Exhibit 23.3

kpmg

                  kpmg LLP
                  Chartered Accountants            Telephone     (416) 228-7000
                  Yonge Corporate Centre           Telefax       (416) 228-7123
                  4100 Yonge Street Suite 200      www.kpmg.ca
                  North York ON M2P 2H3
                  Canada


                          INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Diversinet Corp.


We consent to incorporation by reference in the registration statement (No.
333-113646) on Form F-3, the amended registration statement (No. 333-107251) on
Form F-3/A and the registration statement (No. 333-103356) on Form S-8 of our
report dated February 19, 2004, with respect to the consolidated balance sheets
of Diversinet Corp. as of December 31, 2003, October 31, 2003 and October 31,
2002, and the related consolidated statements of earnings and deficit and cash
flows for each of the years in the three year period ended October 31, 2003 and
the fourteen month period ended December 31, 2003, which report appears in the
December 31, 2003 Annual Report on Form 20-F of Diversinet Corp. Our report
dated February 19, 2004 included additional comments for U.S. readers that
states that conditions and events exist that cast substantial doubt on the
Company's 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.


/s/ KPMG LLP


Toronto, Canada
April 12, 2004



<PAGE>



MANAGEMENT'S REPORT

The accompanying consolidated financial statements and all information in the
Annual Report have been prepared by management and approved by the Board of
Directors of the Company. The consolidated financial statements were prepared in
accordance with generally accepted accounting principles and, where appropriate,
reflect management's best estimates and judgements. Management is responsible
for the accuracy, integrity and objectivity of the consolidated financial
statements within reasonable limits of materiality and for the consistency of
financial data included in the text of the Annual Report with that contained in
the consolidated financial statements. To assist management in the discharge of
these responsibilities, the Company maintains a system of internal controls
designed to provide reasonable assurance that its assets are safeguarded, that
only valid and authorized transactions are executed and that accurate, timely
and comprehensive financial information is prepared and disclosed. Consistent
with the concept of reasonable assurance, the Company recognizes that the
relative cost of maintaining these controls should not exceed their expected
benefits.

The Company's Audit Committee is appointed by the Board of Directors annually
and is comprised of non-management directors. The Audit Committee meets with
management as well as with the independent auditors to satisfy itself that
management is properly discharging its financial reporting responsibilities and
to review the consolidated financial statements and the independent auditors'
report. The Audit Committee reports its findings to the Board of Directors for
consideration in approving the consolidated financial statements for
presentation to the shareholders. The independent auditors have direct access to
the Audit Committee.

The consolidated financial statements have been audited by KPMG LLP, Chartered
Accountants, on behalf of the shareholders, in accordance with generally
accepted auditing standards. Their report outlines the scope of their audit and
expresses their opinion on the consolidated financial statements of the Company.


/s/ Nagy Moustafa                       /s/ David Hackett
-----------------------------           --------------------------------------
Nagy Moustafa, President                David Hackett, Chief Financial Officer
& Chief Executive Officer

kpmg LLP
Chartered Accountants                   Telephone (416) 228-7000
Yonge Corporate Centre                  Telefax (416) 228-7123
4100 Yonge Street Suite 200             www.kpmg.ca
North York, Ontario M2P 2H3

AUDITORS' REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Diversinet Corp. as at
December 31, 2003, October 31, 2003 and October 31, 2002 and the consolidated
statements of earnings and deficit and cash flows for each of the years in the
three-year period ended October 31, 2003 and for the fourteen-month period ended
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2003, October 31, 2003 and October 31, 2002 and the results of its operations
and its cash flows for each of the years in the three-year period ended October
31, 2003 and the fourteen month period ended December 31, 2003 in accordance
with Canadian generally accepted accounting principles.

/s/ KPMG LLP
Chartered Accountants, Toronto, Canada, January 29, 2004, except for note 16(b)
which is as of February 23, 2004

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the shareholders dated January
29, 2004, except for note 16(b) which is as of February 23, 2004, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.

/s/ KPMG LLP
Chartered Accountants, Toronto, Canada


<PAGE>

Diversinet corp.
Consolidated Balance Sheets
(In United States dollars)

As at

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                      December 31              October 31           October 31
-------------------------------------------------------------------------------------------------------------------
                                                             2003                    2003                 2002
-------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S>                                              <C>                     <C>                  <C>
     Cash and cash equivalents                   $        722,569        $        863,977     $        608,692
     Short-term investments                             1,243,960               1,853,369            1,843,657
     Accounts receivable (including $62,293, $62,293,
     $110,148 from joint venture, note 8)               1,081,760               1,422,943              265,672
     Other receivables                                     85,748                  77,720               15,933
     Prepaid expenses                                     375,009                 232,812               77,012
-------------------------------------------------------------------------------------------------------------------
     Total current assets                               3,509,046               4,450,821            2,810,966

     Capital assets, net (note 4)                         986,316               1,053,544            1,198,527
     Purchased technology, net of $62,833, $31,416,
       $nil amortization (note 3)                         314,167                 345,584                    -
     Customer assets net of $110,256, $55,129,
       $nil amortization (note 3)                         882,048                 937,175                    -
     Goodwill (note 3)                                  5,311,932               5,311,932                    -
-------------------------------------------------------------------------------------------------------------------
Total assets                                      $    11,003,509        $     12,099,056     $      4,009,493
-------------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
     Accounts payable                            $        899,644        $        845,757     $        352,025
     Accrued liabilities (note 5)                       1,351,400               1,504,319              698,137
     Notes payable                                         28,192                  33,178                    -
     Current portion of promissory note                   300,000                 300,000                    -
     Deferred revenue                                     477,449                 653,350                9,228
-------------------------------------------------------------------------------------------------------------------
     Total current liabilities                          3,056,685               3,336,604            1,059,390
     Promissory note                                      300,000                 300,000                    -

Shareholders' equity:
         Share capital (note 6):
         Authorized:
              Unlimited common shares
         Issued and outstanding:
              11,043,027, 11,043,027, 3,222,308
              common shares                            49,191,482              49,201,868           40,677,645
     Contributed surplus                                  126,173                  72,680               72,680
     Cumulative translation adjustment                 (1,520,721)             (1,445,932)          (1,936,534)
     Share purchase warrants (note 6)                   1,331,652               1,331,652                    -
     Deficit                                          (41,481,762)            (40,697,816)         (35,863,688)
-------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                         7,646,824               8,462,452            2,950,103
Future operations (note 1)
Commitments and contingencies (note 11)
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity        $    11,003,509        $     12,099,056     $      4,009,493
-------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
On behalf of the Board:

/s/ Mark Steinman                               /s/ Nagy Moustafa
---------------------------                     ---------------------------
Mark Steinman, Director                         Nagy Moustafa, Director


                                       1
<PAGE>


<TABLE>
<CAPTION>
DIVERSINET CORP.
Consolidated Statements of Earnings and Deficit
(In United States dollars)
-----------------------------------------------------------------------------------------------------------------

                                             Fourteen month
                                             period ended                        Years ended
                                               December 31       October 31        October 31       October 31
                                                      2003             2003              2002             2001
-----------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>              <C>
Revenue (including $nil, $nil, $85,138, $127,034,
     from joint venture, note 8)            $    8,562,676    $   7,108,003     $     710,250    $     792,814

Cost of sales                                    6,622,495        5,491,029                 -                -
-----------------------------------------------------------------------------------------------------------------
Gross margin                                     1,940,181        1,616,974           710,250          792,814

Expenses:
Research and development                         1,513,323        1,243,545         1,478,980        4,484,608
Sales and marketing                              2,656,099        2,270,982         1,103,722        4,711,785
General and administrative                       2,654,214        2,368,903         1,899,302        2,616,285
Depreciation and amortization                      740,049          573,672           404,015        1,226,022
Severance costs                                          -                -                 -          474,008
-----------------------------------------------------------------------------------------------------------------
                                                 7,563,685        6,457,102         4,886,019       13,512,708
-----------------------------------------------------------------------------------------------------------------
Loss before the following                       (5,623,504)      (4,840,128)       (4,175,769)     (12,719,894)

Interest income and other income                   (26,302)         (25,653)         (111,096)        (447,736)
Interest expense                                    20,872           19,653                 -                -
-----------------------------------------------------------------------------------------------------------------

Loss for the period                             (5,618,074)      (4,834,128)       (4,064,673)     (12,272,158)

Deficit, beginning of period                   (35,863,688)     (35,863,688)      (31,799,015)     (19,526,857)
-----------------------------------------------------------------------------------------------------------------
Deficit, end of period                      $  (41,481,762)   $ (40,697,816)    $ (35,863,688)   $ (31,799,015)
-----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share (note 7)   $       (0.87)    $       (0.85)    $       (1.37)   $       (4.65)
-----------------------------------------------------------------------------------------------------------------

Weighted average number of
common shares                                    6,478,296        5,715,423         2,971,692        2,637,648
-----------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

DIVERSINET CORP.
Consolidated Statements of Cash Flows
(In United States dollars)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------

                                            Fourteen-month                        Years ended
                                              period ended
                                               December 31       October 31        October 31       October 31
                                                      2003             2003              2002             2001
----------------------------------------------------------------------------------------------------------------

Cash provided by (used in):
Operating activities:
<S>                                         <C>               <C>               <C>              <C>
     Loss from continuing operations        $  (5,618,074)    $  (4,834,128)    $  (4,064,673)   $ (12,272,158)
     Items not involving cash:
         Depreciation and amortization             740,049          573,672           404,015        1,226,022
         Stock-based compensation expense          825,010          771,519                 -                -
         Unrealized foreign exchange loss (gain)   415,813          490,602            71,603        (185,117)
     Change in non-cash operating working capital:
         Accounts receivable                     2,425,570        2,084,387          (91,726)          908,489
         Other receivables                        (69,815)         (61,787)            47,094           37,949
         Prepaid expenses                         (98,846)           43,350           300,700          (7,180)
         Accounts payable                        (571,786)        (625,673)         (402,707)          480,399
         Accrued liabilities                       431,892          584,811         (777,766)        (758,104)
         Deferred revenue                        (156,371)           19,530          (18,552)         (26,634)
----------------------------------------------------------------------------------------------------------------
     Cash used in continuing operations        (1,676,558)        (953,717)       (4,532,012)     (10,596,334)

