, Visa for Smart
Card Financial Transactions), X.509 and others.

The Connexus(TM) Platform consists of the Connexus Manager, Connexus Gatekeeper,
and Connexus Client. The Connexus(TM) Manager is a software product used for
lifecycle management of the credentials, smart devices (i.e. smart cards, USB
tokens, proximity cards and tokens, PC's, Kiosks, and Point of Sale Terminals)
and applications used within a smart device based system. The Connexus(TM)
Gatekeeper is a web services product used for smart device holder authentication
in local and distributed internet environments. The Connexus(TM) Client is a
PC/Kiosk software product that provides a seamless and convenient smart device
user experience, including both core infrastructure services and value-added
application functions. The Connexus product uses a few third party products. The
most significant one is the Hardware Security Modules (HSM) from nCipher.

Transactional applications, such as mobile banking, lottery and wagering
services, and enterprise productivity tools, can be mobilized quickly and
conveniently using Passport SMS Messenger. It establishes a critical link
between Internet applications and wireless devices by translating between
Internet and mobile message formats. It delivers a comprehensive solution
allowing the exchange of Internet information and content with mobile users via
Short Message Service (SMS). This includes notifications being sent to mobile
users from an enterprise or e-mail system, or information requests initiated by
mobile users to the enterprise application.



                                       19
<PAGE>

Applications can communicate with Passport SMS Messenger using XML-encoded
messages through an HTTP POST request or TCP connection. When the SMS Messenger
receives an XML message, it parses and formats the document as an SMPP message
and then sends it to a Short Message Service Center (SMSC). In turn the SMSC
routes the message to the mobile user as an SMS message.

Passport SMS Messenger supports message concatenation, such that it will
concatenate message segments received from mobile subscribers before sending the
entire message to the application. Conversely, Passport SMS Messenger will
segment a long message received from applications before sending the segmented
messages to the mobile user.

Our Passport Authorization Product(TM) grants privileges to the holder of our
digital certificate or the digital certificate of certain other vendors. The
authorization product issues digital permits that are linked to the holder's
digital certificate. The digital permit is designed to allow digital
certificates to serve additional functions such as authorizing users to perform
specific tasks once they access a given network.

Our PKI-enhanced Wireless VPN product, Passport Wireless VPN, offers a complete
wireless Virtual Private Network (VPN) suite to meet the needs for organizations
to provide their mobile workforce with secure wireless access to corporate data.
Passport Wireless VPN offers a strong security framework, optimized performance
and convenient always-on connectivity. Passport Wireless VPN uses a strong
security framework specially designed and optimized for communication in a
wireless environment. Transport and network level security is based on a Public
Key Infrastructure (PKI) framework for maximum interoperability.

Product Applications

Our Passport Certificate Server(R) and Passport ONE products are primarily
intended to support a wide variety of emerging m-commerce applications in the
financial, enterprise, government and gaming industries. Our Passport Wireless
VPN is intended to support enterprise and mobile workforce applications. Our
Passport Authorization Product(TM) is intended to support a wide variety of
emerging wireless and wired applications, such as coupons and loyalty programs,
prescriptions for doctors for online pharmacies, and rights for subscription
services (e.g., a 45-day electronic subscription for the Wall Street Journal).

Product Development

Our engineering group is focused on developing core technologies and
enhancements to existing product lines to maintain and extend what we believe to
be our technology and product leadership position. More specifically, the group
is currently focused on the development of additional features for Passport ONE,
Passport Certificate SERVER(R) and Passport Authorization Product(TM) software
the features of which will be assessed in terms of market demand and
competition. Our engineering group reviews all relevant proposed industry
standards or conventions as they are developed and seeks to make our products
compatible with each of them. In addition, we participate in industry standard
bodies, such as the Open Mobile Alliance (formerly the WAP Forum) and the Open
Group and we monitor the activities of others, such as the Internet Engineering
Task Force (IETF) and the American National Standards Institute (ANSI).

Professional Services and Support

We believe that a high level of service and support will be critical to our
success and that a close and active customer relationship is important to
facilitate rapid implementation of our solutions, assure customer satisfaction
and provide us with important information regarding evolving customer
requirements. We are in the process of building a professional services group
that will provide product integration services, customized engineering solutions
and training to customers.

Our support offerings to date include direct telephone consulting, e-mail and
fax support, Internet access to our knowledge repository, and discussion group
access. Payment of an annual maintenance fee also entitles customers to receive
certain software enhancements to their licensed versions of our security
solution.

Research and Development

We expect that our future success will depend in large part on our ability to
continue to maintain what we believe is a leadership position in terms of
research and development of technology. Our research and development efforts are
focused on developing core technologies and enhancements to existing products to
maintain and extend our technology and product leadership position.

As of December 31, 2003, our research and development staff consisted of
thirteen employees. Research and development expenditures were $1.5 million in
the fourteen-month period ended December 31, 2003, $1.2 million in the year
ended October 31, 2002, $4.5 million in year ended October 31, 2001,and $4.0
million in year ended October 31, 2000. We expect to spend approximately $1.1
million in fiscal 2004. We believe that timely development of new and enhanced
security products is necessary to remain competitive in the marketplace.



                                       20
<PAGE>

Customers

To date, we have executed licensing agreements with a range of customers;
Hongkong Post, Consist International, Edvance Limited, Spiral Solutions,
AsiaPay, Scotiabank, Heracle Technologies, and SecureNet Ltd. In addition, we
received service revenue for support and maintenance from a number of other
small service contracts for professional services and training. We currently
have several customers developing the products for integration into their
product offerings (as an embedded component) and others developing pilot
deployments to end-users.

We believe the following customers are in various stages of integrating our
products into consumer-oriented applications or pilot projects:

                  AsiaPay                                     Spiral Solutions
                  Consist International                       Scotiabank
                  Hongkong Post                               Edvance Limited

In addition, we have co-marketing and/or development agreements with several
innovative companies. These companies are working with Diversinet to develop
integrated security solutions. If successful solutions are developed, Diversinet
expects to earn revenue as these solutions become commercially available. Some
of these relationships include the following companies:

                  Ericsson                                     SchlumbergerSema
                  Gemplus

We have also entered into a number of strategic alliances during the past two
years that we believe will facilitate the adoption of our security technology.
These alliances are with the following companies:

Consist International, Inc.

Consist and Diversinet entered into an agreement in fiscal 2003 to co-market and
sell Diversinet's products and service solutions to the Brazilian and
Argentinean markets. Under the terms of the agreement, Diversinet has granted
Consist the ability to resell its solutions and to set up an ASP Certificate
Authority model. Under the agreement Consist will, subject to meeting specific
sales targets, have exclusivity to sell Diversinet's solutions in Brazil and
Argentina. Diversinet received an up front license fee and will share equally in
all net revenues generated from sales of Diversinet solutions.

This agreement will help Diversinet expands into the South American markets and
provide us with a new channel to market our solutions.

Spiral Solutions, Ltd.

Spiral and Diversinet entered into an agreement in fiscal 2003 to integrate
Passport Certificate Server, Passport ONE, Passport Authorization and Passport
SMS with Spiral's gaming, casino and lottery-style applications. Spiral is in
the business of designing, developing and marketing Web and mobile-based gaming,
casino and lottery-style applications. Under the terms of the agreement,
Diversinet received an up front licensing fee and a royalty based on commercial
sales of the application.

This agreement will help Diversinet expands into the gaming and wagering markets
and provide us with a new channel to market our solutions.

Hongkong Post

Hongkong Post and Diversinet jointly developed Mobile e-Cert, based on our
wireless security products. Hongkong Post supports the Mobile e-Certs through
its Mobile Certification Authority and mobile operators act as the Registration
Authorities for the authentication of the identity of Mobile e-Cert subscribers.
Hongkong Post is the first recognized public certification authority in Hong
Kong, and Hongkong Exchanges and Clearing Ltd supports this initiative. Mobile
e-Cert service will facilitate secure stock trading, banking, gaming, and
digitally signed messages over wireless communications devices. This marks the
first-ever availability of Mobile e-Certs globally. Subsequent to year-end,
Hutchison Telecommunications (HK) Ltd., the largest mobile operator in Hong
Kong, and SUNDAY Communications became Registration Authorities.

The first phase of the new Mobile e-Cert service supports Palm and Pocket PC
PDAs, and mobile phones. Future phases of the service will support WAP devices
and other PDAs.

Competition

Our digital certificate technology is targeted at the new and rapidly evolving
demand for secure m-commerce solutions. Although the competitive environment has
yet to develop fully, we anticipate that it will be highly competitive, subject
to rapid change and significantly affected by new product and service
introductions and other market activities by industry participants. We believe
we are one of a few companies that currently have PKI-based solutions on PKI
standards available in the wireless security market that provides an end-to-end
solution. Sonera SmartTrust is our primary competitor in the technology platform
on which most cellular phones in Europe operate. There are a number of
successful wired network security vendors who have announced their intention to
compete in the wireless space. These include Certicom, Entrust, and VeriSign.
While these competitors have better name recognition in general, we are striving
to become a leading brand in wireless security today. We also anticipate
competition from a number of other larger and smaller companies that provide
other certificate security solutions. Many of our competitors and potential
competitors have significantly greater resources than we have.



                                       21
<PAGE>

The principal competitive factors affecting the market for wireless security
products include technical features, ease of use, reliability, level of
security, scalability, customer service and support and price. There are also
significant technical challenges that are unique to the wireless environment,
including constraints in device processing and storage capabilities, and network
throughput limitations. We believe our products have been optimized for this
unique and technically challenging environment. Our future success will largely
depend on our ability to make our products available to serve the rapidly
growing network security market, rather than taking market share away from
competitors.

Regulatory Matters

Our products are subject to special export restrictions administered by the
Canadian government and are also subject to import restrictions and/or use
restrictions imposed by countries such as the United States, although pursuant
to a recent international treaty, a number of countries have relaxed, or are in
the process of relaxing, their export rules as applicable to products of the
type licensed by us. Consequently, our ability to export our products to
destinations outside of Canada is subject to a variety of government approvals
or licensing requirements. These export controls may also restrict our ability
to make some products available for sale via international computer networks
such as the Internet. Re-export of the products between countries other than the
United States and Canada may be subject to the export control laws of those
countries in addition to those provisions of Canadian export control laws that
apply to re-exported goods. In light of these restrictions, depending on the
country of destination, industry sector and/or end-user, some of our products
made available abroad may contain significantly weaker encryption capabilities
than those available to customers in Canada, and there can be no assurance that
we will continue to be able to export our products to any destinations outside
of Canada. Such restrictions could potentially have an adverse effect on our
business, financial condition and results of operations.

Intellectual Property

We rely on a combination of patent, trade secret and trademark laws,
non-disclosure agreements and contractual provisions to establish and protect
our proprietary rights. We also seek to protect our trade secrets and other
proprietary information through license agreements with customers and suppliers,
as well as non-disclosure and non-competition agreements with employees and
consultants.

On January 26, 1999, we received a patent from the U.S. Patent and Trademark
Office for our "Method for Safe Communication" which will be in effect until
August 22, 2017. This method consists of the safe distribution of encryption
keys, including a known public and secret private key, and establishes a secure
link between computer users who reside at separate locations and who have had no
previous secure communications.

On April 10, 2001, we received a patent from the U.S. Patent and Trademark
Office for our "System and Method for Handling Permits". The patented technology
provides for a unique permit separation model that enhances the security and
privacy of wired and wireless e-commerce systems by improving the management of
personal privileges in advanced PKI security environments.

On June 20, 2001, we received a patent from the State of Israel Patent Office
for our "Apparatus and Method for Safe Communication Handshake and Data
Transfer". This patent will be effective until 2021. This apparatus and method
provides for the safe distribution of encryption keys, including a known public
and secret private key, and establishes a secure link between computer users who
reside at separate locations and who have had no previous secure communications.

On July 11, 2003, we received a patent from the State of Israel Patent Office
for our "System and Method for Reliable Key Transfer". This patent will be
effective until 2021. This system and method provides for an automated method to
securely update root CA keys and certificates (basis for root rollover) and
combine domains.

On August 5, 2003, we received a trademark from the U.S. Patent and Trademark
Office for our Diversinet logo. This trademark will be effective until 2013.

On November 2, 2003, we received a patent from the State of Israel Patent Office
for our "System and Method for Handling Permits". This patent will be effective
until 2017. The patented technology provides for a unique permit separation
model that enhances the security and privacy of wired and wireless e-commerce
systems by improving the management of personal privileges in advanced PKI
security environments.



                                       22
<PAGE>

Applications for thirteen other patents have also been submitted in Israel and
Canada based on the same concept for which the United States patent was granted,
as well as other concepts.

We have registered the name "Passport Certificate Server" with the Canadian
Trademark Office. We have also applied to register as trademarks with the United
States Patent and Trademark Office and/or the Canadian Trademark Office the
names "Diversinet", "Passport Certificate Server" and "Passport Authorization
Product", but there can be no assurance that these trademarks will be
successfully registered.

We continue to seek patent and trademark protection where appropriate.

Marketing and Sales

Marketing

Our marketing efforts will support our two primary marketing objectives:

     (i)  increasing awareness through building the Diversinet brand; and

     (ii) generating sales leads in our target markets. Our efforts to increase
          awareness and build our brand will entail gaining positive coverage in
          targeted trade and business publications and establishing and
          developing relationships with analysts from market influencers, such
          as Yankee Group and Meta Group. Diversinet will pursue the generation
          of sales leads through the implementation of programs such as web
          marketing, direct mail, active participation in targeted events, and
          cooperative marketing activities in support of channel partners. Sales

We offer our products in Canada, the United States, Brazil, Argentina, Europe,
and China (including Hong Kong) employing several sales models to target our
intended markets.