Financing activities:
     Issue of common shares, common share
       purchase options and warrants for cash    2,920,646        2,931,032         3,108,317           68,651
     Notes payable                               (873,323)        (868,337)                 -                -
     Bank indebtedness                           (240,979)        (240,979)                 -                -
----------------------------------------------------------------------------------------------------------------
     Cash provided by financing activities       1,806,344        1,821,716         3,108,317           68,651

Investing activities:
     Short-term investments                        599,698          (9,712)           112,799      (1,956,457)
     Acquisitions, net of cash received          (541,084)        (541,084)                 -                -
     Additions to capital assets                  (74,523)         (61,918)          (20,525)        (719,453)
----------------------------------------------------------------------------------------------------------------
     Cash provided by (used in) investing
       activities                                 (15,909)        (612,714)            92,274      (2,675,910)

Increase (decrease) in cash and cash
   equivalents                                     113,877          255,285       (1,331,421)     (13,203,593)
Cash and cash equivalents, beginning of period     608,692          608,692         1,940,113       15,143,706

----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period    $      722,569    $     863,977     $     608,692    $   1,940,113
----------------------------------------------------------------------------------------------------------------

Supplementary non-cash financing and investing
   activities:
     Issue of warrants on acquisitions      $    1,044,640    $   1,044,640     $           -    $           -
     Issue of common shares on acquisitions      4,959,875        4,959,875                 -                -
----------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       3
<PAGE>

DIVERSINET CORP.
Notes to Consolidated Financial Statements
(In United States dollars)

Years ended October 31, 2003, 2002 and 2001 and the fourteen month period ended
December 31, 2003

Diversinet Corp. (the "Company"), an Ontario corporation, develops and markets
secured wireless and identity management solutions and professional services to
the enterprise, financial services, government and gaming and wagering
marketplaces.

1.   FUTURE OPERATIONS:

     These consolidated financial statements have been prepared on a going
     concern basis, which assumes the Company will continue in operation in the
     foreseeable future and be able to realize assets and satisfy liabilities in
     its normal course of business. Certain conditions and events exist that
     cast substantial doubt on the Company's ability to continue as a going
     concern.

     The Company has incurred significant losses and used significant amounts of
     cash in operating activities in recent years.

     Continued operations depend upon the Company's ability to generate future
     profitable operations and/or obtain additional financing to fund future
     operations and, ultimately, to generate positive cash flows from operating
     activities. There can be no assurance that the Company will be successful
     in obtaining additional financing or generating positive cash flows from
     operations.

     Should the Company be unable to generate positive cash flows from
     operations or secure additional financing in the foreseeable future, the
     application of the going concern principle for financial statement
     reporting purposes may no longer be appropriate. These financial statements
     do not include any adjustments related to the valuation or classification
     of recorded asset amounts or the amounts or classification of liabilities
     that may be necessary should the Company be unable to continue as a going
     concern.

2.   SIGNIFICANT ACCOUNTING POLICIES:

     These consolidated financial statements have been prepared in accordance
     with accounting principles generally accepted in Canada, which, except as
     described in note 14, conform in all material respects with accounting
     principles generally accepted in the United States. Significant accounting
     policies adopted by the Company are as follows:

     (a)  Fiscal Year:

        In 2003, the Company changed its fiscal year end from October 31 to
        December 31. As a result, financial statements for the fourteen-month
        period ended December 31, 2003 in addition to the financial statements
        for the year ended October 31, 2003 have been presented.

     (b)  Basis of consolidation:

        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. The Company accounts for its interest in a
        joint venture by the proportionate consolidation method. All significant
        intercompany transactions and balances have been eliminated.

     (c)  Goodwill:

        Handbook section 3062 "Goodwill and Other Intangible Assets", 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 the Company completed its goodwill impairment
        test and concluded that no write-down was required.

     (d)  Revenue recognition:

        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 are 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.

        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 only exists for all undelivered elements,
        the Company recognizes revenue for the delivered elements using the
        residual method, whereby the total arrangement fee is assigned to the
        undelivered elements based on their fair value, with the residual
        assigned to the delivered elements and recognized. For arrangements
        containing multiple elements where vendor specific objective evidence
        does not exist for all undelivered elements, revenue for the delivered
        and undelivered elements is deferred until either vendor specific
        objective evidence exists for the remaining undelivered elements 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.


<PAGE>

        The Company's sales arrangements generally include standard payment
        terms ranging up to 90 days. The Company provides a limited product
        warranty, the costs of which have historically been insignificant.

     (e)  Cash and cash equivalents:

        Cash and cash equivalents include cash on account and short-term
        investments in money market instruments with original maturities of 90
        days or less when acquired.

     (f)  Short-term investments:

        Short-term investments consist of bonds having a term of 90 days when
        acquired which are recorded at cost plus accrued interest.

     (g)  Investment tax credits:

        Investment tax credits are accrued when qualifying expenditures are made
        and there is reasonable assurance that the credits will be realized.
        Investment tax credits earned with respect to current expenditures for
        qualified research and development activities are included in the
        consolidated statements of earnings and deficit as a reduction of
        related expenses in the year incurred. Assistance related to the
        acquisition of capital assets used for research and development is
        credited against the related capital assets. The Company has recorded no
        investment tax credits.

     (h)  Research and development costs:

        Research costs are expensed as incurred. Software development costs are
        deferred once costs meet the criteria under Canadian generally accepted
        accounting principles for deferral and amortization. Such deferred costs
        are amortized, commencing when the product is commercially released, on
        a straight-line basis over two years. The recoverability of any
        unamortized deferred development costs is reviewed on an ongoing basis.

     (i)  Purchased and acquired technology:

        The Company capitalizes purchased technology and amortizes such costs
        over two years. The carrying value is assessed on a periodic basis to
        determine if a write-down is required.

     (j)  Customer assets:

        Customer relationships are amortized over three years. Customer
        contracts are amortized as services are performed. The carrying value is
        accessed on a periodic basis to determine if a write-down is required.

     (k)  Foreign currency translation:

        Monetary assets and liabilities denominated in foreign currencies are
        translated into United States dollars at the exchange rates prevailing
        at the consolidated balance sheet dates. Non-monetary assets and
        liabilities are translated at historical rates. Transactions in foreign
        currencies are translated into United States dollars at the approximate
        rates prevailing at the dates of the transactions. Foreign exchange
        gains and losses are included in loss for the period. The Company has
        historically prepared its consolidated financial statements in Canadian
        dollars and used the Canadian dollar as its measurement currency. As a
        result of a number of circumstances, including the current year
        financing activities, the acquisition of DSS Software Technologies and
        Caradas, Inc. 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. Comparative financial information has been restated in U.S.
        dollars using the current rate method. Share capital has been translated
        at the exchange rate in effect at the time of the transaction. Deficit
        has been translated at the approximate rates prevailing at the dates of
        the transactions and monetary assets and liabilities have been
        translated into United States dollars at the exchange rates prevailing
        at the consolidated balance sheet dates. The resulting difference has
        been classified as a cumulative translation adjustment on the balance
        sheet.

       (l) Capital assets:

        Capital assets are stated at cost less accumulated depreciation and
        amortization. Depreciation and amortization is provided over the
        estimated useful lives of the assets at the following annual rates and
        bases:


-------------------------------------------------------------------------------
 Asset                                   Basis                        Rate
-------------------------------------------------------------------------------
 Computer hardware                       Declining balance             30%
 Computer software                       Declining balance             30%
 Furniture and fixtures                  Declining balance             20%
 Leasehold improvements                  Straight-line                Over term
                                                                      of lease
-------------------------------------------------------------------------------

        The Company regularly reviews the carrying values of its capital assets
        by comparing the carrying amount of the asset to the expected future
        undiscounted cash flows to be generated by the asset. If the carrying
        value exceeds the amount recoverable, a write-down of the asset to its
        estimated net recoverable amount is charged to the statements of
        earnings and deficit.


<PAGE>

       (m) Income taxes:

        The Company accounts for income taxes using the asset and liability
        method. Under this method, future income taxes are recognized at the
        enacted or substantively enacted tax rate expected to be applicable at
        the date of reversal for all significant temporary differences between
        the tax and accounting bases of assets and liabilities and for certain
        tax carry forward items. Future income tax assets are recognized only to
        the extent that, in the opinion of management, it is more likely than
        not that the future income tax assets will be realized. Future income
        tax assets and liabilities are adjusted for the effects of changes in
        tax laws and rates on the date of the substantive enactment of the
        change.

       (n) Earnings per share:

        Basic earnings per share is computed using the weighted average number
        of common shares that are outstanding during the year. Diluted earnings
        per share is computed using the weighted average number of common and
        potential common shares outstanding during the year. Potential common
        shares consist of the incremental number of common shares issuable upon
        the exercise of stock options and warrants and are calculated using the
        treasury stock method.

       (o) Stock-based compensation:

        Effective November 1, 2002, the Company adopted the new CICA Handbook
        section 3870, "Stock-Based Compensation and Other Stock-Based Payments",
        which requires that a fair value based method of accounting be applied
        to all stock-based payments to non-employees and to direct awards of
        stock to employees. However, the standard permits the Company to
        continue its existing policy of recording no compensation cost on the
        grant of stock options and warrants to employees with the addition of
        pro-forma information as if the fair value method has been applied. Had
        the company determined compensation expense based on the fair value of
        stock options granted subsequent to November 1, 2002, the Company's loss
        and loss per share would have been reported as the pro-forma amounts
        indicated below:

--------------------------------------------------------------------------------
                                 Fourteen months ended           Year ended
                                     December 31, 2003     October 31, 2003
--------------------------------------------------------------------------------
  Loss for the period as reported           $(5,618,074)      $ (4,834,128)
  Pro forma loss                           (5,804,961)          (4,925,828)
  Pro forma loss per common share:
     Basic and diluted                      $   (0.90)        $      (0.86)
--------------------------------------------------------------------------------
  Weighted average number of common shares   6,478,296            5,715,423

       (p) Use of estimates:

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

3.      ACQUISITIONS:

       a)   In January 2003, the Company acquired 100% of the outstanding shares
            of DSS Software Technologies, a consulting services provider. 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. The acquisition was accounted for using the purchase
            method and the purchase price was allocated as follows:


        Fair value of net capital assets acquired              $  93,374
        Working capital                                          290,422
        Goodwill                                                 917,242
        -----------------------------------------------------------------
        Purchase price                                       $ 1,301,038
        -----------------------------------------------------------------

       b)   In September 2003, the Company acquired 100% of the outstanding
            shares of Caradas, Inc., a credential management provider. The
            aggregate purchase price was $5,630,475 consisting of 1,417,500
            common shares with a value of $4,895,310, $64,565 in the costs
            associated with the acquisition and 200,000 common share purchase
            warrants with a value of $670,600. The share purchase warrants vest
            equally on a quarterly basis over three years and each is
            exercisable to purchase one common share at $2.45 per share for five
            years from the date of vesting. The acquisition was accounted for
            using the purchase method and the purchase price was allocated as
            follows:

            Fair value of net capital assets acquired          $ 186,853
            Working capital                                     (320,372)
            Purchased technology                                 377,000
            Customer assets                                      992,304
            Goodwill                                           4,394,690
            -------------------------------------------------------------------
            Purchase price                                   $ 5,630,475
            -------------------------------------------------------------------


<PAGE>

          The customer assets of $992,304 are comprised of customer
          relationships and other customer contracts. The customer relationships
          were assigned a useful life of three years, while the customer
          contracts will be amortized as services are performed. The purchased
          technology of $377,000 has been assigned a useful life of two years.

     4.   CAPITAL ASSETS:

<TABLE>
<CAPTION>


                                                                                    Accumulated                    Net
       December 31, 2003                                               Cost        depreciation                   book
                                                                               and amortization                  value
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>                     <C>
       Computer hardware                                    $     1,342,228     $       817,852         $      524,376
       Computer software                                            556,319             365,310                191,009
       Furniture and fixtures                                       291,174             138,401                152,773
       Leasehold improvements                                       234,865             116,707                118,158
-----------------------------------------------------------------------------------------------------------------------------
                                                            $     2,424,586     $     1,438,270         $      986,316
-----------------------------------------------------------------------------------------------------------------------------
In the fourteen months ended December 31, 2003, depreciation expense and
amortization amounted to $566,960.
-----------------------------------------------------------------------------------------------------------------------------
                                                                                    Accumulated                    Net
       October 31, 2003                                                Cost        depreciation                   book
                                                                               and amortization                  value
-----------------------------------------------------------------------------------------------------------------------------
       Computer hardware                                    $     1,333,937     $       771,806         $      562,131
       Computer software                                            556,318             347,894                208,424
       Furniture and fixtures                                       286,860             131,629                155,231
       Leasehold improvements                                       234,865             107,107                127,758
-----------------------------------------------------------------------------------------------------------------------------
                                                            $     2,411,980     $     1,358,436         $    1,053,544
-----------------------------------------------------------------------------------------------------------------------------
In the year ended October 31, 2003, depreciation expense and amortization
amounted to $499,732.
-----------------------------------------------------------------------------------------------------------------------------
                                                                                    Accumulated                    Net
       October 31, 2002                                                Cost        depreciation                   book
                                                                               and amortization                  value
-----------------------------------------------------------------------------------------------------------------------------
       Computer hardware                                    $       984,343     $       510,752         $      473,591
       Computer software                                            444,153             226,521                217,632
       Furniture and fixtures                                       339,985             137,793                202,192
       Leasehold improvements                                       466,936             161,824                305,112
-----------------------------------------------------------------------------------------------------------------------------
                                                            $     2,235,417     $     1,036,890         $    1,198,527
-----------------------------------------------------------------------------------------------------------------------------

In the year ended October 31, 2002, depreciation and amortization expense
amounted to $404,015.

5.     ACCRUED LIABILITIES:
-----------------------------------------------------------------------------------------------------------------------------
                                                                December 31          October 31             October 31
-----------------------------------------------------------------------------------------------------------------------------
                                                                       2003                2003                   2002
       Remuneration                                         $       815,135     $       914,523         $      236,045
       Professional fees                                            372,663             511,944                300,971
       Miscellaneous                                                163,602              77,852                161,121
-----------------------------------------------------------------------------------------------------------------------------
                                                            $     1,351,400     $     1,504,319         $      698,137
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


6. SHARE CAPITAL, WARRANTS AND COMMON SHARE PURCHASE OPTIONS:

     There are an unlimited number of authorized common shares with no par
value.

     The following details the changes in issued and outstanding shares,
     compensation options and warrants:


<PAGE>

<TABLE>
<CAPTION>
                                                            Compensation options and             Common shares
                                                                    warrants
       -------------------------------------------------- --------------- -------------- ---------------- --------------
                                                                  Number         Amount           Number         Amount
       -------------------------------------------------- --------------- -------------- ---------------- --------------
<S>                                                               <C>           <C>            <C>         <C>
       Balance, October 31, 2000 (b)                              41,350        $     -        2,635,176   $ 37,500,677

       Stock options exercised and shares issued (a)                   -              -            6,312         68,651
       -------------------------------------------------- --------------- -------------- ---------------- --------------
       Balance, October 31, 2001                                  41,350              -        2,641,488     37,569,328

       Private placement (c)                                     471,554              -          580,820      3,108,217
       -------------------------------------------------- --------------- -------------- ---------------- --------------

       Balance, October 31, 2002                                 512,904              -        3,222,308     40,677,545

       Reverse stock split (d)                                         -              -                -        (5,246)

       Private placement (e)                                      60,000         68,304        5,844,037      2,932,587

       Stock options exercised and shares issued (a)                   -              -               83             52

       Acquisition of DSS (f)                                    120,000        374,040                -              -

       Acquisition of Caradas (g)                                200,000        670,600        1,417,500      4,895,310

       Professional services (h)                                 127,500        218,708          559,099        701,620
       -------------------------------------------------- --------------- -------------- ---------------- --------------

       Balance, October 31, 2003                               1,020,404      1,331,652       11,043,027     49,201,868

       Private placement (e)                                           -              -                -       (10,386)
       -------------------------------------------------- --------------- -------------- ---------------- --------------

       Balance, December 31, 2003                              1,020,404     $1,331,652       11,043,027   $ 49,191,482
       -------------------------------------------------- --------------- -------------- ---------------- --------------
</TABLE>


(a)   During 2001, 2002 and 2003, the Company granted options to certain
      employees, officers and directors under a share option plan (note 12),
      enabling them to purchase common shares of the Company.

(b)   Warrants outstanding as of October 31, 2001 and 2000 consist of 15,000
      warrants issued in October 1999 as an exercise price of $131.25 per share,
      expiring October 2004 and 26,350 warrants issued in May 2000 at an
      exercise price of $85.90 per share, expiring May 2005.
(c)   On April 4, 2002, the Company completed a private placement of 518,670
      units at a price of $6.00 per unit for gross proceeds before expenses
      $3,112,022. Each unit was comprised of one common share and three-quarters
      of one common share purchase 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.

        The following consideration was issued to placement agents in connection
        with the private placement: (i) cash consideration of $140,400 plus
        out-of-pocket expenses of approximately $7,500; (ii) compensation
        options to purchase up to 23,400 units on the same terms as described
        above; (iii) 50,000 common share purchase warrants to purchase common
        shares at prices of $6.00 and $7.20 and expiring on April 2 and 3, 2005;
        (iv) 18,750 common share purchase warrants to purchase common shares at
        a price of $0.10 per common share.

        On April 8, 2002, the compensation options noted in (ii) above, were
        exercised and the Company issued 23,400 common shares and 17,550 common
        share purchase warrants to the placement agents.

        On May 8, 2002, upon issuance of the common share purchase warrants
        noted in (iv) above, the warrants were immediately exercised and the
        Company issued 18,750 common shares. The fair value of these warrants in
        the amount of $110,625 was recorded as share issue costs.

        On May 8, 2002, the Company issued an additional 20,000 units at a price
        of $6.00 per unit for gross proceeds of $120,000. Each unit was
        comprised of one common share and three quarters of one common share
        purchase warrant. Each common share purchase warrant entitles the holder
        to purchase one common share at a price of $7.20 for a period of three
        years from May 8, 2002.

(d)   On January 28, 2003 the Company completed a reverse stock split of its
      issued and outstanding common shares whereby every ten shares of common
      stock were exchanged for one share of common stock. All common share
      amounts in the financial statements have been restated to give effect to
      the stock split.

(e)   On June 23, 2003, the Company completed a private placement of 5,000,000
      common shares at a price of $0.62 per common share for gross proceeds of
      $3,100,000.

        The placement agent exercised its option to receive 500,000 common
        shares in lieu of its $310,000 fee from the Private Placement. The
        placement agent also received 40,000 common shares in lieu of its
        $24,000 retainer fee to act as placement agent. Further compensation was
        issued as a three-year broker cashless exercisable warrant terminating
        on June 20, 2006 to purchase up to 500,000 common shares of the
        Corporation at $0.62 per share. The placement agent has exercised
        440,000 in a cashless exercise to receive 304,037 common shares.

(f)   In January 2003, the Company acquired 100% of the outstanding shares of
      DSS Software Technologies. The purchase price included 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.