We believe that our coverage of these markets by our sales team and our partners
is necessary to pursue our targeted customer base, which is still in the early
stage of wireless application deployment and testing. Our customer focus is in
providing secured wireless and identity management solutions to enterprise and
government application developers, both directly and through OEM distribution
channels. Once established, we will continue to focus our attention to
certificate authorities that we will work with to implement the infrastructure
necessary to conduct secure m-commerce transactions.

We are also exploring other distribution channels to assist in reseller
relationships, OEM relationships, and/or private branding of our products.

The current sales and implementation cycle for our certificate authority
products is approximately twelve months and consists of four phases:

     o    Initial contact and customer education/qualification

     o    Pilot proof of concept

     o    Early deployment testing

     o    Phased production rollout

4-C. Organization Structure

Diversinet Corp. has a representative office in Hong Kong, SAR. In January 2003,
we acquired 100% ownership of DSS, a professional services company, in Fremont
California. In September 2003, we acquired 100% ownership of Caradas, a smart
card-based application security company headquartered just outside Boston,
Massachusetts.

During 2001, we entered into an agreement with an Asian company to establish a
joint venture to conduct certain of our Asian activities. Each party holds a 50%
interest in the joint venture, Atria Limited (formerly Diversinet Hong Kong
Limited).

We have four inactive wholly-owned subsidiaries, Diversinet Corporation of
America, incorporated in Delaware, Diversinet Inc., an Ontario corporation which
was formed on November 20, 1996; Instant Publisher Ltd., a Barbados corporation
formed on December 2, 1993; and Diversinet (Israel) Ltd., an Israeli
corporation.

4-D. Property, Plant and Equipment

Our head office is located in leased premises of approximately 6,200 square feet
at 2225 Sheppard Avenue East, Suite 1801, Toronto, Canada M2J 5C2. During the
year Diversinet sublet the 17th floor (13,497 sq. ft.) and have moved to the
smaller space on the 18th floor. We also have leased premises in Hong Kong, SAR,
California and Massachusetts, United States of America.

The lease for our head office expires in June 2006. The Hong Kong office lease
has a term of less than one year. One of the California leases expires in August
of 2005 while the other expires in September of 2004. The Burlington,
Massachusetts lease for 2,601 square feet expires on September 30, 2004. We
currently expect to be able to extend the terms of expiring leases or to find
replacement facilities on reasonable terms.



                                       23
<PAGE>

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Our financial statements have been prepared in accordance with Canadian GAAP.
These principles conform in all material respects with U.S. GAAP except as
described in Note 15 to our 2003 consolidated financial statements. The
differences between line items under Canadian GAAP and those as determined under
U.S. GAAP are not significant except that, under U.S. GAAP, our total loss would
be greater by $nil for the two month, fourteen month period ended December 31,
2003 and twelve months ended October 31, 2003, $35,000 for the year ended
October 31, 2002, greater by $37,000 for the year ended October 31, 2001,
greater by $983,000 for the year ended October 31, 2000 and less by $120,000 for
the year ended October 31, 1999. Under U.S. GAAP share capital would be greater
and deficit would be less by $30,089,000 for each of the years due to the
elimination of reduction in stated capital offset against accumulated
shareholders' deficit in March of 1999.

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this annual
report. Except for historical information, the following discussion contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve risks
and uncertainties. Such forward-looking statements include, among others, those
statements including the words, "expects", "anticipates", "intends", "believes",
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause future
results to differ materially from those discussed in the forward-looking
statements include, but are not limited to, those discussed in "Risk Factors" in
Item 3-D. of this annual report.

We have incurred operating losses in each of fiscal 2003, 2002, 2001, 2000, 1999
and 1998 due to losses from our continuing operations of developing security
products and our discontinued operations of developing and marketing the IPS 950
instant color digital printing system. We have sustained our business during
this period through the sale of common shares in a series of private placements.
We cannot provide assurance that we will be able to raise sufficient funds in
the future to sustain our operations.

5-A. Operating Results

Two and Fourteen-month period ended December 31, 2003 and year ended October 31,
2003 compared to year ended October 31, 2002

During fiscal 2003, the Company purchased 100% of the common shares of two
companies, the DSS acquisition occurred on January 2, 2003 resulting in the
inclusion of twelve month's activities in the consolidated financial results for
December 31, 2003 and the Caradas acquisition occurred on September 1, 2003
resulting in the inclusion of four month's activity in the consolidated
financial results for December 31, 2003. The common shares of DSS were purchased
through the issuance of shares, common share purchase warrants, cash and a
promissory note. The common shares of Caradas were purchased through the
issuance of shares and common share purchase warrants. As a result of a number
of circumstances, including the current year financing activities, the
acquisition of DSS and Caradas and the U.S. dollar becoming the measurement
currency in which most of the Company's business is transacted, effective
October 1, 2003, the Company adopted the U.S. dollar as its measurement and
reporting currency for preparation of its consolidated financial statements.

For the periods ending December 31, 2003 and October 31, 2003, we reported
revenue of $8,563,000 and $7,108,000 respectively compared to revenue of
$710,000 for the year ended October 31, 2002. For the two month period ending
December 31, 2003 we reported revenue of 1,455,000. We generated 96% (2% in
2002) of our revenues from the United States, 3% (63% for 2002) from the Asia
Pacific region, 0% (29% in 2002) from Canada and 1% (6% in 2002) from other
areas during the period ended December 31, 2003 and the period ended October 31,
2003. The increase in revenue is the result of the acquisition of DSS and
Caradas during the year; both companies are located in the United States,
leading to the high percentage of U.S. based revenue. Furthermore, we changed
our year-end to December 31st, leading to a two-month and fourteen-month
reporting period. We are operating in an evolving and unpredictable market and
accordingly have and may continue to experience wide fluctuations in our
revenues.

During the two periods ending in 2003, 30% (28% in 2002) of our revenue came
from one customer. These customers are not related to each other. While we are
endeavoring to increase our customer base, as the market that we operate in is
still in an evolving stage and our revenue is still quite small, it is
reasonable to expect that our revenue may continue to be concentrated among
relatively few customers for the near future.

We reported a net loss of $5,618,000 for the fourteen month period ended
December 31, 2003 and $4,834,000 for the year ended October 31, 2003 compared to
a net loss of $4,065,000 in the prior year. For the two month period ended
December 31, 2003, we reported a net loss of $784, 000. This net loss includes
stock-based compensation expense relating to the issuance of options and
warrants of $825,000 and $772,000 respectively and nil for 2002 (and $53,000 for
the two month period ended December 31, 2003). During the year the Company
started to report a fair value for stock-based compensation and including this
as an expense.



                                       24
<PAGE>

Research and development expenses were $1,513,000 in the period ended December
31, 2003 and $1,244,000 at October 31, 2003 compared to $1,479,000 in 2002 (and
$270,000 for the two month period ended December 31, 2003). The annualized
decrease is due to further cost reduction measures carried out in the second
quarter of 2003. During the year we received a net amount of $289,000 relating
to investment tax credits for R&D work done in 2002 and 2001 and a rebate of
retail sales taxes paid in excess in 2001.

Sales and marketing expenses were $2,656,000 in the period ended December 31,
2003 and $2,271,000 at October 31, 2003 compared to 1,104,000 in 2002 (and
$385,000 for the two month period ended December 31, 2003). The increase in
sales and marketing is largely due to the two acquisitions that were done during
the year and the increase is consistent with the increase in sales activity to
generate the revenues during the period. While the Asia Pacific market place
continues to be a focal point for the Company, with the addition of DSS and
Caradas, we have increased our U.S. presence and increased sales and marketing
in the U.S. accordingly. Included in the fourteen month period ending December
31, 2003 sales and marketing expenses is $300,000 relating to stock-based
compensation expenses.

General and administrative expenses were $2,654,000 at December 31, 2003 and
$2,369,000 at October 31, 2003 compared to $1,899,000 in 2002 (and $285,000 for
the two month period ended December 31, 2003). These figures include foreign
exchange losses of $309,000 for the fourteen month period ended December 31,
2003 and $230,000 in October 31, 2003 and a loss of $145,000 for 2002 (and
$79,000 for the two month period ended December 31, 2003). Until October 1, 2003
the Company has historically prepared its consolidated financial statements in
Canadian dollars and used the Canadian dollar as its measurement currency.
Included in the December 31, 2003 G&A expenses is $525,000 relating to
stock-based compensation expenses.

Depreciation and amortization expense was $740,000 in the fourteen month period
ended December 31, 2003 and $574,000 for the year ended October 31, 2003 (and
$166,000 for the two month period ended December 31, 2003). These figures
include amortization of intangible assets acquired on September 1, 2003 in the
amount of $173,000 and $87,000, respectively. Depreciation and amortization
expense in fiscal 2002 was $404,000.

We earned interest and other income of $26,000 during the period ended December
31, 2003 and the year ended October 31, 2003 and $111,000 in fiscal 2002 through
investing our excess cash.

Interest expenses were $21,000 during the period ended December 31, 2003 and
$20,000 for the year ended October 31, 2003 compared to $nil in 2002. This
interest relates to notes payable on capital assets acquired during the year.

Year ended October 31, 2002 compared to year ended October 31, 2001

For the year ended October 31, 2002, we reported revenue of $710,000 compared to
revenue of $793,000 for the year ended October 31, 2001. We are operating in an
evolving and unpredictable market and accordingly have and may continue to
experience wide fluctuations in our revenues. We generated 63% (55% for 2001) of
our revenues from the Asian region, 2% (24% in 2001) from the United States, 29%
(17% in 2001) from Canada and 6% (4% in 2001) from other areas during fiscal
year 2002.

During fiscal 2002, 28% (40% in 2001) of our revenue came from one customer.
These customers are not related to each other. As the market that we operate in
is still in an early stage of development and our revenue is still quite small,
it is reasonable to expect that our revenue may continue to be concentrated
among relatively few customers for the near future.

We reported an improved net loss of $4,065,000 for the year ended October 31,
2002 compared to a net loss of $12,272,000 in the prior year. We completed
operating cost reductions in the fourth quarter of 2001 that resulted in a
decline in expenses from operations during fiscal 2002 compared to fiscal 2001.
These reductions included workforce reductions in the United States and Canada,
closure of offices in the United States and the discontinuance of non-core
programs particularly in the marketing area. The restructuring was aimed at
refocusing our efforts on the most significant market opportunities in Asia and
Europe.

Research and development expenses decreased to $1,479,000 in 2002 from
$4,485,000 in 2001 resulting primarily as a result of continued efforts to
reduce costs as started in the last quarter of fiscal 2001. During the year we
received a net amount of $182,000 relating to investment tax credits for R&D
work done in 2000 and 1999.



                                       25
<PAGE>

Sales and marketing expenses were $1,104,000 in 2002 compared to $4,712,000 in
2001. The Company continues to focus a significant portion of its efforts in the
Austral Asian markets where we derived 63% of our 2002 revenues. During 2002 we
implemented a pilot project for Hong Kong's six local mobile operators, the Hong
Kong m-Cert Implementation Forum to develop and implement a single mobile
digital certificate (m-Cert) standard to promote mobile commerce in Hong Kong.
We continue to make progress in this region and expect to increase our presence
in 2003.

General and administrative expenses were $1,899,000 in 2002 compared to
$2,616,000 in 2001. These figures include foreign exchange losses of $145,000
for 2002 and a gain of $403,000 for 2001.

Depreciation and amortization expense in fiscal 2002 decreased to $404,000 from
$1,226,000 in fiscal 2001. The Company's deferred development and purchased
technology costs were fully amortized in 2001 and the reduction in additions to
capital assets has resulted in reduced amortization for the 2002 fiscal year.

During fiscal 2001, we entered into a joint venture to conduct certain of our
Asian activities, as detailed in note 8 to our audited financial statements. We
own 50% of this joint venture and our financial statements reflect our
proportionate interest in its assets, liabilities, revenue and expenses.

We earned interest and other income of $111,000 and $448,000 in fiscal 2002 and
2001, respectively. The decrease is primarily due to our lower average cash and
cash equivalents in 2002 and due to lower interest rates than we received during
2001.

Critical Accounting Policies

The nature of our business is not highly complex, as we operate in one primary
business. We develop, market and sell wireless security and identity management
solutions and professional services to the enterprise, financial services,
government and gaming and wagering marketplace. As part of providing these
solutions we perform professional services to install, support and integrate our
solutions with other applications. We operate globally in a functional
organization. We do not have any off-balance sheet financing, other than
operating leases entered into in the normal course of business and we do not
actively engage in derivative or hedging transactions. During 2003 with the
acquisitions of DSS and Caradas, the majority of our revenues and expenses are
now in U.S. dollars. Therefore during the year we switched our functional
currency from Canadian to U.S. dollars. A significant portion of our cash
balance is denoted in U.S. dollars.

In 2003, our most complex accounting judgments were made in the areas of revenue
recognition. Revenue recognition is expected to continue to be an on-going
element of our accounting processes and judgments. In 2002, our most complex
accounting judgments were made in the areas of software revenue recognition.
Software revenue recognition is expected to continue to be an on-going element
of our accounting processes and judgments.