(g)   On September 1, 2003, Diversinet Corp acquired 100% of the outstanding
      shares of Caradas, Inc. The aggregate consideration was 1,417,500
      Diversinet common shares and 200,000 share purchase warrants. The share
      purchase warrants are exercisable at $2.45 per share for five years. The
      share purchase warrants will vest to the holder quarterly over three
      years.
(h)   Professional services:

<PAGE>

<TABLE>
<CAPTION>

      The following chart summarizes the activity during the year ended December
      31, 2003:
      -----------------------------------------------------------------------------
                                   Compensation options        Common shares
                                  and warrants
      -----------------------------------------------------------------------------
                                       Number      Amount      Number       Amount
      -----------------------------------------------------------------------------
<S>                                    <C>       <C>                <C>         <C>
      Consulting services (i)          20,000    $ 42,088           -        $   -

      Consulting services (ii)          2,500       5,260           -            -

      Business development
      services (iii)                        -           -     250,000      300,000

      Public relations services
      (iv)                            100,000      57,620     200,000      240,000

        Warrants exercised (iv)     (100,000)    (57,620)      69,099       57,620

      Advisory board consulting
      services (v)                     50,000      59,260           -            -

      Advisory board consulting
      services (vi)                    25,000      52,508           -            -

      Consulting services (vii)             -           -      40,000      104,000

      Consulting services (viii)       25,000      39,640           -            -

      Consulting services (ix)          5,000      19,952           -            -
      -----------------------------------------------------------------------------
                                      127,500    $218,708     559,099     $701,620
      -----------------------------------------------------------------------------
</TABLE>

(i)        On November 1, 2002 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a three-year
           warrant terminating on October 23, 2005 to purchase up to 20,000 of
           our common shares at $2.60 per share in regards to the compensation
           payable by us for these services.

(ii)       On November 1, 2002 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a three-year
           warrant terminating on October 23, 2005 to purchase up to 2,500 of
           our common shares at $2.60 per share in regards to the compensation
           payable by us for these services.

(iii)      On May 14, 2003, the Company entered into an agreement for business
           development services. This agreement is subject to certain milestones
           that if not met may allow Diversinet to terminate the retainer
           portion of the agreement and /or the entire agreement. In
           consideration for the services to be rendered Diversinet will pay a
           retainer equal to $25,000 per month, which at our discretion may be
           paid as follows: (i) $25,000 per month in cash, or (ii) $25,000 per
           month by the issuance of 41,667 common shares per month, or (iii)
           $20,000 per month in cash and issuance of 8,333 common shares per
           month. The Company has elected to pay the first six months by way of
           250,000 common shares.

(iv)       On May 14, 2003, the Company entered into an agreement for public
           relations services. In consideration for the services to be rendered
           in accordance with the agreement, the Company issued a three-year
           cashless exercisable warrant terminating on May 12, 2006 to purchase
           up to 100,000 of our common shares at $0.60 per share and 200,000
           common shares, being 16,667 common shares per month for 12 months in
           regards to the compensation payable by us for these services. The
           consultant opted to have a cashless exercise and received 69,099
           common shares.

(v)        On July 1, 2003, the Company entered into an agreement for advisory
           board consulting services. In consideration for the services to be
           rendered in accordance with the agreement, we issued a three-year
           warrant terminating on June 30, 2006 to purchase up to 50,000 of our
           common shares at $0.62 per share in regards to the compensation
           payable by us for these services.

(vi)       On July 1, 2003, the Company entered into an agreement for advisory
           board consulting services. In consideration for the services to be
           rendered in accordance with the agreement, we issued a five-year
           warrant terminating on August 1, 2008, vesting equally on a quarterly
           basis over three years, to purchase up to 25,000 of our common shares
           at $0.62 per share in regards to the compensation payable by us for
           these services.

(vii)      On July 17, 2003, the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, we issued 40,000 of our common
           shares in regards to the compensation payable by us for these
           services.

(viii)     On August 20, 2003 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a one-year
           warrant terminating on August 20, 2004 to purchase up to 25,000 of
           our common shares at $3.40 per share in regards to the compensation
           payable by us for these services.

(ix)       On September 1, 2003 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a two-year
           warrant terminating on September 30, 2005 to purchase up to 5,000 of
           our common shares at $2.50 per share in regards to the compensation
           payable by us for these services.


<PAGE>

7.   BASIC AND DILUTED LOSS PER SHARE:

     Common shares issuable upon the exercise of options and warrants that could
     dilute basic loss per share in the future were not included in the
     computation of diluted loss per share because to do so would have been
     anti-dilutive for the years ended December 31, 2003, October 31, 2003, 2002
     and 2001. Anti-dilutive options amounted to 783,946 at December 31, 2003
     and 739,646 at October 31, 2003 (2002 - 256,979; 2001 - 298,518).
     Anti-dilutive warrants amounted to 905,404 at December 31, 2003 and October
     31, 2003 (2002 - 512,904; 2001 - 41,350), respectively.

8.   INTEREST IN JOINT VENTURE:

     On June 4, 2001, the Company entered into an agreement with an Asian
     company to establish a joint venture to conduct certain of the Company's
     Asian activities. Each party holds a 50% interest in the joint venture.
     These financial statements reflect the Company's proportionate interest in
     the joint venture's assets, liabilities, revenue and expenses.

     The following amounts included in the consolidated financial statements
     represent the Company's proportionate interest in the joint venture at
     December 31, 2003, October 31, 2003 and October 31, 2002:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                        December 31    October 31      October 31
--------------------------------------------------------------------------------------
                                               2003          2003            2002
<S>                                      <C>          <C>              <C>
     Cash                                $       37   $        37      $       50
     Accounts receivable                         56            56           1,264
     Prepaid expenses                           445         1,334             103
     Capital assets                         172,495       196,644         258,736
--------------------------------------------------------------------------------------
     Total assets                        $  173,033   $   198,071      $  260,153
--------------------------------------------------------------------------------------
     Accounts payable                    $   80,950   $    80,950      $  100,468
     Accrued liabilities                      4,369         1,335           3,991
--------------------------------------------------------------------------------------
     Total liabilities                   $   85,319   $    82,285      $  104,459
--------------------------------------------------------------------------------------
     Revenue                             $      181   $       181      $    3,483
     Expenses                               170,944       134,445        (188,825)
--------------------------------------------------------------------------------------
     Loss                                $ (170,763)  $  (134,264)     $ (185,342)
--------------------------------------------------------------------------------------
</TABLE>

     During fiscal 2003, the Company recognized revenue of $nil (2002 - $85,138)
     from sales to the joint venture. As at December 31, 2003, the Company had
     contributed approximately $636,993 (2002 - $626,054) into the joint
     venture. The Company has to date committed to contribute an additional
     $6,200 to the joint venture for the Company's proportionate share of the
     joint venture requirements. This amount is expected to be contributed
     within the next six months.

9.   INCOME TAXES:

     The tax effects of significant temporary differences representing future
     tax assets is as follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------
                                        December 31    October 31      October 31
                                               2003          2003            2002
--------------------------------------------------------------------------------------
     Future tax assets:
<S>                                      <C>          <C>           <C>
     Operating loss carryforwards        $10,813,090  $10,635,743   $   8,046,570
     Capital loss carryforwards             567,607       558,094         510,187
     Share issue costs                      121,514       119,478         273,562
     Research and development costs       2,736,323     2,631,275       1,607,807
     Capital assets, accounting basis
       less than tax basis                5,706,491     5,604,328       3,735,410
--------------------------------------------------------------------------------------
                                         19,945,025    19,548,918      14,173,536
     Valuation allowance                (19,945,025)  (19,548,918)    (14,173,536)
--------------------------------------------------------------------------------------
     Net future tax assets               $        -   $         -   $           -
--------------------------------------------------------------------------------------
</TABLE>

     In assessing the realizability of future tax assets, management considers
     whether it is more likely than not that some portion or all of the future
     tax assets will not be realized. The ultimate realization of future tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers projected future taxable income, uncertainties related to the
     industry in which the Company operates and tax planning strategies in
     making this assessment.

     At December 31, 2003, the Company has non-capital losses available for
     carryforward for Canadian income tax purposes amounting to $28,324,000.
     These losses expire in the following fiscal years:

-------------------------------------------------------------------------
     2004                                              $   2,854,000
     2005                                                  4,250,000
     2006                                                  4,142,000
     2007                                                 10,862,000
     2008                                                  3,254,000
     2009                                                  2,539,000
     2010                                                    423,000
-------------------------------------------------------------------------
                                                       $  28,324,000
-------------------------------------------------------------------------


<PAGE>

     The Company also has non-capital losses available for carryforward for
     United States income tax purposes amounting to $1,628,000, expiring between
     2018 and 2023.

10.  SEGMENTED INFORMATION:

     The Company operates in a single reportable operating segment. This segment
     derives its revenue from the sale of secured wireless and identity
     management solutions and related products and services. As at October 31,
     2003 and December 31, 2003, 60% [78% - October 31, 2002] of the capital
     assets were located in Canada, 22% [nil - October 31, 2002] were located in
     the United States and 18% [22% - October 31, 2002] in Hong Kong.

     A summary of sales to major customers that exceeded 10% of total sales and
     the approximate amount due from these customers during each of the years in
     the three-year period ended October 31, 2003 and the fourteen month period
     ended December 31, 2003, are as follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------
                                        Sales                Accounts Receivable
                  December 31 and  October 31  October 31 December 31  October 31
                 October 31, 2003        2002        2001        2003        2003
--------------------------------------------------------------------------------------
<S>           <C>             <C>                           <C>        <C>
     Customer 1               30%           -           -   $ 203,752  $  278,504
     Customer 2               20%           -           -     125,746     191,452
     Customer 3                 -           -          40%          -           -
     Customer 4                 -          12%         19%     62,293      62,293
     Customer 5                 -          25%         17%          -           -
     Customer 6                 -          28%          -           -           -
     Customer 7                 -          17%          -      42,500      42,500
--------------------------------------------------------------------------------------
     The Company does not consider itself to be economically dependent on any
     single customer or supplier.

     Revenue is attributable to geographic location based on the location of the
     customer, as follows:
--------------------------------------------------------------------------------------
                         December 31     October 31     October 31     October 31
                                2003           2003           2002           2001
--------------------------------------------------------------------------------------
     Sales:
        United States     $8,219,149     $6,840,380      $  17,259      $ 191,324
        Canada                 9,665          9,665        204,159        138,498
        Other                 70,000              -         45,082         28,672
        Asia                 263,862        257,958        443,750        434,320
--------------------------------------------------------------------------------------
                           $8,562,676     $7,108,003     $ 710,250      $ 792,814
--------------------------------------------------------------------------------------
</TABLE>

11.  COMMITMENTS AND CONTINGENCIES:

     (a)    Litigation:

        Management is of the opinion that the claims listed below are without
        merit and will not materially impact the Company. As a result, no
        provision for loss has been made in these consolidated financial
        statements.

        (i)    The Company has been served with a statement of complaint, as a
               co-defendant, wherein the plaintiff is seeking rescission of an
               international offering private placement transaction it entered
               into with the Company in August 1995, in which the plaintiff
               purchased 212,500 common shares (850,000 common shares prior to a
               one-for-four reverse split) from the Company for $3,700,000. The
               plaintiff is also seeking damages in the amount of $3,700,000
               plus interest and costs.

        (ii)   During fiscal 2000, the Company and its wholly owned Barbados
               subsidiary, The Instant Publisher Ltd., were sued by a company
               that alleged that the Company breached a dealer agreement entered
               into in 1995 by the Company's former printing business and is
               seeking damages of $1,533,950 and damages of $25,000,000 for loss
               of reputation and loss of opportunity, pre-judgment and
               post-judgment interest, and costs.

        (iii)  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.

        (iv)   In addition to the above, in the ordinary course of business, the
               Company and its subsidiaries have legal proceedings brought
               against them.

     (b) Lease commitments:

        Total future minimum lease payments including operating costs are as
follows:

------------------------------------------------------------------
        2004                                  $       620,188
        2005                                          458,585
        2006                                          307,605
------------------------------------------------------------------
                                              $     1,386,378
------------------------------------------------------------------
<PAGE>

12. STOCK INCENTIVE PLAN:

     The Company grants options to certain employees, officers, directors and
     consultants under a share option plan (the "Plan"), enabling them to
     purchase common shares of the Company. The exercise price of an option
     under the Plan may not be less than the current market price of common
     shares on the day immediately proceeding the day the share option was
     granted. The Plan provides that the number of common shares reserved for
     issuance under the Plan shall not exceed 2,022,291 common shares. These
     options generally vest on a quarterly basis over three years and expire
     five years after the date of grant. As at December 31, 2003, the number of
     common shares reserved for future issues of stock options amounts to
     688,573.

     The following table summarizes information about stock options outstanding
     at December 31, 2003:


<TABLE>
<CAPTION>


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

                                   Options outstanding                                          Options vested
       -----------------------------------------------------------------------------    -------------------------------

          Range of exercise          Number    Weighted average    Weighted average            Number         Weighted
                      price     outstanding           remaining      exercise price       exercisable          average
                                               contractual life                                         exercise price
                                                        - years
       --------------------- --------------- ------------------- -------------------    -------------- ----------------
<S>           <C>                  <C>                    <C>                <C>             <C>                <C>
              $0.62 - $3.00         897,400                4.51               $1.91           104,850            $1.72

              $3.70 - $6.10         109,726                3.62                5.02            43,511             5.08

            $12.40 - $30.00          85,520                2.12               19.87            74,299            20.27

            $45.60 - $48.80           4,750                .045               46.95             4,750            46.95

           $51.88 - $149.40          21,450                1.17               88.94            21,450            88.94
       --------------------- --------------- ------------------- -------------------    -------------- ----------------
                                  1,118,846                3.55               $5.45           248,860          $ 16.23
       --------------------- --------------- ------------------- ------------------- -- -------------- ----------------

Changes for the employee stock option plan during the fourteen month period
ended December 31, 2003 were as follows:


                                                      Fourteen months ended 2003               Year ended 2002
       ----------------------------------------------------------------------------------------------------------------
                                                      Number of    Weighted average         Number of         Weighted
                                                         shares      exercise price            shares          average
                                                                                                        exercise price
       --------------------------------------- --- ------------- -------------------    -------------- ----------------
       Options outstanding, beginning of year           286,979             $ 22.28           368,625           $49.42

       Options granted                                  940,600                2.00            89,135            43.83

       Options exercised                                   (83)                0.62                 -                -

       Options cancelled                              (108,650)               20.96         (170,781)            75.89
       --------------------------------------- --- ------------- -------------------    -------------- ----------------

       Options outstanding, end of year               1,118,846              $ 5.45           286,979           $22.28
       --------------------------------------- --- ------------- -------------------    -------------- ----------------

       Options exercisable, end of year                 248,860              $16.23           159,990           $30.40
       --------------------------------------- --- ------------- -------------------    -------------- ----------------

       Weighted   average   fair   value   of                                $ 1.61                             $ 2.40
       options granted during the year
       --------------------------------------- --- ------------- ------------------- -- -------------- ----------------

The following table summarizes information about stock options outstanding at
October 31, 2003:


                                   Options outstanding                                          Options vested
       -----------------------------------------------------------------------------    -------------------------------

          Range of exercise          Number    Weighted average    Weighted average            Number         Weighted
                      price     outstanding           remaining      exercise price       exercisable          average
                                               contractual life                                         exercise price
                                                        - years
       --------------------- --------------- ------------------- -------------------    -------------- ----------------
              $0.62 - $3.00         817,400                4.61               $1.90            41,483            $1.50

              $3.70 - $6.10         110,226                3.77                5.02            34,784             5.09

            $12.40 - $30.00          85,720                2.30               19.87            73,861            20.31

            $45.60 - $48.80           4,750                0.62               46.95             4,750            46.95

           $51.88 - $149.40          21,450                1.34               88.94            21,450            88.94
       --------------------- --------------- ------------------- -------------------    -------------- ----------------
                                  1,039,546                3.59               $5.71           176,328          $ 21.95
       --------------------- --------------- ------------------- ------------------- -- -------------- ----------------
</TABLE>

Changes for the employee stock option plan during the year ended October 31,
2003 were as follows:


<PAGE>

<TABLE>
<CAPTION>
                                                                            2003
       ---------------------------------------------  -----------------------------------------------------------
                                                             Number of shares    Weighted average exercise price
       ---------------------------------------------  ------------------------ ----------------------------------
<S>                                                                   <C>                                <C>
       Options outstanding, beginning of year                         286,979                            $ 22.28

       Options granted                                                859,600                               1.99

       Options exercised                                                 (83)                               0.62

       Options cancelled                                            (106,950)                              21.22


       Options outstanding, end of year                             1,039,546                             $ 5.71
       ---------------------------------------------  ------------------------ ----------------------------------

       Options exercisable, end of year                               176,328                             $21.95
       ---------------------------------------------  ------------------------ ----------------------------------
       Weighted   average  fair  value  of  options
       granted during the year                                                                             $1.61
       ---------------------------------------------  ------------------------ ----------------------------------
</TABLE>



13.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

     The Company is exposed to the following risks related to financial assets
     and liabilities:

     (a) Currency risk:

        The Company is subject to currency risk through its activities in
        Canada, United Kingdom, Europe and Asia. Unfavourable changes in the
        exchange rate may affect the operating results of the Company.

        The Company does not actively use derivative instruments to reduce its
        exposure to foreign currency risk. However, dependent on the nature,
        amount and timing of foreign currency receipts and payments, the Company
        may enter into forward exchange contracts to mitigate the associated
        risks.

     (b) Fair values:

        The fair values of the Company's financial instruments approximate their
        carrying amounts due to their short-term nature.

     (c) Credit risk:

        Financial instruments, which potentially subject the Company to
        concentrations of credit risk, consist principally of cash equivalents,
        short-term investments and accounts receivable. Cash equivalents and
        short-term investments are maintained at high-quality financial
        institutions.

        The Company generally does not require collateral for sales on credit.
        The Company closely monitors extensions of credit. Management assesses
        the need for allowances for potential credit losses by considering the
        credit risk of specific customers, historical trends and other
        information.


14.  RELATED PARTY TRANSACTIONS:

     Related party transactions are in the normal course of operations and are
     measured at the exchange amount, which is the amount established and agreed
     to by the related parties.

     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 instalments of $300,000 on January 2, 2004 and $300,000
     on January 2, 2005 and bears no interest.