Revenue Recognition

We derive our revenue primarily from two sources: sales of products, including
hardware and software licenses, and services, including maintenance, support and
professional services. Significant management judgments and estimates must be
made and used in connection with the revenue recognized in any reporting period.
Material differences may affect the amount and timing of our revenue for any
period if our management made different judgments.

Consulting revenues are recognized on a time and materials basis, or on a
percentage of completion basis, depending on the contract, as employees and
subcontractors provide services. Revenue from time and materials service
contracts is recognized as the services are provided. Revenue from fixed price
long-term contracts is recognized over the contract term based on the percentage
of services provided during the period compared to the total estimated services
to be provided over the entire contract. Losses on contracts are recognized
during the period in which the loss first becomes probable and reasonably
estimable. Contract losses are determined to be the amount by which the
estimated direct and indirect costs of the contract exceed the estimated total
revenues that will be generated by the contract. Revenue recognized in excess of
billings is recorded as unbilled services. Billings in excess of revenue
recognized are recorded as deferred revenue until the above revenue recognition
criteria are met. Reimbursements, including those relating to travel and other
out-of-pocket expenses, and other similar third-party costs, are included in
revenues.

Revenue from software license agreements is recognized upon execution of a
license agreement and the shipment of the software, as long as all vendor
obligations have been satisfied, the license fee is fixed and determinable and
collection of the license fees is probable. Revenue from the sale of additional
software products is recognized as software is delivered.



                                       26
<PAGE>

For all sales, we use a binding contract, purchase order or another form of
documented agreement as evidence of an arrangement with the customer. Revenues
from software license agreements are recognized upon receipt of an executed
license agreement and shipment of the software, if there are no significant
remaining vendor obligations, collection of the receivable is probable and
payment is due in accordance with our normal payment terms.

We consider delivery to occur when we ship the product, so long as title and
risk of loss have passed to the customer.

At the time of a transaction, we assess whether the sale amount is fixed or
determinable and whether collection is probable. If we determine the fee is not
fixed or determinable, we recognize revenue when payment becomes due. We assess
collectibility based on a number of factors, including the creditworthiness of
the customer. If we determine that collectibility is not probable, we do not
record revenue until such time when collectibility becomes probable, which is
generally upon the receipt of cash.

Revenue earned on software arrangements involving multiple elements (i.e.,
software products, upgrades/enhancements, post contract customer support,
installation, training, et cetera) is allocated to each element based on vendor
specific objective evidence of relative fair value of the elements. When
arrangements contain multiple elements and vendor specific objective evidence
("VSOE") of fair value exists for all undelivered elements, we recognize revenue
for the delivered elements using the residual method. Our determination of fair
value of each of the undelivered elements in multi-element arrangements is based
on VSOE of fair value. VSOE of fair value for each element is either the price
charged when the same element is sold separately or the price established by
management, having the relevant authority to do so, for an element not yet sold
separately. For arrangements containing multiple elements wherein VSOE of fair
value does not exist for all undelivered elements, revenue for the delivered and
undelivered elements is deferred until VSOE of fair value exists or all elements
have been delivered. The revenue allocated to post contract customer support is
recognized ratably over the term of the support and revenue allocated to service
elements (such as training and installation) is recognized as the services are
performed.

Maintenance service revenue, whether sold separately or as part of a multiple
element arrangement, is deferred and recognized ratably over the term of the
maintenance contract, generally twelve months. Revenue allocated to professional
service elements is recognized as the services are performed.

Due to the complexity of some software license agreements, we routinely apply
judgment to the application of software revenue recognition accounting
principles to specific agreements and transactions. Different judgments and/or
different contract structures could have led to different accounting
conclusions, which could have had a material effect on our reported quarterly
earnings.

Capital Assets

The Company records its capital assets at their cost less accumulated
depreciation. On a periodic basis, management reviews the carrying values of
these assets and compares it to their estimated net recoverable amount. The
determination of net recoverable amount necessitates various assumptions, many
of which are forward looking and which are based on management's best estimate
of future revenues, expenses and cash flows. To the extent that actual financial
performance adversely differs from the results projected by these assumptions,
an impairment charge in the value of these assets would be necessary.

Goodwill and Other Intangible Assets

We record our goodwill in accordance with CICA Handbook section 3062 "Goodwill
and Other Intangible Assets", that requires that goodwill no longer be amortized
but instead be tested for impairment at least annually by comparing the carrying
value of a reporting unit with its fair value. If any potential impairment is
indicated, then it is quantified by comparing the carrying value of goodwill to
its fair value. During the fourth quarter of 2003 the Company completed its
goodwill impairment test. The Company determined that the fair values of its
reporting units are in excess of their respective carrying amounts.

Recent Accounting Developments

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The adoption of SFAS No. 146 has not had a material effect on the
Company's results of operations and financial position.

In December 2002, the FASB issued FASB Interpretation No 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Guarantors will have to meet new
disclosure and liability-recognition requirements for guarantees of debt that
fall within the scope of newly issued FIN 45. A liability must be recognized at
the inception of a guarantee covered by the new requirements whether or not
payment is probable, because the Interpretation creates the new concept of a
"stand-ready" obligation. This Interpretation applies to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal year
end. The disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002.



                                       27
<PAGE>

In January 2003, the FASB issued interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). Its consolidation provisions are
applicable for all newly created entities created after January 31, 2003, and
are applicable to existing variable interest entities as of the beginning of the
Company's fiscal year being January 1, 2004. With respect to entities that do
not quality to be assess for consolidation based on voting interests, FIN 46
generally requires a company that has variable interests that will absorb a
majority of the variable interests expected losses if they occur, or both, to
consolidate that variable interest entity. For periods prior to FIN 46's
effective date, certain disclosures will be required if it is reasonably
possible that the Company will have a significant variable interest in or be the
primary beneficiary of a variable interest entity when FIN 46 guidance if
effective. The adoption of this standard will have no material impact on its
financial results or operations or cash flows.

5-B.     Liquidity and Capital Resources

Two and Fourteen month period ended December 31, 2003 and year ended October 31,
2003 compared to year ended October 31, 2002 and October 31, 2001

Cash used in operating activities was $1,677,000 in the fourteen month period
ended December 31, 2003. Cash used in operating activities during the year was
comprised of the net loss of $5,618,000, less net depreciation and amortization
of $740,000, stock-based compensation expense of $825,000 and unrealized foreign
exchange loss of $416,000. Changes in other non-cash items include a decrease in
accounts payable and accrued liabilities of $140,000, a decrease in receivables
of $2,356,000, a decrease in deferred revenue of $156,000 and an increase in
prepaid expenses of $99,000. With the addition of DSS and Caradas in 2003, we
incorporated the fair value of their balance sheets into the Company's on the
acquisition dates. The inclusion of these balance sheets has affected the
calculation of non-cash operating working capital.

Cash used in operating activities was $722,000 in the two month period ended
December 31, 2003. Cash used in operating activities during the year was
comprised of the net loss of $784,000, less net depreciation and amortization of
$166,000, stock-based compensation expense of $53,000 and unrealized foreign
exchange gain of $75,000. Changes in other non-cash items include a decrease in
accounts payable and accrued liabilities of $99,000, a decrease in receivables
of $341,000, a decrease in deferred revenue of $175,000 and an increase in
prepaid expenses of $142,000. With the addition of DSS and Caradas in 2003, we
incorporated the fair value of their balance sheets into the Company's on the
acquisition dates. The inclusion of these balance sheets has affected the
calculation of non-cash operating working capital.

Cash used in operating activities was $954,000 in the year ended October 31,
2003. Cash used in operating activities during the year was comprised of the net
loss of $4,834,000, less net depreciation and amortization of $574,000,
stock-based compensation expense of $772,000 and unrealized foreign exchange
loss of $491,000. Changes in other non-cash items include a decrease in accounts
payable and accrued liabilities of $41,000, a decrease in receivables of
$2,023,000, an increase in deferred revenue of $20,000 and a decrease in prepaid
expenses of $43,000.

Cash used in operating activities was $4,532,000 in the year ended October 31,
2002, a decline of 55% from the amount used in the same period of the prior
year. Cash used in operating activities during the year was comprised of the net
loss of $4,065,000, less net depreciation and amortization of $404,000 and
unrealized foreign exchange loss of $72,000. Changes in other non-cash items
include a decrease in accounts payable and accrued liabilities of $1,180,000, an
increase in receivables of $45,000, a decrease in deferred revenue of $19,000
and a decrease in prepaid expenses of $301,000.

Cash used in operating activities was $10,596,000 in the year ended October 31,
2001, attributable to the net loss of $12,272,000 less net depreciation and
amortization of $1,226,000 and unrealized foreign exchange gain of $185,000.
Changes in other non-cash items include a decrease in accounts payable and
accrued liabilities of $278,000, a decrease in receivables of $946,000, a
decrease in deferred revenue of $27,000 and an increase in prepaid expenses of
$7,000.

Cash provided by financing activities in the fourteen month period ended
December 31, 2003 was $1,806,000 and $1,822,000 in the year ended October 31,
2003 (and $15,000 for the two months ended December 31, 2003). In June 2003 the
Company completed the issue and sale of 5,000,000 common shares in the capital
of the Company at $0.62 per unit for gross proceeds of $3,100,000. This was
offset by repayments of bank indebtedness of $241,000 and notes payable of
$873,000 at December 31, 2003 and $868,000 at October 31, 2003.



                                       28
<PAGE>

Cash provided by financing activities in the year ended October 31, 2002 was
$3,108,000. In April 2002, we completed a private placement for net proceeds of
$3,108,000. The Company completed the issue and sale of 518,671 units in the
capital of the Company at $6.00 per unit for gross proceeds of $3,112,022.

Cash provided by financing activities in the year ended October 31, 2001, was
$69,000 as a result of proceeds received from issuing common shares under an
employee stock option exercise.

Cash used in investing activities in the fourteen month period ended December
31, 2003 was $16,000. Cash was provided by the maturity of a short-term
investment in the amount of $600,000. Cash in the amount of $541,000 was
utilized in the acquisitions that occurred during the year. As well, the Company
purchased capital assets in the amount of $75,000 during this period.

Cash used in investing activities in the two month period ended December 31,
2003 was $597,000. Cash was provided by the maturity of a short-term investment
in the amount of $609,000. As well, the Company purchased capital assets in the
amount of $13,000 during this period.

Cash used in investing activities in the year ended October 31, 2003 was
$613,000. Additional funds of $10,000 were invested in a short-term investment.
Cash in the amount of $541,000 was utilized in the acquisitions that occurred
during the year. As well, the Company purchased capital assets in the amount of
$62,000 during this year.

Cash provided by investing activities in the year ended October 31, 2002 was
$92,000 consisting of $113,000 received from proceeds of a short-term investment
offset by $21,000 spent on capital assets.

Cash used in investing activities in the year ended October 31, 2001 was
$2,676,000 consisting of $719,000 spent on capital asset additions and the
purchase of a $1,956,000 short-term investment.

As of December 31, 2003, we had commitments under non-cancelable operating
leases for our facilities and equipment through 2006 in amounts ranging from
$620,000 in fiscal 2004 declining to $308,000 in fiscal 2006.

On January 20, 2004, the Company completed a private placement through the
issuance of 1,000,000 common shares and 1,100,000 common share purchase
warrants. The Company received gross proceeds of $2,000,000 in the transaction.
The warrants were comprised of 500,000 warrants exercisable at $2.00 and 600,000
at $2.05. Each warrant entitles the holder thereof to acquire one common share
for a period of three years. The common shares cannot be re-sold in the public
markets until a registration statement has been filed and declared effective by
the U.S. Securities and Exchange Commission.

We believe that our cash and cash equivalents and short-term investments as at
December 31, 2003 of $1,967,000 together with the additional funds raised
subsequent to our year-end will be sufficient to meet our short-term working
capital requirements for the next fiscal year. We may need to raise additional
amounts to meet our working capital requirements through private or public
financings, strategic relationships or other arrangements. However, additional
funding may not be available on terms attractive to us, or at all. If we enter
into strategic relationships to raise additional funds, we may be required to
relinquish rights to certain of our technologies. Our failure to either raise
capital when needed or to generate revenues would leave us with insufficient
resources to continue our business.

The following table presents unaudited selected financial data for each of the
last eight quarters ending October 31, 2003 and the two months ended December
31, 2003:

<TABLE>
<CAPTION>
------------------------- ------------------------- -------------------------- -------------------------
                            Revenue for the period        Loss for the period    Basic and diluted loss
                                                                                              per share
------------------------- ------------------------- -------------------------- -------------------------
<S>                                      <C>                        <C>                         <C>
December 31, 2003                       $1,455,000                  $ 784,000                   $  0.07
October 31, 2003                         2,687,000                  1,882,000                      0.33
July 31, 2003                            1,742,000                    738,000                      0.13
April 31, 2003                           1,835,000                  1,443,000                      0.45
January 31, 2003                           843,000                    772,000                      2.39
October 31, 2002                           261,000                    657,000                      0.22
July 31, 2002                              140,000                  1,001,000                      0.31
April 31, 2002                             198,000                  1,311,000                      0.47
January 31, 2002                           111,000                  1,096,000                      0.41
</TABLE>



                                       29
<PAGE>

5-C.     Research and Development, Patents and Licenses, et cetera

We plan to continue to invest in research and development for our security
products based on the technology we purchased in 1996, and we anticipate
spending approximately $1,060,000 in the year ending December 31, 2004 in
connection with these efforts. We expect to allocate funds almost entirely to
salary payments to staff for the continued research and development of our
security product suite. We cannot reasonably estimate when the benefits, if any,
of the continued development costs will be realized. We also cannot reasonably
estimate whether any of the continuing development costs will result in revenue
for us, or whether additional sources of funding will be available if continued
development of the technology is unsuccessful.