15.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
     PRINCIPLES ("GAAP"):

     The consolidated financial statements are prepared in accordance with
     Canadian generally accepted accounting principles. Material differences
     between Canadian and United States generally accepted accounting principles
     are described below.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                          December 31       October 31      October 31      October 31
-------------------------------------------------------------------------------------------------------
                                                  2003            2003            2002            2001
       Share capital:
<S>                                       <C>             <C>             <C>             <C>
           Canadian GAAP                  $ 49,191,482    $ 49,201,868    $ 40,677,545    $ 37,569,328
           Elimination of reduction
            of share capital (a)            30,089,054      30,089,054      30,089,054      30,089,054
-------------------------------------------------------------------------------------------------------
       U.S. GAAP                          $ 79,280,536    $ 79,290,922    $ 70,766,599    $ 67,658,382
-------------------------------------------------------------------------------------------------------
       Deficit and comprehensive loss:
           Canadian GAAP                  $(41,481,762)   $(40,697,816)   $(35,863,688)   $(31,494,254)
           Elimination of reduction
            of share capital (a)           (30,089,054)    (30,089,054)    (30,089,054)    (30,089,054)
           Compensation expense (b)           (991,696)       (991,696)       (991,696)       (977,584)
-------------------------------------------------------------------------------------------------------
       U.S. GAAP                          $(72,562,512)   $(71,778,566)   $(66,944,438)   $(62,560,892)
-------------------------------------------------------------------------------------------------------

       Consolidated statements of loss:
           Loss under Canadian GAAP$        (5,618,074)   $ (4,834,128)   $ (4,064,673)   $(12,272,158)
           Compensation expense (b)                 --              --         (35,052)        (36,673)
-------------------------------------------------------------------------------------------------------
       Loss under U.S. GAAP               $ (5,618,074)   $ (4,834,128)   $ (4,099,725)   $(12,308,831)
-------------------------------------------------------------------------------------------------------
       Basic and diluted loss per share
           under U.S. GAAP                $      (0.87)   $      (0.85)   $      (1.38)   $      (4.67)
-------------------------------------------------------------------------------------------------------

           Loss under U.S. GAAP           $ (5,618,074)   $ (4,834,128)   $ (4,099,725)   $(12,308,831)
           Other comprehensive loss
           being cumulative
           translation adjustment (c)          (74,789)       (490,602)     (1,936,534)             --
-------------------------------------------------------------------------------------------------------
       Compensation loss under U.S.
       GAAP                               $ (5,695,863)   $ (5,324,730)   $ (6,036,259)   $(12,308,831)
-------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>

     (a)  Share capital and deficit:

        On March 1, 1999, the shareholders approved a resolution to reduce the
        stated capital of the Company by $30,089,054 to eliminate the deficit as
        at October 31, 1999. Under Canadian GAAP, a reduction of the share
        capital of outstanding common shares is allowed with a corresponding
        offset to deficit. This reclassification, which the Company made in 2000
        to eliminate the deficit that existed at October 31, 1999, did not meet
        the criteria specified by U.S. GAAP and results in an increase to share
        capital with a corresponding increase in deficit of $30,089,054.

     (b) Options to consultants:

        Effective November 1, 2002, the Company adopted the new CICA Handbook
        section 3870, "Stock-Based compensation and Other Stock Based Payments".
        As a result, the Company has recognized compensation expense on options
        issued to consultants in the current period. This resulted in no U.S.
        GAAP differences in the current period. Prior to the adoption of 3870,
        the company did not recognize compensation expense when stock or stock
        options were issued to consultants. Any consideration paid on exercise
        of stock options or purchase of stock was credit to share capital.

        Under U.S. GAAP, the Company recorded compensation expense for stock or
        stock options granted in exchange for services from consultants. During
        the year ended October 31, 2001, the Company issued 50,000 stock options
        to consultants. The Company has recorded compensation expense of
        $36,673, of which $9,033 relates to the options issued in fiscal 2001 to
        consultants.

        During the fiscal year 2002, the Company has recorded compensation
        expense of $35,052 relating to options granted to consultants.

     (c) Other comprehensive loss (income):

        FASB Statement of Financial Accounting Standards No. 130, "Reporting
        Comprehensive Income" (SFAS 130") requires disclosure of comprehensive
        income, which includes reported net income as adjusted for other
        comprehensive income. Other comprehensive income is defined as the
        change in equity of a business enterprise during a period from
        transactions and other events and circumstances from non-owner sources.

     (d) Interest in joint venture:

        Canadian GAAP requires the proportionate consolidation of interests in
        joint ventures. Proportionate consolidation is not permitted under U.S.
        GAAP and interests in joint ventures are accounted for on the equity
        basis. However, as allowed by the Securities and Exchange Commission
        ("SEC"), reclassification is not required in a SEC filing when specified
        criteria are met and information disclosed. These criteria have been met
        and the information is disclosed in note 8.

        Although the adoption of proportionate consolidation has no impact on
        net earnings or shareholders' equity, it does increase assets,
        liabilities, revenue, expenses and cash flows from operations from those
        amounts otherwise reported under U.S. GAAP.

     (e) Short-term investments:

        Short-term investments consist of corporate debt securities. For U.S.
        GAAP purposes, the Company classifies its debt securities as
        available-for-sale, which are recorded at fair value.

        Unrealized holding gains and losses, net of the related tax effect, on
        available-for-sale securities are excluded from earnings and are
        reported as a separate component of other comprehensive income until
        realized. Realized gains and losses from the sale of available-for-sale
        securities are determined on a specific identification basis. During the
        periods presented, there have been no unrealized holding gains or losses
        on short-term investments.

        A decline in the market value of any available-for-sale security below
        cost that is deemed to be other than temporary results in a reduction in
        carrying amount to fair value. The impairment is charged to earnings and
        a new cost basis for the security is established.

    (f) Notes to consolidated financial statements:

        In order to comply with U.S. GAAP, the following notes to the
        consolidated financial statements would need to be added:

        (i) Stock-based compensation plan:


<PAGE>

           Under U.S. GAAP, for any stock options with an exercise price that is
           less than the market price on the date of grant, the difference
           between the exercise price and the market price on the date of grant
           is recorded as compensation expense ("intrinsic value-based method").
           As the Company grants stock options at the fair market value of the
           shares on the day immediately preceding the date of the grant of the
           options, no compensation expense is recognized under the intrinsic
           value-based method.

           SFAS No. 123, Accounting for Stock-Based Compensation, requires pro
           forma disclosures of net income and earnings per share, as if the
           fair value-based method as opposed to the intrinsic value-based
           method of accounting for employee stock options had been applied. The
           disclosures in the following table show the Company's loss for the
           year and loss per share on a pro forma basis using the fair value
           method as determined by using the Black-Scholes option-pricing model.
           Assumptions used when valuing the options at their date of grant
           using in the Black-Scholes option pricing model include: risk-free
           interest rate of 3.092%, estimated life of three years, expected
           divided yield of 0% and volatility of 150%.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                          December 31            October 31            October 31           October 31
                                                 2003                  2003                  2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                    <C>                  <C>
              Loss under U.S. GAAP    $   (5,618,074)       $   (4,834,128)        $  (4,099,725)       $  (12,308,831)
              Compensation expense          1,281,680             1,283,886             4,258,204            4,102,960
-----------------------------------------------------------------------------------------------------------------------------
              Pro forma loss under
              U.S. GAAP                   (6,899,754)           (6,118,014)           (8,357,929)         (16,411,791)
              Pro forma loss per
               common share:
              Basic and diluted       $        (1.07)       $        (1.07)        $       (2.81)       $       (6.22)
-----------------------------------------------------------------------------------------------------------------------------
              Weighted average number of
              common shares                 6,478,296             5,715,423             2,971,692            2,637,648
</TABLE>

     (ii) Recent accounting pronouncements:

           In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
           Associated with Exit or Disposal Activities" which requires companies
           to recognized 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 Company
           does not believe that adoption of SFAS No. 146 will have a material
           effect on its results of operations and financial position.

           In December 2001, the Accounting Standards Board in Canada issued
           CICA Handbook Section 3870 "Stock-Based Compensation and Other
           Stock-Based Payments". This section establishes standards for the
           recognition, measurement, and disclosure of stock-based compensation
           and other stock-based payments made in exchange for goods and
           services provided by employees and non-employees. It applies to
           transactions in which shares of common stock, stock options, or other
           equity instruments are granted or liabilities incurred based on the
           price of common stock or other equity instruments. The Company will
           adopt Section 3870 for its fiscal year beginning November 1, 2002.
           The adoption of this standard will not have a material impact on the
           Company's financial position or results of operations.

           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.

16.   SUBSEQUENT EVENTS:

(a)  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.

(b)  In February 2004, the Company amended the DSS Software Technologies share
     purchase agreement. The promissory note (see note 3) 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.


<PAGE>

DIVERSINET CORP.
Unaudited Consolidated Balance Sheets
(In United States dollars)
As at December 31, 2003


Assets

<TABLE>
<CAPTION>
Current assets:
<S>                                                                             <C>
        Cash and cash equivalents                                               $                   722,569
        Short-term investments                                                                    1,243,960
        Accounts receivable (including $62,293 from joint venture, note 8)                        1,081,760
        Other receivables                                                                            85,748
        Prepaid expenses                                                                            375,009
--------------------------------------------------------------------------------------------------------------
        Total current assets                                                                      3,509,046

        Capital assets, net (note 4)                                                                986,316
        Purchased technology, net of $62,833, $31,416,
          $nil amortization (note 3)                                                                314,167
        Customer assets net of $110,256 amortization (note 3)                                       882,048
        Goodwill (note 3)                                                                         5,311,932
--------------------------------------------------------------------------------------------------------------
Total assets                                                                     $               11,003,509
--------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
        Accounts payable                                                        $                   899,644
        Accrued liabilities (note 5)                                                              1,351,400
        Notes payable                                                                                28,192
        Current portion of promissory note                                                          300,000
        Deferred revenue                                                                            477,449
--------------------------------------------------------------------------------------------------------------
        Total current liabilities                                                                 3,056,685

        Promissory note                                                                             300,000

Shareholders' equity:
        Share capital (note 6):
               Authorized:
                      Unlimited common shares
               Issued and outstanding:
                      11,043,027 common shares                                                   49,191,482
        Contributed surplus                                                                         126,173
        Cumulative translation adjustment                                                        (1,520,721)
        Share purchase warrants (note 6)                                                          1,331,652
        Deficit                                                                                 (41,481,762)
-------------------------------------------------------------------------------------------------------------
        Total shareholders' equity                                                                7,646,824

Future operations (note 1)
Commitments and contingencies (note 11)

-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                       $               11,003,509
-------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to the unaudited consolidated financial statements.


<PAGE>

DIVERSINET CORP.
Unaudited Consolidated Statements of Earnings and Deficit
(In United States dollars)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                        Two-month period ended
                                                                             December 31, 2003
------------------------------------------------------------------------------------------------
<S>                                                                         <C>
Revenue                                                                     $        1,454,673

Cost of sales                                                                        1,131,466
------------------------------------------------------------------------------------------------
Gross margin                                                                           323,207

Expenses:
Research and development                                                               269,778
Sales and marketing                                                                    385,117
General and administrative                                                             285,311
Depreciation and amortization                                                          166,377
------------------------------------------------------------------------------------------------
                                                                                     1,106,583
------------------------------------------------------------------------------------------------

Loss before the following                                                             (783,376)

Interest expense                                                                           570
------------------------------------------------------------------------------------------------

Loss for the period                                                                   (783,946)

Deficit, beginning of period                                                       (40,697,816)
------------------------------------------------------------------------------------------------
Deficit, end of period                                                  $          (41,481,762)
------------------------------------------------------------------------------------------------

Basic and diluted loss per share (note 7)                               $              (0.07)
------------------------------------------------------------------------------------------------

Weighted average number of common shares                                            11,043,027
------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to the unaudited consolidated financial statements.


<PAGE>


DIVERSINET CORP.
Unaudited Consolidated Statements of Cash Flows
(In United States dollars)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                        Two-month period ended
                                                                             December 31, 2003
------------------------------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
<S>                                                                     <C>
        Loss from continuing operations                                 $            (783,946)
        Items not involving cash:
               Depreciation and amortization                                           166,377
               Stock-based compensation expense                                         53,493
               Unrealized foreign exchange loss (gain)                                (74,789)
        Change in non-cash operating working capital:
               Accounts receivable                                                     341,182
               Other receivables                                                       (8,028)
               Prepaid expenses                                                      (142,196)
               Accounts payable                                                         53,887
               Accrued liabilities                                                   (152,919)
               Deferred revenue                                                      (175,901)
------------------------------------------------------------------------------------------------
        Cash used in continuing operations                                           (722,840)

Financing activities:
        Issue of common shares, common share
           purchase options and warrants for cash                                     (10,386)
        Notes payable                                                                  (4,986)
------------------------------------------------------------------------------------------------
        Cash provided by financing activities                                         (15,372)

Investing activities:
        Short-term investments                                                         609,409
        Additions to capital assets                                                   (12,605)
------------------------------------------------------------------------------------------------
        Cash provided by (used in) investing activities                                596,804

Increase (decrease) in cash and cash
    equivalents                                                                      (141,408)

Cash and cash equivalents, beginning of period                                         863,977

------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                $              722,569
------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to the unaudited consolidated financial statements.


<PAGE>



DIVERSINET CORP.
Notes to Unaudited Consolidated Financial Statements
(In United States dollars)

Two month period ended December 31, 2003.

Diversinet Corp. (the "Company"), an Ontario corporation, develops and markets
secured wireless and identity management solutions and professional services to
the enterprise, financial services, government and gaming and wagering
marketplaces.

1.   FUTURE OPERATIONS:

     These consolidated financial statements have been prepared on a going
     concern basis, which assumes the Company will continue in operation in the
     foreseeable future and be able to realize assets and satisfy liabilities in
     its normal course of business. Certain conditions and events exist that
     cast substantial doubt on the Company's ability to continue as a going
     concern.

     The Company has incurred significant losses and used significant amounts of
     cash in operating activities in recent years.

     Continued operations depend upon the Company's ability to generate future
     profitable operations and/or obtain additional financing to fund future
     operations and, ultimately, to generate positive cash flows from operating
     activities. There can be no assurance that the Company will be successful
     in obtaining additional financing or generating positive cash flows from
     operations.

     Should the Company be unable to generate positive cash flows from
     operations or secure additional financing in the foreseeable future, the
     application of the going concern principle for financial statement
     reporting purposes may no longer be appropriate. These financial statements
     do not include any adjustments related to the valuation or classification
     of recorded asset amounts or the amounts or classification of liabilities
     that may be necessary should the Company be unable to continue as a going
     concern.

2. SIGNIFICANT ACCOUNTING POLICIES:

     These consolidated financial statements have been prepared in accordance
     with accounting principles generally accepted in Canada, which, except as
     described in note 15, conform in all material respects with accounting
     principles generally accepted in the United States. Significant accounting
     policies adopted by the Company are as follows:

     (a)  Fiscal Year:

        In 2003, the Company changed its fiscal year end from October 31 to
        December 31. As a result of the change in year end, the Company is
        providing unaudited financial statements for the two months ended
        December 31, 2003.

     (b)  Basis of consolidation:

        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. The Company accounts for its interest in a
        joint venture by the proportionate consolidation method. All significant
        intercompany transactions and balances have been eliminated.

     (c)  Goodwill:

        Handbook section 3062 "Goodwill and Other Intangible Assets", 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 December 2003 the Company completed its goodwill impairment test
        and concluded that no write-down was required.

     (d)  Revenue recognition:

        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 are 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.


<PAGE>

        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 only exists for all undelivered elements,
        the Company recognizes revenue for the delivered elements using the
        residual method, whereby the total arrangement fee is assigned to the
        undelivered elements based on their fair value, with the residual
        assigned to the delivered elements and recognized. For arrangements
        containing multiple elements where vendor specific objective evidence
        does not exist for all undelivered elements, revenue for the delivered
        and undelivered elements is deferred until either vendor specific
        objective evidence exists for the remaining undelivered elements 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.

        The Company's sales arrangements generally include standard payment
        terms ranging up to 90 days. The Company provides a limited product
        warranty, the costs of which have historically been insignificant.

     (e)  Cash and cash equivalents:

        Cash and cash equivalents include cash on account and short-term
        investments in money market instruments with original maturities of 90
        days or less when acquired.

     (f)  Short-term investments:

        Short-term investments consist of bonds having a term of 90 days when
        acquired which are recorded at cost plus accrued interest.

     (g)  Investment tax credits:

        Investment tax credits are accrued when qualifying expenditures are made
        and there is reasonable assurance that the credits will be realized.
        Investment tax credits earned with respect to current expenditures for
        qualified research and development activities are included in the
        consolidated statements of earnings and deficit as a reduction of
        related expenses in the year incurred. Assistance related to the
        acquisition of capital assets used for research and development is
        credited against the related capital assets. The Company has recorded no
        investment tax credits.

     (h)  Research and development costs:

        Research costs are expensed as incurred. Software development costs are
        deferred once costs meet the criteria under Canadian generally accepted
        accounting principles for deferral and amortization. Such deferred costs
        are amortized, commencing when the product is commercially released, on
        a straight-line basis over two years. The recoverability of any
        unamortized deferred development costs is reviewed on an ongoing basis.

     (i)  Purchased and acquired technology:

        The Company capitalizes purchased technology and amortizes such costs
        over two years. The carrying value is assessed on a periodic basis to
        determine if a write-down is required.

     (j)  Customer assets:

        Customer relationships are amortized over three years. Customer
        contracts are amortized as services are performed. The carrying value is
        accessed on a periodic basis to determine if a write-down is required.

     (k)  Foreign currency translation:

        Monetary assets and liabilities denominated in foreign currencies are
        translated into United States dollars at the exchange rates prevailing
        at the consolidated balance sheet dates. Non-monetary assets and
        liabilities are translated at historical rates. Transactions in foreign
        currencies are translated into United States dollars at the approximate
        rates prevailing at the dates of the transactions. Foreign exchange
        gains and losses are included in loss for the period. The Company has
        historically prepared its consolidated financial statements in Canadian
        dollars and used the Canadian dollar as its measurement currency. As a
        result of a number of circumstances, including the current year
        financing activities, the acquisition of DSS Software Technologies and
        Caradas, Inc. 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. Share capital has been translated at the exchange rate in
        effect at the time of the transaction. Deficit has been translated at
        the approximate rates prevailing at the dates of the transactions and
        monetary assets and liabilities have been translated into United States
        dollars at the exchange rates prevailing at the consolidated balance
        sheet dates. The resulting difference has been classified as a
        cumulative translation adjustment on the balance sheet.

(l) Capital assets:

        Capital assets are stated at cost less accumulated depreciation and
        amortization. Depreciation and amortization is provided over the
        estimated useful lives of the assets at the following annual rates and
        bases:


<PAGE>

----------------------------------------------------------------------------
        Asset                       Basis                           Rate
----------------------------------------------------------------------------
        Computer hardware           Declining balance                30%
        Computer software           Declining balance                30%
        Furniture and fixtures      Declining balance                20%
        Leasehold improvements      Straight-line     Over term of lease
----------------------------------------------------------------------------

        The Company regularly reviews the carrying values of its capital assets
        by comparing the carrying amount of the asset to the expected future
        undiscounted cash flows to be generated by the asset. If the carrying
        value exceeds the amount recoverable, a write-down of the asset to its
        estimated net recoverable amount is charged to the statements of
        earnings and deficit.

     (m)  Income taxes:

        The Company accounts for income taxes using the asset and liability
        method. Under this method, future income taxes are recognized at the
        enacted or substantively enacted tax rate expected to be applicable at
        the date of reversal for all significant temporary differences between
        the tax and accounting bases of assets and liabilities and for certain
        tax carry forward items. Future income tax assets are recognized only to
        the extent that, in the opinion of management, it is more likely than
        not that the future income tax assets will be realized. Future income
        tax assets and liabilities are adjusted for the effects of changes in
        tax laws and rates on the date of the substantive enactment of the
        change.

     (n)  Earnings per share:

        Basic earnings per share is computed using the weighted average number
        of common shares that are outstanding during the year. Diluted earnings
        per share is computed using the weighted average number of common and
        potential common shares outstanding during the year. Potential common
        shares consist of the incremental number of common shares issuable upon
        the exercise of stock options and warrants and are calculated using the
        treasury stock method.