5-D.     Trend Information

At this time, it is difficult to provide any trends due to a number of factors.
We currently have several customers that are using our products for pilot
projects. The sales cycle can take a significant amount of time. In addition to
customer constraints, such as budgetary restrictions, the integration process
required to make our products function properly within a customer's specific
application may be complex. M-commerce applications are also in their infancy,
and the need for security applications is dependent on the adoption of these
applications by consumers.

Our revenue model consists of (i) license fees from the licensing of our
Passport Certificate Server(R) and Passport Authorization Product(TM), which are
one-time fees typically recorded upon execution of the license agreement
(although a licensee may ultimately require additional servers and pay
additional fees), (ii) consulting revenues, as employees and subcontractors
provide services to our customers, which are recognized on a time and materials
basis, or on a percentage of completion basis, depending on the contract, as
employees and subcontractors provide services (iii) recurring royalties from the
provision of certificates and permits, and (iv) annual support fees (for phone
assistance and product updates). In certain cases, we have waived the first year
support fees for certain of our customers (usually amounting to approximately
15% of aggregate license fees). As our business evolves, we expect that most of
our revenue will be generated through recurring royalties. This revenue stream
is dependent on the adoption of transaction-based applications over wireless
networks and therefore cannot be accurately projected at this time.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES

6-A.     Directors and Senior Management

The following sets forth certain information about each of our directors and
executive officers:

Stanley M. D. Beck, 69, has served as a Director since July 2002. Mr. Beck was
formerly Chairman of the Ontario Securities Commission and Dean of Osgoode Hall
Law School. Mr. Beck is currently Chairman of 407 International Inc. and
President of Granville Arbitrations Limited, and holds seats on a number of
boards.

Derek Buntain, 63, has served as a Director since July 2003. Mr. Buntain has
over 25 years experience in corporate finance, mergers and acquisitions and
international business. Mr. Buntain is currently the President of The Dundee
Bank, and the former President of Goodman & Company (Bermuda) Limited and holds
seats on a number of boards.

Nagy Moustafa, 40, has served as Diversinet's President and Chief Executive
Officer since November 1997. Mr. Moustafa has more than 16 years of professional
experience working in technology and engineering.

Keith Powell, 58, has served as a Director since July 2002. Mr. Powell is
currently the principal of Keith Powell Consulting Inc., an information
technology consulting firm and a Partner in XPV Capital Corp., a venture capital
company investing in early stage communications companies. Mr. Powell also sits
on several other boards. From 1980 to 2000, Mr. Powell held a number of
positions with Nortel Networks, including Senior Vice-President, Information
Services & Chief Information Officer from 1996 to 2000. In 1999 Mr. Powell was
inducted into the Canadian Information Productivity Awards Hall of Fame.

Mark C. Steinman, 55, has served as a Director since June 1998 and Chairman
since July 2002. Mr. Steinman has thirty years of corporate finance experience,
recently as Executive Vice President and Chief Financial Officer of Stelco Inc.
and prior to 1999 as Chief Financial Officer of Spar Aerospace and Chief
Financial Officer of Rogers Cablesystems.

Charles M.H. Shiu, 70, has served as a Director since September 2002. Mr. Shiu
is a former senior executive with Nortel Networks and has more than 25 years
experience with strategic alliances, joint ventures and investments in the
European, North American and Asia Pacific markets. Mr. Shiu is currently
Chairman of Allied Asia Investments Limited and holds seats on a number of
boards.

David Hackett, 39, was appointed as Chief Financial Officer effective March 26,
2002. Previously, Mr. Hackett was CFO of a technology and service provider to
electronic marketplaces, where he oversaw start-up operations, public financing
and acquisitions. Mr. Hackett has also held senior financial management
positions at EveryWare Development, Alliance Atlantis Communications and
Entertainment Information Services Ltd.



                                       30
<PAGE>

Atul Parikh, 39, joined Diversinet in January 2003 upon the acquisition of DSS
Software Technologies. Mr. Atul Parikh is responsible for sales initiatives and
fulfillment services in the United States. Mr. Parikh holds a Master Degree in
Computer Applications from India. He worked with major companies like Oracle,
Hitachi, Autodesk, British Telecom before he founded a DSS in 1996. DSS was the
fastest growing company in the bay area with 200 employees in 2001. He developed
the DSS business from revenue of 100,000 to 25,000,000 within five years of
business.

Scott Lowry, 59, has over twenty-five years experience in the financial services
industry. His career started at Chase Manhattan Bank in international banking
with assignments in New York, London, Frankfurt and Beirut. He was then Chairman
and CEO of Great Western Bank in Phoenix, an $800 million bank with more than
800 employees that was later sold to Citibank. Scott was Executive Director of
the Canary Wharf Development Company in London, which at the time was the
largest real estate project in the world. In the mid-1990's, he became president
of Internet security company Digital Signature Trust, which was backed by Zions
Bank and the American Bankers Association, and in mid-2002 sold to Identrus LLC.

Hussam Mahgoub, 53, has served as our Vice President of Products since April
1999. Prior to joining Diversinet, he held senior positions at Canada Post
Corporation, Bell Canada and Bank of Montreal. At Canada Post Corporation, he
was responsible for introducing many electronic services.

Nick Darwish, 43, has been with Diversinet since December 1999 and is currently
EVP, OEM Channels. Mr. Darwish joined Diversinet from Nortel Networks, a global
supplier of data and telephone network solutions and services. Most recently, he
was responsible for Nortel's new E-Commerce applications business.

Charles Walton, 44, has served as a Director since September 2003. Mr. Walton is
the founder of Caradas and is currently EVP, Business Development for the
Company. Mr. Walton has more than 20 years of business and technical experience
in the security industry.

6-B.     Compensation

The following table and notes show the executive compensation paid or accrued by
us during the fourteen month period ended December 31, 2003 to our officers
earning in excess of $100,000 per year:

<TABLE>
<CAPTION>
                                                                                                   Long Term
                                                      Annual Compensation                         Compensation
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Name and Principal Position              Salary            Bonus(6)          Other Annual
                                          ($)                 ($)            Compensation        Options/ SARs
---------------------------------- ------------------- ------------------ ------------------- ---------------------
<S>                                    <C>                  <C>                 <C>                 <C>
Nagy Moustafa
President and Chief Executive
Officer                                256,667(1)           15,000              7,000               300,000
---------------------------------- ------------------- ------------------ ------------------- ---------------------
David Hackett
Chief Financial Officer                192,500(2)            8,000              5,600                60,000
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Atul Parikh (5)
EVP, Professional Services           US$140,000(3)             -               US$4,800              29,000
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Charles Walton
EVP, Financial and International
Markets                               US$50,000(7)             -                  -                    -
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Scott Lowry
EVP, Government and Enterprise
Markets                               US$60,000(8)             -               US$1,600                -
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Nick Darwish
EVP, OEM Channels                      179,667(5)              -                5,600                17,000
---------------------------------- ------------------- ------------------ ------------------- ---------------------
Hussam Mahgoub
EVP, Products                          154,000(4)            5,000              5,600                37,000
================================== =================== ================== =================== =====================
</TABLE>


(1)      Mr. Moustafa is currently being compensated at the rate of Cdn $220,000
         per annum. See "Employment Agreements".

(2)      Mr. Hackett is currently being compensated at the rate of Cdn $165,000
         per annum. See "Employment Agreements".

(3)      Mr. Parikh is currently being compensated at the rate of U.S. $140,000
         per annum. See "Employment Agreements".

(4)      Mr. Mahgoub is currently being compensated at the rate of Cdn $132,000
         per annum. See "Employment Agreements".

(5)      Mr. Darwish is currently being compensated at the rate of Cdn $154,000
         per annum. See "Employment Agreements".

(6)      Bonus allocations, if any, are determined annually at the discretion of
         the board of directors on the recommendation of the Compensation
         Committee, bonuses are paid and recorded as compensation in the fiscal
         year following the year in which they are earned as the determination
         is made by the Board in the following year.



                                       31
<PAGE>

(7)      Mr. Walton is currently being compensated at the rate of US $150,000
         per annum. See "Employment Agreements".

(8)      Mr. Lowry is currently being compensated at the rate of US $180,000 per
         annum. See "Employment Agreements".


There were no long-term incentive awards other than stock options made to the
executive officers listed above during the fiscal year ended December 31, 2003.
There are no pension plan benefits in place for our executive officers and none
of our senior officers or directors is indebted to us.

Employment Agreements

We entered into an employment agreement with Nagy Moustafa, effective September
29, 1997, as amended, which provides for an annual salary of Cdn $220,000 for
fiscal 2003, a maximum performance bonus of Cdn $250,000, payable upon the
achievement of corporate objectives, and for severance compensation upon the
occurrence of certain events. The employment agreement also contains certain
non-competition and non-disclosure provisions and is renewable annually, subject
to certain termination provisions.

We entered into an employment agreement and consulting agreement with David
Hackett, effective March 26, 2002, as amended, which provides for an annual
compensation of Cdn $165,000 for fiscal 2003 and a performance bonus of Cdn
$75,000, payable upon the achievement of corporate objectives, and for severance
compensation upon the occurrence of certain events. The employment agreement
also contains certain non-disclosure provisions and is renewable annually,
subject to certain termination provisions.

We entered into an employment agreement with Charles Walton, effective September
1, 2003, which provides for an annual compensation of $150,000 and a performance
bonus of $100,000, payable upon the achievement of corporate objectives, and for
severance compensation upon the occurrence of certain events. The employment
agreement also contains certain non-disclosure provisions and is renewable
annually, subject to certain termination provisions.

We entered into an employment agreement with Scott Lowry, effective September 1,
2003, which provides for an annual compensation of $180,000 and a performance
bonus of $100,000, payable upon the achievement of corporate objectives, and for
severance compensation upon the occurrence of certain events. The employment
agreement also contains certain non-disclosure provisions and is renewable
annually, subject to certain termination provisions.

We entered into an employment agreement with Atul Parikh, effective January 3,
2003, which provides for an annual compensation of $140,000 and a performance
bonus of $100,000, payable upon the achievement of corporate objectives, and for
severance compensation upon the occurrence of certain events. The employment
agreement also contains certain non-disclosure provisions and is renewable
annually, subject to certain termination provisions.

We entered into an employment agreement with Hussam Mahgoub, effective April 1,
1999, as amended, which provides for an annual salary of Cdn $132,000 for fiscal
2002 and a Cdn $100,000 performance bonus, payable upon the achievement of
corporate objectives, and for severance compensation upon the occurrence of
certain events. The employment agreement also contains certain non-disclosure
provisions and is renewable annually, subject to certain termination provisions.

We entered into an employment agreement with Nick Darwish, effective December
20, 1999, as amended, which provides for an annual salary of Cdn $154,000 for
fiscal 2002 and a performance bonus of Cdn $100,000, payable upon the
achievement of corporate objectives, and for severance compensation upon the
occurrence of certain events. The employment agreement also contains certain
non-disclosure provisions and is renewable annually, subject to certain
termination provisions.

Compensation of Directors

Our directors received no compensation during fiscal 2003 for attending meetings
of the board of directors or a committee of the board of directors.

The Corporation compensated none of the directors of the Corporation in his
capacity as a director during the fiscal year ended December 31, 2003 pursuant
to any other arrangement or in lieu of any standard arrangement. It has been the
Corporation's practice to grant to a director 50,000 options to acquire common
shares of the Corporation upon his or her election as a director. In addition
the Corporation may grant directors additional options from time to time. During
fiscal 2003 Stanley Beck received 15,000 options at Cdn $0.84 and 25,000 options
at Cdn $3.38; Derek Buntain received 25,000 options at $0.62 and 25,000 options
at $2.45; Keith Powell received 15,000 options at Cdn $0.84 and 25,000 options
at Cdn $3.38; Charles Shiu received 15,000 options at $0.62 and 25,000 options
at $2.45; and Mark Steinman received 15,000 options at Cdn$0.84 and 40,000
options at Cdn $3.38. Such options are exercisable to acquire common shares at
the market price on the day preceding the grant pursuant to the terms of the
Plan.



                                       32
<PAGE>

Option to Purchase Our Securities

Our share option plan was established on October 15, 1993 and was amended on
February 4, 1997, April 16, 1999, May 15, 2000, January 22, 2003 and August 15,
2003. Under our share option plan, options for up to a specified maximum limit
of 1,800,000 common shares may be granted from time to time by the board of
directors to our directors, officers, employees and consultants of Diversinet
and any of our subsidiaries. Options granted under our share option plan have an
exercise price equal to the closing price of the common shares on the day
immediately proceeding the day of the grant and generally will be exercisable
over a three-year period and will expire after five years.

         The share option plan provides that:

         (i)      The maximum number of common shares which may be reserved for
                  issuance to any participant pursuant to share options may not
                  exceed 5% of the common shares outstanding at the time of
                  grant (on a non-diluted basis) less the aggregate number of
                  common shares reserved for issuance to such person under any
                  other option to purchase common shares from treasury granted
                  as a compensation or incentive mechanism;

         (ii)     The maximum number of common shares that may be issued to any
                  one insider and his associates within a one year period may
                  not exceed 5% of the outstanding issue;

         (iii)    The maximum number of common shares that may be reserved for
                  issuance to Diversinet insiders is limited to 10% of the
                  common shares of the outstanding issue at the time of the
                  grant (on a non-diluted basis) less the aggregate number of
                  common shares reserved for issuance to insiders under any
                  other share compensation arrangement; and

         (iv)     The maximum number of common shares that may be issued to
                  Diversinet insiders within a one-year period may not exceed
                  10% of the outstanding issue.

As at March 3, 2004, there were a total of 1,116,096 options to purchase common
shares outstanding under our share option plan at exercise prices ranging from
$0.62 to $149.40 with expiration dates ranging from March 15, 2004 to December
5, 2008. The directors and officers as a group hold options to purchase 789,375
of our common shares. The following table provides details on the share options
granted to our directors, officers, employees and consultants under the terms of
our share option plan as at March 3, 2004.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                            Share Options Outstanding
-------------------------------------------------------------------------------------------------------------------
                               Total number of common
Optionee                       shares subject to option        Share exercise price        Expiration date
------------------------------ --------------------------- --------------------------- ----------------------------
<S>                            <C>                         <C>                         <C>
Directors and Officers                      789,375        U.S.$0.62 to U.S.$119.40    03/15/2004 - 08/15/2008
Employees and Consultants                   326,721        U.S.$0.62 to U.S.$149.40    03/22/2003 - 12/5/2008
------------------------------ --------------------------- --------------------------- ----------------------------
</TABLE>

6-C.     Board Practices

Our board of directors presently consists of seven (7) directors who are elected
annually. Each director elected will hold office until the close of business of
our first annual meeting of shareholders following his election unless his
office is earlier vacated in accordance with our by-laws. During fiscal 2003
there were no director resignations.

Audit Committee

The Audit Committee is comprised of three directors. The Audit Committee
recommends engagement of the Company's independent auditors and is primarily
responsible for approving the services performed by the Company's independent
auditors. The Audit Committee's responsibilities included reviewing the
Corporation's financial report procedures, the adequacy of its internal controls
and information systems, the external audit plan and the independence and terms
of engagement and fees of the external auditors and the performance of the
Corporation's external auditors. The committee also has the responsibility to
review, and to recommend for approval, the Corporation's interim unaudited
consolidated financial statements and annual consolidated financial statements,
management's discussion and analysis of financial condition and results of
operations and related press releases, prior to their approval by the full
Board. The members of the Audit Committee are Mark Steinman (Chair), Keith
Powell and Derek Buntain.

To carry out its responsibilities, the Audit Committee held four meetings during
the fourteen-month period of November 1, 2002 to December 31, 2003.

Compensation Committee

The Compensation Committee is comprised of two directors. It is the
responsibility of the Compensation Committee to determine the level of
compensation and for developing recommendations for stock option grants for


                                       33
<PAGE>

approval by the Board of Directors in respect of the Corporation's senior
executives (including Named Executive Officers) with a view to providing such
executives with a competitive compensation package having regard to performance.
Performance is defined to include achievement of the Corporation's strategic
objective of growth, development of the business, enhancement of shareholder
value and attainment of annual goals as set by the Board of Directors. The
members of the Compensation Committee are Keith Powell (Chair) and Derek
Buntain.

Governance Committee

The Governance Committee is comprised of two directors. The Governance Committee
assists the Board of Directors in fulfilling its oversight responsibilities
related to seeking candidates for membership on the Board of Directors,
assessing the corporate governance policies and processes of the Board of
Directors and reviewing from time to time the policies of the Board of Directors
related to director qualifications, compensation, tenure and retirement. The
members of the Governance Committee are Stanley Beck (Chair) and Charles Shiu.

6-D.     Employees

As of March 15, 2004, we had 92 full-time employees and 32 contractors. Of our
employees and contractors, 84 were providing consulting services to clients, 13
were involved in research and development, 18 in sales, marketing and business
development and 9 in administration and finance. None of our employees is
covered by a collective bargaining agreement, and we believe that our
relationship with our employees is good. Our future success, however, will
depend upon our ability to attract and retain qualified personnel. Competition
for such personnel is often intense, and we cannot provide assurance that we
will be able to attract and retain adequate numbers of qualified personnel in
the future.

6-E.     Share Ownership

         See item 7-A.

ITEM 7   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7-A.     Major Shareholders

Diversinet is a publicly owned Canadian corporation. Another corporation or any
government does not control us directly or indirectly.

As of March 3, 2004, we had 12,043,027 common shares outstanding.

The following table shows the ownership of our common shares as of March 3, 2004
of:

         o        each person known to us to be the beneficial owner of more
                  than 5% of our outstanding common shares;

         o        each of our directors and officers; and

         o        all of our directors and officers as a group.

The second column indicates the number of common shares actually owned, and the
third column indicates the number of common shares that each person has the
right to acquire within sixty days from the date hereof upon the exercise of
outstanding options, warrants or convertible securities. The fourth column
reflects a description of the shares underlying those options, warrants and
convertible securities and the vesting and exercise prices thereof. The fifth
column reflects the sum of the second and third columns, expressed as a
percentage of the issued and outstanding common shares of Diversinet.

Unless otherwise indicated, the business address for each of these individuals
is c/o Diversinet Corp., 2225 Sheppard Avenue East, Suite 1801, Toronto, ON
Canada M2J 5C2.


                                       34
<PAGE>

<TABLE>
<CAPTION>
--------------------------- -------------- ------------- ------------------------------------------- ------------------
                                           Number of
                                           Options or                                                  Percentage of
                            Number of      Warrants                                                     Outstanding
Name                        Shares Owned   Owned                     Options Represent                    Shares
--------------------------- -------------- ------------- ------------------------------------------- -----------------
<S>                         <C>           <C>            <C>                                               <C>
Nagy Moustafa               111,846        123,333       The vested and immediately exercisable            1.93%
                                                         portion of options to purchase 340,000
                                                         common shares at purchase prices ranging
                                                         from Cdn$0.84 to $162.50 per share.  The
                                                         balance of these options vest at the rate
                                                         of 8.3% per quarter, beginning December
                                                         20, 2002 as to 29,167 options, beginning
                                                         June 5, 2003 as to 75,000 options and
                                                         beginning August 15, 2003 as to 112,500
                                                         options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Hussam Mahgoub              1,000          28,500        The vested and the immediately                    *
                                                         exercisable portion of options to
                                                         purchase 58,750 common shares at purchase
                                                         prices ranging between Cdn $0.84 and
                                                         $64.70 per share.  The balance of these
                                                         options vest at the rate of 8.3% per
                                                         quarter, beginning April 3, 2002 as to
                                                         1,584 options, beginning May 9, 2002 as
                                                         to 1,333 options, beginning February 28,
                                                         2003 as to 3,333 options, beginning June
                                                         5, 2003 as to 1,500 options and beginning
                                                         August 15, 2003 as to the remaining
                                                         22,500 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Nick Darwish                4,178          26,458        The vested and immediately exercisable            *
                                                         portion of options to purchase an
                                                         aggregate of 42,125 common shares at
                                                         purchase prices ranging between Cdn$0.84
                                                         and $119.40 per share.  The balance of
                                                         these options vest at the rate of 8.3%
                                                         per quarter beginning July 24, 2001 as to
                                                         417 options, beginning April 3, 2002 as
                                                         to 1,584 options, beginning May 9, 2002
                                                         as to 1,333 options, beginning February
                                                         28, 2003 as to 3,333 options, beginning
                                                         June 5, 2003 as to 1,500 options and
                                                         beginning August 15, 2003 as to the
                                                         remaining 7,500 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
David Hackett               35,591         25,417        The vested and immediately exercisable            *
                                                         portion of options to purchase an
                                                         aggregate of 75,000 common shares at
                                                         purchase prices ranging between Cdn$0.84
                                                         and $5.50 per share.  The balance of
                                                         these options vest at the rate of 8.3%
                                                         per quarter beginning March 26, 2002 as
                                                         to 5,000 options, beginning February 28,
                                                         2003 as to 3,333 options, beginning June
                                                         5, 2003 as to 3,750 options and beginning
                                                         August 15, 2003 as to the remaining
                                                         37,500 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
</TABLE>


                                       35
<PAGE>

<TABLE>
<CAPTION>
--------------------------- -------------- ------------- ------------------------------------------- ------------------
                                           Number of
                                           Options or                                                  Percentage of
                            Number of      Warrants                                                     Outstanding
Name                        Shares Owned   Owned                     Options Represent                    Shares
--------------------------- -------------- ------------- ------------------------------------------- -----------------
<S>                         <C>           <C>            <C>                                         <C>
Atul Parikh                 -              55,583        The vested and immediately exercisable            *
                                                         portion of options and warrants to
                                                         purchase an aggregate of 141,000 common
                                                         shares at purchase prices ranging between
                                                         $0.62 and $3.75 per share.  The balance
                                                         of these options vest at the rate of 8.3%
                                                         per quarter beginning January 2, 2003 as
                                                         to 71,167 options, beginning June 5, 2003
                                                         as to 3,000 options and beginning August
                                                         15, 2003 as to the remaining 11,250
                                                         options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Charles Walton              551,261        16,667        The vested and immediately exercisable            4.71%
                                                         portion of warrants to purchase an
                                                         aggregate of 100,000 common shares at
                                                         purchase prices of $2.45 per share.  The
                                                         balance of these warrants vest at the
                                                         rate of 8.3% per quarter beginning
                                                         September 1, 2003.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Scott Lowry                 224,612        16,667        The vested and immediately exercisable            2.00%
                                                         portion of warrants to purchase an
                                                         aggregate of 100,000 common shares at
                                                         purchase prices of $2.45 per share.  The
                                                         balance of these warrants vest at the
                                                         rate of 8.3% per quarter beginning
                                                         September 1, 2003.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Stanley Beck                -0-            15,833        The vested and immediately exercisable            *
                                                         portion of options to purchase 50,000
                                                         common shares at purchase prices ranging
                                                         from Cdn$0.84 to Cdn$3.38 per share.  The
                                                         remaining options vest at the rate of
                                                         8.3% per quarter beginning July 8, 2002
                                                         as to 4,167, beginning June 5, 2003 as to
                                                         11,250 options and beginning August 15,
                                                         2003 as to the remaining 18,750 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Mark Steinman               -0-            24,500        The vested and immediately exercisable            *
                                                         portion of an option to purchase 74,000
                                                         common shares at a purchase prices
                                                         ranging between of Cdn$0.84 and $15.30
                                                         per share. The balance of these options
                                                         vest at the rate of 8.3% per quarter,
                                                         beginning July 24, 2001 as to 333
                                                         options, beginning July 8, 2002 as to the
                                                         remaining 4,167 options, beginning June
                                                         5, 2003 as to 15,000 options and
                                                         beginning August 15, 2003 as to the
                                                         remaining 30,000 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>
--------------------------- -------------- ------------- ------------------------------------------- ------------------
                                           Number of
                                           Options or                                                  Percentage of
                            Number of      Warrants                                                     Outstanding
Name                        Shares Owned   Owned                     Options Represent                    Shares
--------------------------- -------------- ------------- ------------------------------------------- -----------------
<S>                         <C>           <C>            <C>                                         <C>
Keith Powell                -0-            20,833        The vested and immediately exercisable            *
                                                         portion of an option to purchase 55,000
                                                         common shares at a purchase prices
                                                         ranging between of Cdn$0.84 and $13.10
                                                         per share. The balance of these options
                                                         vest at the rate of 8.3% per quarter,
                                                         beginning July 8, 2002 as to the
                                                         remaining 4,167 options, beginning June
                                                         5, 2003 as to 11,250 options and
                                                         beginning August 15, 2003 as to the
                                                         remaining 18,750 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Charles Shiu                -0-            15,000        The vested and immediately exercisable            *
                                                         portion of an option to purchase 50,000
                                                         common shares at a purchase prices
                                                         ranging between of Cdn$0.84 and Cdn$3.38
                                                         per share. The balance of these options
                                                         vest at the rate of 8.3% per quarter,
                                                         beginning September 4, 2002 as to 5,000
                                                         options, beginning June 5, 2003 as to
                                                         11,250 options and beginning August 15,
                                                         2003 as to the remaining 18,750 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Derek Buntain               200,000        12,500        The vested and immediately exercisable            1.76%
                                                         portion of an option to purchase 50,000
                                                         common shares at a purchase prices
                                                         ranging between of $0.62 and $2.45 per
                                                         share. The balance of these options vest
                                                         at the rate of 8.3% per quarter,
                                                         beginning June 5, 2003 as to 18,750
                                                         options and beginning August 15, 2003 as
                                                         to the remaining 18,750 options.
--------------------------- -------------- ------------- ------------------------------------------- -----------------
Lakefront Partners, LLC     1,080,000      500,000       The vested and immediately exercisable           12.6%
and James B. Wigdale, Jr.                  warrants      portion of warrants to purchase an
(1)                                                      aggregate of 1,000,000 common shares at a
                                                         purchase price ranging between $2.00 and
                                                         $2.05.  The balance of these warrants
                                                         vest on July 15, 2004 at to 250,000
                                                         warrants and January 15, 2005 as to the
                                                         remaining 350,000 warrants.  These
                                                         warrants will vest immediately if any one
                                                         of a number of significant changes occur
                                                         within the Company.


All Officers and            1,124,310      381,282                                                        12.1%
Directors as a group (10
persons)
</TABLE>

----------------
*  Less than 1%


(1)  Mr. Wigdale is the control person of Lakefront Capital Management, LLC, the
     manager of Lakefront Partners, LLC. Both Lakefront Partners, LLC and Mr.
     Wigdale have offices located at 205 E. Wisconsin Avenue, Suite 220,
     Milwaukee, WI 53202. Lakefront Partners, LLC and Mr. Wigdale may be deemed
     to be acting jointly or in concert in respect to their security holdings of
     Diversinet.



                                       37
<PAGE>

7-B.     Related Party Transactions

As at December 31, 2003 and October 31, 2003, the Company had a promissory note
payable in the amount $600,000 due to an officer of the Company. This note is
payable in installments of $300,000 on January 2, 2004 and $300,000 on January
2, 2005 and bears no interest.

In February 2004, the Company amended the DSS Software Technologies share
purchase agreement. The promissory note in the amount of $600,000 payable in
installments of $300,000 on January 2, 2004 and $300,000 on January 2, 2005 has
been replaced by the issuance of 200,000 Diversinet common shares and cash
payments of $50,000 in February 2004, $50,000 on April 2004 and $100,000 on
January 2005. The existing 120,000 warrants exercisable at $3.75 have been
replaced by issuance of 120,000 warrants exercisable at $2.05, exercisable after
January 1, 2005 expiring on December 31, 2006. The common shares cannot be
re-sold in the public markets until a registration statement has been filed and
declared effective by the U.S. Securities and Exchange Commission.

7-C.     Interests of Experts and Counsel

         Not Applicable.

ITEM 8   FINANCIAL INFORMATION

8-A.     Consolidated Statements and Other Financial Information

The financial statements are included in this Registration Statement, Form 20-F
under Item 17.

Legal proceedings

There are currently four material claims pending against us. If we lose any of
these suits or enter into settlements requiring us to pay cash or to issue any
of our common shares, our liquidity and financial position will be adversely
affected and our shareholders' ownership may be diluted.

(a)      Silva Run Litigation Matter

In May 1996, Silva Run Worldwide Ltd. sued a number of individuals and
corporations, including us, in the United States District Court for the Southern
District of New York in connection with, among other things, Silva Run's
purchase of 21,250 common shares (850,000 common shares prior common share
consolidations) in August 1995. At the time of such purchase, we were operating
a different business under our prior name, The Instant Publisher Inc., and a
prior management group was running us. In this lawsuit, the plaintiff is seeking
to cancel this stock purchase, alleging, inter alia:

         o        that the plaintiff was fraudulently induced into the
                  transaction by certain defendants other than us;

         o        that the sale of our common shares was not in compliance with
                  the Securities and Exchange Commission regulation governing
                  the sale of those shares outside the United States; and

         o        that we were the control person of other defendants who
                  violated the Securities Act of 1933, as amended, in connection
                  with the sale of our common shares, and thereby are required
                  to cancel the transaction or are liable for damages under the
                  control person provisions of the Securities Act of 1933, as
                  amended, and the Securities Exchange Act of 1934, as amended.

The plaintiff also sought punitive damages of U.S. $25,000,000 plus interest,
attorneys' fees and costs.

In April 1998, the court dismissed all claims against us except for the claims
against us directly and as an alleged control person seeking either a reversal
of the transaction, which would require us to buy back the 21,250 common shares
(850,000 common shares prior all share consolidations) purchased by Silva Run,
or damages. The plaintiffs then filed a second amended complaint in July 1998
which seeks approximately U.S. $3,700,000, as a refund or damages, plus
interest, attorneys' fees, and costs, but no longer seeks punitive damages
against us.

On March 28, 2000, the court granted our motion to dismiss (and the other
defendants' motions to dismiss) the second amended complaint, without prejudice
to Silva Run's filing of a third amended complaint within 30 days. A third
amended complaint was filed. While we intend to continue to vigorously defend
this case, we may have to refund the U.S. $3,700,000 purchase price of the
shares, or be assessed damages, either of which would have a material adverse
effect on our liquidity and our ability to fund our business. It is possible
that the dismissed claims may be reinstated and that either a judge or jury
could impose punitive damages on us.

(b)      Instant Publisher (Israel) Litigation Matter

In May 2000, we were sued in the Ontario Superior Court of Justice, along with
our wholly-owned Barbados subsidiary, The Instant Publisher Ltd., by Instant
Publisher (Israel) Limited, a company not related to Diversinet. Instant
Publisher (Israel) Limited is seeking damages of $1,533,950 for breach of an
October 25, 1995 dealer agreement with our previous printing business regarding
the distribution of printing equipment, and damages of $25,000,000 for loss of
reputation and loss of opportunity, pre-judgment and post-judgment interest, and
costs. Based on our preliminary evaluation of the merits of this claim, we filed
a notice of intention to defend against the claim. If we are required to pay
damages, this could have a material adverse effect on our liquidity and our
ability to fund our business.



                                       38
<PAGE>

(c)      Subsidiary Litigation Matter

One of the Company's wholly owned subsidiaries is being sued in Bankruptcy Court
by a company alleging the subsidiary received preferential payments. The
plaintiff is seeking to receive $200,000.

(d)      Employee Litigation Matter

In July 2003, we were sued in the Ontario Superior Court of Justice by two
former employees who claim, inter alia, that each was terminated, while on
short-term disability, in a manner that exhibited bad faith and unfair dealings.
One is seeking against Diversinet Cdn$125,000 in special, general, punitive and
exemplary damages. The other is seeking against Diversinet Cdn$350,000 in
special, general, punitive and exemplary damages.

(e)      Employee Litigation Matter

In January 2004, Diversinet and an officer of the Company were sued in the
Ontario Superior Court of Justice by a former employee who claims, inter alia,
that he was wrongfully terminated in a manner that exhibited bad faith and
unfair dealings. He is seeking a total of Cdn$450,000 against us and our officer
in aggravated, general, punitive and exemplary damages.

8-B.  Significant Changes

On January 23, 2003 the Board of Directors approved a 1-for-10 reverse stock
split of our outstanding common shares. This move followed a vote January 22,
2003, at the Annual and Special Shareholders' Meeting in which a majority of our
shareholders authorized the board to effect the reverse stock split.

As a result of the reverse stock split, effective on January 28, 2003, every ten
shares of Diversinet common stock were exchanged for one share of Diversinet
common stock. The reverse stock split affected all shares of common stock, stock
options and warrants outstanding immediately prior to the effective time of the
reverse stock split.

Our common shares have been quoted on the NASDAQ SmallCap MarketSM since June
1995. NASDAQ requires that we maintain a minimum bid price of $1.00 for
continued listing. On March 9, 2002 we received notice from NASDAQ that we had
not met the minimum $1.00 per share requirement and may be subject to delisting.
On April 30, 2003, after rejecting our appeal, NASDAQ delisted Diversinet's
securities. Effective April 30, 2003, Diversinet's common shares have traded on
the Over the Counter Bulletin Board under the symbol DVNTF.

There have been no other significant changes or events between December 31, 2003
and March 3, 2004.

ITEM 9   THE OFFER AND LISTING

9-A.  Offer and Listing Details

Diversinet Corp.'s common shares traded on the Canadian Dealing Network until it
ceased to operate in August of 2000. The following table lists the high, low,
closing prices and the aggregate yearly trading volumes on the Canadian Dealing
Network for shares of our common shares for the last five fiscal years ended
October 31:

<TABLE>
<CAPTION>


                               Canadian Dealing Network Shares Trading Activity
    Year ended October 31,             High                Low               Closing       Trading Volume (000)
    ----------------------             ----                ---               -------       --------------------
<S>                                      <C>                 <C>                 <C>               <C>
2003........................             N/A                 N/A                 N/A                N/A
2002........................             N/A                 N/A                 N/A                N/A
2001........................             N/A                 N/A                 N/A                N/A
2000........................           $66.75              $10.00               $-               43,126
1999........................            18.00                1.40               17.25            17,040
</TABLE>

The following table lists the high, low and closing prices on the OTC Bulletin
Board (from April 30, 2003) and NASDAQ (prior to April 30, 2003) of our common
shares for the last five fiscal years ended December 31:


                                 OTC Bulletin Board and NASDAQ Trading Activity

<TABLE>
<CAPTION>
    Year ended December 31,             High                Low               Closing        Trading Volume (000)
    -----------------------             ----                ---               -------        --------------------
<C>                                     <C>                 <C>                 <C>                <C>
2003...........................         $6.30               $0.48               $2.09              10,264
2002...........................        $12.50               $2.20               $3.00               2,359
2001...........................        $36.20              $10.00              $12.20               2,965
2000...........................       $449.37              $17.81              $22.50              21,304
1999...........................       $262.50              $19.06             $220.00              16,340
</TABLE>



                                       39
<PAGE>

Diversinet Corp. has not been traded on The Canadian Dealing Network since it
ceased to operate in August of 2000 so there has been no activity of our common
shares for the last eight fiscal quarters. The following table lists the high,
low and closing prices on the OTC Bulletin Board and NASDAQ of our common shares
for the last eight fiscal quarters:

<TABLE>
<CAPTION>
                                           NASDAQ Trading Activity
         Quarter Ended                  High                Low               Closing        Trading Volume (000)
         -------------                  ----                ---               -------        --------------------
<S>                                     <C>                 <C>                 <C>                 <C>
December 31, 2003............           $6.30               $1.82               $2.09               6,259
September 30, 2003...........           $5.55               $1.15               $4.95               2,222
June 30, 2003................           $1.99               $0.48               $1.39               1,241
March 31, 2003...............           $4.00               $1.12               $1.38                 542
December 31, 2002..............         $5.90               $2.40               $3.00                 450
September 30, 2002.............         $5.80               $2.20               $2.50                 324
June 30, 2002..................         $9.10               $2.90               $2.90                 474
March 31, 2002.................        $12.50               $4.30               $8.10               1,111
</TABLE>

The following table lists the high, low and closing prices on the OTC Bulletin
Board of our common shares for the last six months:


<TABLE>
<CAPTION>
                                       OTC Bulletin Board Trading Activity
          Month Ended                   High                Low               Closing        Trading Volume (000)
          -----------                   ----                ---               -------        --------------------
<S>                                     <C>                 <C>                  <C>              <C>
February 2004...............            $2.45               $1.80                1.80             338,700
January 2004................            $2.53               $1.95               $2.30           1,323,500
December 2003...............            $2.20               $1.85               $2.09                 716
November 2003...............            $2.41               $1.82               $2.05                 681
October 2003................            $6.30               $1.90               $2.44               4,862
September 2003..............            $5.55               $3.30               $4.95               1,168
</TABLE>

Our common shares are issued in registered form and the following information is
taken from the records of ComputerShare Trust Company of Canada located in
Toronto, Ontario, Canada, the registrar and transfer agent for our common
shares.

On March 3, 2004, the shareholders' list for our common shares showed 122
registered shareholders and 12,043,277 shares outstanding. Of the 122 registered
shareholders, 109 list U.S. addresses, showing ownership of an aggregate of
10,233,641 shares, representing 85% of our outstanding common shares.

We have not declared any dividends for the last eight years and do not
anticipate that we will do so in the foreseeable future. Our present policy is
to retain future earnings, if any, for use in our operations and the expansion
of our business.

9-B.   Plan of Distribution

       Not Applicable.

9-C.   Markets

Our common shares began trading on the NASDAQ SmallCap MarketSM on June 20,
1995. Prior to December 3, 2002, our common shares traded on the NASDAQ SmallCap
MarketSM under the symbol "DVNT". Effective December 3, 2002 our common shares
trade under the symbol "DVNTC" with the exception of a 20 period from January
28, 2003 to February 25, 2003 when our common shares traded under the symbol
"DVNTD". From February 25, 2003 until April 30, 2003 ours common shares traded
under the symbol "DVNTC". On April 30, 2003 NASDAQ delisted our common shares.
From April 30, 2003 to present our common shares have been trading on the OTC
Bulletin Board under the symbol "DVNTF".

Prior to August 2000 our shares were also traded on the now defunct Canadian
Dealers Network.

9-D.   Selling Shareholders

       Not Applicable.

9-E.   Dilution

       Not Applicable.



                                       40
<PAGE>

9-F.   Expenses of the Issue

       Not Applicable.


ITEM 10.  ADDITIONAL INFORMATION

10-A.    Share Capital

         Not Applicable.

10-B.    Memorandum and Articles of Association

1.   Our Certificate of Incorporation No. is 1054873 (Ontario). Our objectives
     are not indicated on the registration form. However, our objective is to
     enable mobile e-commerce (m-commerce) services with our wireless security
     infrastructure solutions.

2.   (a) A Director shall disclose in writing to us or request to have entered
     into the minutes of the meeting the nature and extent of his interest
     regarding any material contracts.

         (b)      Not Applicable.

         (c)      Not Applicable.

         (d)      Not Applicable. Directors are appointed at the annual
                  shareholders' meeting or appointed by special resolution.

         (e)      Not Applicable.

         (f)      Not Applicable.

         (g)      Not Applicable.

         (h)      Not Applicable.

10-C.    Material Contracts

We have not entered into any material contracts, other than contracts entered
into in the ordinary course of business and those listed herein to which we are
a party, for the two years immediately preceding publication of this Form 20-F.

10-D.    Exchange Controls

The federal Investment Canada Act (the "ICA"), which became effective on June
30, 1985, regulates the acquisition by non-Canadians of control of a Canadian
Business (as defined in the Investment Canada Act). Such an acquisition is
either notifiable or reviewable depending on its structure and the value of the
assets of the Canadian business being acquired. In effect, the ICA requires
review by Investment Canada, the agency which administers the ICA, and approval
by the Canadian government in the case of an acquisition of control of a
Canadian business by a non-Canadian that is a WTO Investor (as defined in the
ICA) where: (i) in the case of a direct acquisition of control of a Canadian
entity (i.e., through a share purchase), the assets of the entity carrying on
the Canadian Business and of all other entities in Canada, the control of which
is acquired exceeds $184 million (this threshold is adjusted annually for
inflation and growth in Canada's domestic product); or (ii) in the case of a
direct acquisition of assets of a Canadian Business (i.e., through an asset
acquisition) the value of the assets used in carrying on the Canadian business
exceeds $184 million. Indirect acquisitions (for example, the acquisition of the
foreign parent of the Canadian business) of assets or indirect acquisitions of
control by a WTO investor are not reviewable, but are still notifiable. Where an
investor is not a WTO Investor, review is required where: (i) in the case of a
direct acquisition of control of a Canadian Business, the value of the assets of
the business and all other entities being acquired is $5 million or more; or
(ii) in the case of an indirect acquisition of control of a Canadian Business,
where the Canadian Business has assets of $50 million or more in value; or (iii)
in the case of an acquisition of assets of a Canadian Business, the assets
represents more than 50% of the assets of the original group and the value of
the acquired assets exceeds $5 million. These lower thresholds also apply, even
where the investor is a WTO investor, where the Canadian Business is engaged in
certain activities relating to "Canada's cultural heritage or national identity"
such as book publishing, film production and distribution, television and radio,
production and distribution of music, uranium production, certain financial
services or transportation services.

In the context of Diversinet, in essence, three methods of acquiring control of
a Canadian business are regulated by the ICA: (i) the acquisition of all or
substantially all of the assets used in carrying on the Canadian business; (ii)
the acquisition, directly or indirectly, of voting shares of a Canadian
corporation carrying on the Canadian business; (iii) the acquisition of voting
shares of an entity which controls, directly or indirectly, another entity
carrying on a Canadian business. An acquisition of a majority of the voting
interests of an entity, including a corporation, is deemed to be an acquisition
of control in accordance with the ICA. An acquisition of less than one-third of
the voting shares of a corporation is deemed not to be an acquisition of
control. An acquisition of less than a majority, but one-third or more, of the
voting shares of a corporation is presumed to be an acquisition of control
unless it can be established that on the acquisition the corporation is not, in
fact, controlled by the acquirer through the ownership of voting shares. For
partnerships, trusts joint ventures or other unincorporated entities, an
acquisition of less than a majority of the voting interests is deemed not to be
an acquisition of control.



                                       41
<PAGE>

If an acquisition of control of a Canadian business by a non-Canadian is not
reviewable, the ICA requires a formal notification to the Canadian government.
These provisions require a foreign investor to give notice in the required form,
which notices are for information, as opposed to review, purposes.

10-E.  Taxation

Certain Canadian Federal Income Tax Consequences

The following summary of the material Canadian federal income tax considerations
generally applicable in respect of the holding and disposition of common shares
reflects our opinion as of the date hereof. The tax consequences to any
particular holder of common shares will vary according to the status of that
holder as an individual, trust, corporation or member of a partnership, the
jurisdiction in which that holder is subject to taxation, the place where that
holder is resident and, generally, according to that holder's particular
circumstances.

This summary is applicable only to holders who are resident solely in the United
States, have never been resident in Canada, deal at arm's length with us, hold
their common shares as capital property and who will not use or hold the common
shares in carrying on business in Canada.

This summary is based upon the provisions of the Income Tax Act (Canada) and the
regulations thereunder (collectively, the "Tax Act" or "ITA") and the
Canada-United States Tax Convention (the "Tax Convention") as at the date hereof
and the current administrative practices of the Canada Customs and Revenue
Agency. This summary does not take into account provincial income tax
consequences.

This summary is not exhaustive of all possible income tax consequences. It is
not intended as legal or tax advice to any particular holder of common shares
and should not be so construed. Each holder should consult his own tax advisor
with respect to the income tax consequences applicable to him in his own
particular circumstances.

Dividends

In the case of any dividends paid to non-resident shareholders, we withhold the
Canadian tax, which remits only the net amount to the shareholder. The rate of
withholding tax is generally 25% but by virtue of Article X of the Tax
Convention, the rate of tax on dividends paid to persons who are residents only
of the United States for purposes of the Tax Convention is generally limited to
15% of the gross amount of the dividend (or 5% in the case of certain corporate
shareholders owning at least 10% of our voting shares).

Dispositions

A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a common share unless the share is
"taxable Canadian property" to the holder thereof and the non-resident is not
entitled to relief under a tax treaty. In the case of a non-resident holder to
whom our common shares are taxable Canadian property and who is resident only in
the United States for purposes of the Tax Convention, no tax under the ITA will
be payable on a capital gain realized on such shares by reason of the Tax
Convention unless the value of such shares is derived principally from real
property situated in Canada. We believe that the value of our common shares is
not derived from real property situated in Canada.

Our common shares will be taxable Canadian property to a non-resident holder if,
at any time during the period of sixty months immediately preceding the
disposition, the non-resident holder, persons with whom the non-resident holder
did not deal at arm's length, or the non-resident holder together with persons
with whom the holder did not deal at arm's length owned 25% or more of our
issued shares of any class or series. Holders to whom our common shares are
taxable Canadian property and who are not entitled to relief under the Tax
Convention should consult their own tax advisors in advance of any disposition
of common shares.

United States Federal Income Tax Consequences

The following is a discussion of material United States Federal income tax
consequences generally applicable to a U.S. Holder (as defined below) of our
common shares. This discussion does not address all potentially relevant Federal
income tax matters, and it does not address consequences peculiar to persons
subject to special provisions of Federal income tax law, such as, for example,
tax-exempt organizations, qualified retirement plans, persons subject to
alternative minimum tax, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals or foreign corporations whose ownership of our
common shares is not effectively connected with the conduct of a trade or
business in the United States and shareholders who acquired their shares through
the exercise of employee share options or otherwise as compensation. In
addition, this discussion only applies to common shares held by U.S. Holders as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended, and does not cover any state, local or foreign tax
consequences.



                                       42
<PAGE>

The following discussion is based upon the sections of the Internal Revenue
Code, Treasury Regulations, published Internal Revenue Service rulings,
published administrative positions of the Internal Revenue Service and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. The
following discussion is for general information only and is not intended to be,
nor should it be construed to be, legal or tax advice to any holder or
prospective holder of our common shares and no opinion or representation with
respect to the United States Federal income tax consequences to any such holder
or prospective holder is made. Accordingly, holders and prospective holders of
our common shares should consult their own tax advisors about the federal,
state, local, and foreign tax consequences of purchasing, owning and disposing
of our common shares.

U.S. Holders

As used herein, a "U.S. Holder" includes any person, with the exception of those
subject to special provisions of Federal income tax law, who holds our common
shares who is a citizen or resident of the United States, a partnership or
corporation organized under the laws of the United States, an estate, the income
of which is subject to United States federal income tax without regard to its
source and a trust if a United States court is able to exercise primary
supervision over administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust or if
the trust was in existence on August 20, 1996 and has elected to continue to be
treated as a United States person, and any other person or entity whose
ownership of our common shares is effectively connected with the conduct of a
trade or business in the United States.

Distributions on Our Common Shares

U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to our common shares are required to include in gross income for
United States Federal income tax purposes the gross amount of such distributions
to the extent that we have current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's United States Federal Income tax liability or, alternatively,
may be deducted in computing the U.S. Holder's United States Federal taxable
income by those who itemize deductions (see more detailed discussion at "Foreign
Tax Credit" below). To the extent that distributions exceed our current or
accumulated earnings and profits, they will be treated first as a return of
capital up to the U.S. Holder's adjusted basis in the common shares and
thereafter as gain from the sale or exchange of the common shares. Preferential
tax rates for long-term capital gains are applicable to an U.S. Holder, which is
an individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for an U.S. Holder, which is a corporation.
Dividends paid in Canadian dollars will be included in income in an U.S. dollar
amount based on the exchange rate at the time of their receipt. U.S. Holders
should consult their own tax advisors regarding the treatment of any foreign
currency gain or loss on any Canadian dollars received as a dividend which are
converted into U.S. dollars on a date subsequent to receipt.

Dividends paid on our common shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from us (unless we qualify as a "foreign
personal holding company" or a "passive foreign investment company", as defined
below) if such U.S. Holder owns shares representing at least 10% of the voting
power and value of Diversinet. The availability of this deduction is subject to
several complex limitations, which are beyond the scope of this discussion.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of our common shares may be entitled, at the
option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on an annual basis and applies to all
foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from)
the U.S. Holder during the year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder United States income
tax liability that the U.S. Holder's foreign source income bears to his/her or
its worldwide taxable income.

In the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. There are further limitations
on the foreign tax credit for certain types of income such as "passive income",
"high withholding tax interest", "financial services income", "shipping income",
and certain other classifications of income. In certain circumstances, recently
enacted legislation and other guidance issued by the United States Treasury may
deny a United States holder foreign tax credits (and instead may allow
deductions) for foreign taxes imposed on a dividend if the United States holder
(i) has not held the common shares for at least 16 days in the 30-day period
beginning 15 days before the ex-dividend date, during which it is not protected
from risk of loss; (ii) is obligated to make payments related to the dividends;
or (iii) holds the common shares in arrangements in which the United States
holder's expected economic profit, after non-U.S. taxes, is insubstantial.



                                       43
<PAGE>

The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific and holders and prospective holders
of our common shares should consult their own tax advisors regarding their
individual circumstances.

Disposition of Our Common Shares

A U.S. Holder will recognize gain or loss upon the sale of our common shares
equal to the difference, if any, between (i) the amount of cash plus the fair
market value of any property received, and (ii) the shareholder's tax basis in
the our common shares. Any gain recognized on the sale or other disposition of
common shares will generally be U.S. source income. Any loss recognized on the
sale or other disposition of common shares will generally be U.S. source.
However, such loss will be foreign source to the extent certain dividends were
received by the U.S. Holder within the 24-month period proceeding the date on
which the loss was recognized. This gain or loss will be capital gain or loss if
the common shares are capital asset in the hands of the U.S. Holder, which will
be a short-term or long-term capital gain or loss depending upon the holding
period of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders who are individuals, a capital loss is deductible
only to the extent of capital gains, plus ordinary income of up to U.S. $3,000;
any unused portion of such net capital loss may be carried over to be used in
later tax years until such net capital loss is thereby exhausted. For U.S.
Holders which are corporations (other than corporations subject to Subchapter S
of the Internal Revenue Code), any unused net capital loss may be carried back
three years from the loss year and carried forward five years from the loss year
to be offset against capital gains until such net capital loss is thereby
exhausted. If the amount realized on a sale or exchange is not denominated in
U.S. dollars, the amount realized will be equal to the U.S. dollar value
thereof, determined at the spot rate on the date of the sale or exchange.

Until such time as our common shares are listed on a stock exchange prescribed
for the purposes of the Income Tax Act (Canada) (which includes NASDAQ, but not
the OTC BB) our common shares will be taxable Canadian property for the purposes
of the Income Tax Act (Canada).

Under section 116 of the Income Tax Act (Canada), non-resident vendors who
dispose of certain types of taxable Canadian property (including our common
shares for as long as they are not listed on a prescribed stock exchange), have
to notify Canada Customs and Revenue Agency (CCRA) about the disposition either
before they dispose of the property or after they dispose of it. This
notification (the "Notice of Disposition") is due not later than ten (10) days
after the date the property was disposed of. The vendor may be able to claim an
exemption under an applicable tax treaty at the time the Notice of Disposition
is filed. If no exemption is available under an applicable treaty, before CCRA
can issue a certificate of compliance to the vendor, CCRA must receive either an
amount to cover the tax owing, or appropriate security for the tax on any gain
the vendor may realize at the time the property is disposed of. Such payments or
security the vendor provides will be credited to the vendor's account. If the
vendor does not comply with the section 116 requirements, which the vendor must
do so before receiving the certificate of compliance, the purchaser of the
property may deduct or withhold a specified amount from the proceeds of the
disposition to cover any tax which the vendor owes.

When filing a Notice of Disposition and claiming an exemption under a specific
tax treaty, necessary documentation to support the claim should be submitted
along with the request. The documentation which is acceptable must be based on
the particular tax treaty under which the exemption is claimed, such as proof of
residency, or that the gain has or will be reported in the vendor's country. Tax
officials, in some countries, will supply the necessary certification required
to claim the exemption. The United States Department of the Treasury, Internal
Revenue Service will provide certification for corporations, exempt
organizations and individuals. Requests for certification should be sent to the
appropriate service centre. The Department of the Treasury, Publication 686,
Certification for Reduced Tax Rates in Tax Treaty Countries, outlines the
certification process.

If the vendor does not obtain a certificate pursuant to section 116, the
purchaser becomes liable to pay as tax, on behalf of the vendor, an amount equal
to 25% of the proceeds of disposition. The purchaser of the property is then
entitled to withhold that amount from the proceeds of the disposition to cover
any tax which the vendor owes or may owe.

The required amount must be remitted to the Receiver General for Canada 30 days
after the end of the month is which the property was acquired.



                                       44
<PAGE>

Other Considerations

In the following three circumstances, the above sections of the discussion may
not describe the United States Federal income tax consequences resulting from
the holding and disposition of our common shares. Based on (a) the number of
shareholders of our common shares, and (b) the majority ownership of our shares
by Canadian residents, we do not believe that we are either a "Foreign Personal
Holding Company" or a "Controlled Foreign Corporation." However, we do believe
that we are likely to be treated as a "Passive Foreign Investment Company" for
the taxable years 2001, 2002 and 2003.

Foreign Personal Holding Company

If, at any time during a taxable year, more than 50% of the total combined
voting power or the total value of our outstanding shares are owned, actually or
constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% or more of our gross income for such year was derived
from certain passive sources (e.g. from dividends received from unrelated
persons), we would be treated as a "foreign personal holding company." In that
event, U.S. Holders that hold our common shares would be required to include in
gross income for such year their allowable portions of such foreign personal
holding company income to the extent that we do not actually distribute such
income.

Controlled Foreign Corporation

If more than 50% of the voting power of all classes of shares or the total value
of our shares is owned, directly or indirectly, by U.S. shareholders, each of
whom own 10% or more of our voting shares ("U.S. Shareholders"), we could be
treated as a "controlled foreign corporation" (a "CFC") under SubPart F of the
Internal Revenue Code. If we were classified as a CFC and as a PFIC, CFC
treatment would prevail with respect to U.S. Shareholders. CFC classification
would effect many complex results including the required inclusion by such U. S.
shareholders in income of their pro rata share: of "SubPart F Income" (as
specially defined by the Internal Revenue Code) of Diversinet; and of our
earnings invested in U.S. property. In addition, under Section 1248 of the
Internal Revenue Code, gain from the sale or exchange of our common shares by a
U.S. person who is or was a U.S. shareholder (as defined in the Internal Revenue
Code) at any time during the five years period ending with the sale or exchange
is generally treated as ordinary dividend income to the extent of our earnings
and profits attributable to the shares sold or exchanged. Because of the
complexity of SubPart F, and because it is not clear that we are a controlled
foreign corporation, a more detailed review of these rules is outside of the
scope of this discussion.

Passive Foreign Investment Company

As stated above, we believe that we will not be treated as a passive foreign
investment company ("PFIC"), as defined in Section 1297 of the Internal Revenue
Code, for our fiscal years 2001, 2002, and 2003.

United States income tax legislation contains rules governing PFIC's, that can
have significant tax effects on U.S. Holders of foreign corporations. These
rules do not apply to non-U.S. Holders. Section 1297 of the Internal Revenue
Code defines a PFIC as a corporation that is not formed in the United States
and, for any taxable year, either (i) 75% or more of its gross income is
"passive income", which includes interest, dividends and some types of rents and
royalties or (ii) the average percentage, by fair market value (or, if the
company is a controlled foreign corporation or makes an election, by adjusted
tax basis), of its assets that produce or are held for the production of
"passive income" is 50% or more. Based on these tests we do not meet the
definition of a PFIC in 2000, 2001, 2002 or 2003.

An U.S. Holder who holds shares in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to U.S. Federal income
taxation under alternative tax regimes, depending upon whether such U.S. Holder
makes elections. The following is a discussion of these alternative tax regimes
as applicable to our U.S. Holders.

A U.S. Holder of a PFIC who does not make either of the elections described
below (a "Non-electing U.S. Holder") is subject to special taxation rules under
Section 1291 of the Internal Revenue Code with respect to (i) gains realized on
the disposition (or deemed to be realized by reason of a pledge) of his/her
common shares and (ii) excess distributions by us, defined as any distribution
received by a U.S. Holder from a PFIC in a taxable year that is greater than
125% of the average distributions received by the U.S. Holder in the three
preceding taxable years, or, if shorter, the U.S. Holder's holding period for
the shares.

A Non-electing U.S. Holder generally would be required to include in income pro
rata all gains realized on the disposition of his/her common shares and all
excess distributions over the entire holding period for the PFIC common shares.
All gains or excess distributions allocated to prior years of the U.S. Holder
(other than years prior to the first taxable year of the company during such
U.S. Holder's holding period and beginning after January 1, 1987 for which it
was a PFIC) would be taxed at the highest tax rate for each such prior year
applicable to ordinary income. The Non-electing U.S. Holder also would be liable
for interest on the foregoing tax liability for each such prior year calculated
as if such liability had been due with respect to each such prior year. A
Non-electing U.S. Holder that is not a corporation must treat this interest
charge as "personal interest" which, as discussed above, is partially or wholly
non-deductible. The balance of the gain or the excess distribution will be
treated as ordinary income in the year of the disposition or distribution, and
no interest charge will be incurred with respect to such balance.



                                       45
<PAGE>

If we are a PFIC for any taxable year during which a Non-electing U.S. Holder
holds common shares, then we will continue to be treated as a PFIC with respect
to such common shares, even if we are no longer a PFIC as defined above. A
Non-electing U.S. Holder may terminate this deemed PFIC status by electing to
recognize a gain (which will be taxed under the rules discussed above for
Non-electing U.S. Holders) as if such common shares had been sold on the last
day of the last taxable year for which it was a PFIC.

Under Section 1291(f) of the Internal Revenue Code, the Department of the
Treasury has issued proposed regulations that would treat as taxable transfers
of PFIC shares by Non-electing U.S. Holders that are generally not otherwise
taxed, such as gifts, exchanges pursuant to corporate reorganizations, and
transfers at death. Special, generally adverse, rules will apply with respect to
the common shares while the company is a PFIC. For example under Section
1298(b)(6) of the Internal Revenue Code, a U.S. Holder who uses PFIC shares as
security for a loan (including a margin loan) will, except as may be provided in
regulations, be treated as having made a taxable disposition of such shares.

Alternatively, if we are a PFIC, an U.S. Holder (an "Electing U.S. Holder") who
owns common shares is permitted generally to elect out of the tax treatment
discussed above, if an U.S. Holder makes a mark-to-market election with respect
to common shares. Under such election, an Electing U.S. Holder would generally
recognize as ordinary income for each taxable year an amount equal to the
excess, if any, of the fair market value of common shares as of the close of the
taxable year over the Electing U.S. Holder's adjusted tax basis in such shares.
An Electing U.S. Holder would generally be allowed an ordinary deduction (to the
extent of any net mark-to-market gains recognized for prior taxable years) for
the excess, if any, of the adjusted tax basis of the common shares over their
fair market value as of the close of the taxable year. An Electing U.S. Holder's
adjusted tax basis of the common shares would generally be adjusted to reflect
the amounts included or deducted under the mark-to-market election.
Additionally, any gain on the actual sale or other disposition of the common
shares generally will be treated as ordinary income. Ordinary loss treatment
also would generally apply to any loss realized on the actual sale or other
disposition of the common shares to the extent that the amount of such loss did
not exceed the net mark-to-market gains previously included with respect to such
shares. An election to mark to market would generally apply to the taxable year
made and all subsequent taxable years. A mark-to-market election is subject to
complex and specific rules and requirements, and U.S. Holders are strongly urged
to consult their tax advisors concerning such election if the company is
classified as a PFIC.

Finally, an U.S. Holder who elects in a timely manner to treat us as a
"qualified electing fund" (a "QEF") as defined in the Internal Revenue Code
would be subject to another set of special rules different from those described
above. Although a QEF election may be beneficial to some U.S. Holders depending
upon their particular tax situations, it requires us to make information
available to such holders, and we do not intend to make such information
available even if it is classified as a PFIC. Accordingly, the QEF election will
not be available to U.S. Holders.

The foregoing discussion is based on existing provisions of the Internal Revenue
Code, existing and proposed regulations thereunder, and current administrative
ruling and court decisions, all of which are subject to change. Any such change
could affect the validity of this discussion. In addition, the implementation of
aspects of the PFIC rules requires the issuance of regulations which in many
instances have not been promulgated and which may have retroactive effect. There
can be no certainty that any of these proposed regulations will be enacted or
promulgated and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules,
U.S. Holders who are shareholders of Diversinet are strongly urged to consult
their own tax advisors concerning the impact of these rules on their investment
in us.

10-F.    Dividends and Paying Agents

         Not Applicable.

10-G.    Statements by Experts

         Not Applicable.

10-H.    Documents on Display

         Documents are available either on SEDAR or EDGAR.

10-I.    Subsidiary Information

Our consolidated financial statements include the accounts of Atria Limited, a
50% owned joint venture operating in Hong Kong and its wholly-owned inactive
subsidiaries, Diversinet Corporation of America, a Delaware corporation,
Diversinet Inc., an Ontario corporation, Diversinet (Israel) Ltd., an Israeli
corporation and The Instant Publisher Ltd., a Barbados corporation. For the
fiscal year ended December 31, 2003 our consolidated financial statements will
also include the accounts of DSS Software Technologies, the wholly owned
subsidiary we acquired in January 2003 and Caradas, Inc., the wholly owned
subsidiary we acquired in September 2003.



                                       46
<PAGE>

ITEM 11.  Quantitative and Qualitative Disclosure about Market Risk

We believe that inflation has not had a material impact on our results of
operations for each of our fiscal years in the three-year period ended December
31, 2003. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition. We have
limited market risk exposure since we do not have any outstanding variable rate
debt or derivative financial and commodity instruments as of December 31, 2003.

ITEM 12.    Description of Securities Other than Equity Securities

Not Applicable.

                                     PART II

ITEM 13.  Defaults, Dividend Arrearages and Delinquencies

Not Applicable.

ITEM 14.  Material Modifications to the Rights to Security Holders and Use
of Proceeds

Not Applicable.

ITEM 15.  [Reserved]

ITEM 16.  [Reserved]

                                    PART III

ITEM 17.  Financial Statements

Our financial statements have been prepared in accordance with Canadian GAAP.
These principles conform in all material respects with U.S. GAAP except as
described in Note 15 to our 2003 consolidated financial statements. The
differences between line items under Canadian GAAP and those as determined under
U.S. GAAP are not significant except that, under U.S. GAAP, our total loss would
be greater by $nil for the fourteen month period ended December 31, 2003,
$35,000 for the year ended October 31, 2002, greater by $37,000 for the year
ended October 31, 2001, greater by $983,000 for the year ended October 31, 2000
and less by $120,000 for the year ended October 31, 1999. Under U.S. GAAP share
capital would be greater and deficit would be less by $30,089,000 for each of
the years due to the elimination of reduction in stated capital offset against
accumulated shareholders' deficit in March of 1999.

Reference is made to our consolidated financial statements and related footnotes
attached as an exhibit to this Report.

ITEM 18.  Financial Statements

We have elected to provide financial statements pursuant to Item 17.

ITEM 19.  Exhibits

Financial Statements:

     o    KPMG Auditors' Report dated January 29,2004, except for note 16(b)
          which is as of February 23, 2004.

     o    Consolidated Balance Sheets as at December 31, 2003, October 31, 2003
          and October 31, 2002.

     o    Consolidated Statements of Loss and Deficit for the fourteen-month
          period ended December 31, 2003 and the years ended October 31, 2003,
          2002 and 2001.

     o    Consolidated Statements of Cash Flows for the fourteen-month period
          ended December 31, 2003 and the years ended October 31, 2003, 2002 and
          2001.

     o    Notes to Consolidated Financial Statements.

     o    Unaudited Consolidated Statements of Loss and Deficit for the
          two-month period ending December 31, 2003 and 2002 and Consolidated
          Statements of Cash Flows for the two-month period ended December 31,
          2003 and 2002.

Exhibits:


1.1  Underwriting Agreement, dated as of June 12, 2000, between Diversinet and
     Tucker Anthony Incorporated.(1)

1.2  Private Agency Agreement between Allen & Company and Diversinet Corp. dated
     March 27, 2002. (1)

1.3  Form of Stock Purchase Agreement dated March 27, 2002. (1)

1.4  Form of Stock Purchase Agreement dated June 23, 2003. (1)



                                       47
<PAGE>

1.5  Form of Stock Purchase Agreement dated January 19, 2004, 2004. (2)

5.1  Opinion of Lang Michener. (1)

10.1 Form of Diversinet General Product License & Support Agreement.(1)

23.1 Consent of KPMG LLP.

(1)      Previously filed with prior year's Form 20-F.

(2)      Previously filed with our F-3 on March 15, 2004.




                                       48
<PAGE>

                                 SIGNATURE PAGE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended, the Registrant certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused this registration statement to be
signed on its behalf by the undersigned, there unto duly authorized.

                                 DIVERSINET CORP.



                                 By: /s/ NAGY MOUSTAFA
                                     ---------------------------------------
                                     Nagy Moustafa
                                     President and Chief Executive Officer

Dated: April 9, 2004



                                 Certifications

I, Nagy Moustafa certify that:

1.       I have reviewed this annual report on Form 20-F of Diversinet Corp.;

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

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

Dated April 12, 2004

---------------------

/s/ Nagy Moustafa
-----------------------------------
Name: Nagy Moustafa
Title:   Chief Executive Officer


I David Hackett certify that:

1.   I have reviewed this annual report on Form 20-F of Diversinet Corp.;

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

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

Dated: April 12, 2004
---------------------

/s/ David Hackett
-----------------------------------
Name: David Hackett
Title:   Chief Financial Officer