(o) Stock-based compensation:

        Effective November 1, 2002, the Company adopted the new CICA Handbook
        section 3870, "Stock-Based Compensation and Other Stock-Based Payments",
        which requires that a fair value based method of accounting be applied
        to all stock-based payments to non-employees and to direct awards of
        stock to employees. However, the standard permits the Company to
        continue its existing policy of recording no compensation cost on the
        grant of stock options and warrants to employees with the addition of
        pro-forma information as if the fair value method has been applied. Had
        the company determined compensation expense based on the fair value of
        stock options granted subsequent to November 1, 2002, the Company's loss
        and loss per share would have been reported as the pro-forma amounts
        indicated below:

        ------------------------------------------------------------------
                                             Two months ended
                                             December 31, 2003
        ------------------------------------------------------------------
        Loss for the period as reported         $(783,946)
        Pro forma loss                           (879,133)
        Pro forma loss per common share:
           Basic and diluted                       $(0.08)


        Weighted average number of common shares11,043,027 (p) Use of estimates:
        The preparation of these consolidated financial statements in conformity
        with generally accepted accounting principles requires management to
        make estimates and assumptions that affect the reported amounts of
        assets and liabilities and disclosure of contingent assets and
        liabilities at the date of these consolidated financial statements and
        the reported amounts of revenue and expenses during the year. Actual
        results could differ from those estimates.

     3.   ACQUISITIONS:

        a)     In January 2003, the Company acquired 100% of the outstanding
               shares of DSS Software Technologies, a consulting services
               provider. 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. The acquisition
               was accounted for using the purchase method and the purchase
               price was allocated as follows:


<PAGE>
            ---------------------------------------------------------
            Fair  value  of  net  capital                $    93,374
            assets acquired
            Working capital                                  290,422
            Goodwill                                         917,242
            ---------------------------------------------------------
            Purchase price                               $ 1,301,038
            ---------------------------------------------------------

     b)   In September 2003, the Company acquired 100% of the outstanding shares
          of Caradas, Inc., a credential management provider. The aggregate
          purchase price was $5,630,475 consisting of 1,417,500 common shares
          with a value of $4,895,310, $64,565 in the costs associated with the
          acquisition and 200,000 common share purchase warrants with a value of
          $670,600. The share purchase warrants vest equally on a quarterly
          basis over three years and each is exercisable to purchase one common
          share at $2.45 per share for five years from the date of vesting. The
          acquisition was accounted for using the purchase method and the
          purchase price was allocated as follows:

            Fair  value  of  net  capital
            assets acquired                               $  186,853
            Working capital                                (320,372)
            Purchased technology                             377,000
            Customer assets                                  992,304
            Goodwill                                       4,394,690
            ---------------------------------------------------------
            Purchase price                               $ 5,630,475
            ---------------------------------------------------------

        The customer assets of $992,304 are comprised of customer relationships
        and other customer contracts. The customer relationships were assigned a
        useful life of three years, while the customer contracts will be
        amortized as services are performed. The purchased technology of
        $377,000 has been assigned a useful life of two years.

4. CAPITAL ASSETS:

--------------------------------------------------------------------------------
                                            Accumulated         Net
     December 31, 2003          Cost        depreciation        book
                                          and amortization      value
--------------------------------------------------------------------------------

     Computer hardware      $1,342,228      $  817,852      $  524,376
     Computer software         556,319         365,310         191,009
     Furniture and fixtures    291,174         138,401         152,773
     Leasehold improvements    234,865         116,707         118,158
--------------------------------------------------------------------------------
                           $ 2,424,586      $1,438,270      $  986,316
--------------------------------------------------------------------------------

     In the two months ended December 31, 2003, depreciation expense and
     amortization amounted to $166,377.

5. ACCRUED LIABILITIES:

------------------------------------------------------------------------------
                                                December 31, 2003
------------------------------------------------------------------------------
     Remuneration                                     $   815,135
     Professional fees                                    372,663
     Miscellaneous                                        163,602
------------------------------------------------------------------------------
                                                      $ 1,351,400
------------------------------------------------------------------------------

6. SHARE CAPITAL, WARRANTS AND COMMON SHARE PURCHASE OPTIONS:

There are an unlimited number of authorized common shares with no par value.

     The following details the changes in issued and outstanding shares,
     compensation options and warrants:

    -----------------------------------------------------------------------
                           Compensation options        Common shares
                               and warrants
    -----------------------------------------------------------------------
                               Number      Amount      Number       Amount
    -----------------------------------------------------------------------

    Balance, October
    31, 2000 (b)               41,350     $     -   2,635,176  $37,500,677

    Stock options                   -           -       6,312       68,651
    exercised and
    shares issued (a)
    -----------------------------------------------------------------------
    Balance, October           41,350           -   2,641,488   37,569,328
    31, 2001

    Private placement         471,554           -     580,820    3,108,217
    (c)
    -----------------------------------------------------------------------

    Balance, October          512,904           -   3,222,308   40,677,545
    31, 2002

    Reverse stock split (d)         -           -           -      (5,246)

    Private placement (e)      60,000      68,304   5,844,037    2,932,587

    Stock options                   -           -          83           52
    exercised and
    shares issued (a)

    Acquisition of DSS (f)    120,000     374,040           -            -

    Acquisition       of      200,000     670,600   1,417,500    4,895,310
    Caradas (g)

    Professional              127,500     218,708     559,099      701,620
    services (h)
    -----------------------------------------------------------------------

    Balance, October        1,020,404   1,331,652  11,043,027   49,201,868
    31, 2003

    Private placement (e)           -           -           -     (10,386)
    -----------------------------------------------------------------------

    Balance, December       1,020,404 $ 1,331,652  11,043,027  $49,191,482
    31, 2003
    -----------------------------------------------------------------------


<PAGE>

(a)     During 2001, 2002 and 2003, the Company granted options to certain
        employees, officers and directors under a share option plan (note 12),
        enabling them to purchase common shares of the Company.

(b)     Warrants outstanding as of October 31, 2001 and 2000 consist of 15,000
        warrants issued in October 1999 as an exercise price of $131.25 per
        share, expiring October 2004 and 26,350 warrants issued in May 2000 at
        an exercise price of $85.90 per share, expiring May 2005.

(c)     On April 4, 2002, the Company completed a private placement of 518,670
        units at a price of $6.00 per unit for gross proceeds before expenses
        $3,112,022. Each unit was comprised of one common share and
        three-quarters of one common share purchase 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.

        The following consideration was issued to placement agents in connection
        with the private placement: (i) cash consideration of $140,400 plus
        out-of-pocket expenses of approximately $7,500; (ii) compensation
        options to purchase up to 23,400 units on the same terms as described
        above; (iii) 50,000 common share purchase warrants to purchase common
        shares at prices of $6.00 and $7.20 and expiring on April 2 and 3, 2005;
        (iv) 18,750 common share purchase warrants to purchase common shares at
        a price of $0.10 per common share.

        On April 8, 2002, the compensation options noted in (ii) above, were
        exercised and the Company issued 23,400 common shares and 17,550 common
        share purchase warrants to the placement agents.

        On May 8, 2002, upon issuance of the common share purchase warrants
        noted in (iv) above, the warrants were immediately exercised and the
        Company issued 18,750 common shares. The fair value of these warrants in
        the amount of $110,625 was recorded as share issue costs.

        On May 8, 2002, the Company issued an additional 20,000 units at a price
        of $6.00 per unit for gross proceeds of $120,000. Each unit was
        comprised of one common share and three quarters of one common share
        purchase warrant. Each common share purchase warrant entitles the holder
        to purchase one common share at a price of $7.20 for a period of three
        years from May 8, 2002.
(d)     On January 28, 2003 the Company completed a reverse stock split of its
        issued and outstanding common shares whereby every ten shares of common
        stock were exchanged for one share of common stock. All common share
        amounts in the financial statements have been restated to give effect to
        the stock split.
(e)     On June 23, 2003, the Company completed a private placement of 5,000,000
        common shares at a price of $0.62 per common share for gross proceeds of
        $3,100,000.

        The placement agent exercised its option to receive 500,000 common
        shares in lieu of its $310,000 fee from the Private Placement. The
        placement agent also received 40,000 common shares in lieu of its
        $24,000 retainer fee to act as placement agent. Further compensation was
        issued as a three-year broker cashless exercisable warrant terminating
        on June 20, 2006 to purchase up to 500,000 common shares of the
        Corporation at $0.62 per share. The placement agent has exercised
        440,000 in a cashless exercise to receive 304,037 common shares.
(f)     In January 2003, the Company acquired 100% of the outstanding shares of
        DSS Software Technologies. The purchase price included 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.
(g)     On September 1, 2003, Diversinet Corp acquired 100% of the outstanding
        shares of Caradas, Inc. The aggregate consideration was 1,417,500
        Diversinet common shares and 200,000 share purchase warrants. The share
        purchase warrants are exercisable at $2.45 per share for five years. The
        share purchase warrants will vest to the holder quarterly over three
        years.
(h)     Professional services:

        The following chart summarizes the activity during the year ended
        December 31, 2003:


<PAGE>

     -------------------------------------------------------------------
                             Compensation options and   Common shares
                                             warrants
     -------------------------------------------------------------------
                                     Number    Amount   Number   Amount
     -------------------------------------------------------------------

     Consulting services (i)         20,000  $ 42,088        - $      -

     Consulting services (ii)         2,500     5,260        -        -

     Business development                 -         -  250,000  300,000
     services (iii)

     Public relations services      100,000    57,620  200,000  240,000
     (iv)

       Warrants exercised (iv)    (100,000)  (57,620)   69,099   57,620

     Advisory board consulting       50,000    59,260        -        -
     services (v)

     Advisory board consulting       25,000    52,508        -        -
     services (vi)

     Consulting services (vii)            -         -   40,000  104,000

     Consulting services (viii)      25,000    39,640        -        -

     Consulting services (ix)         5,000    19,952        -        -
     -------------------------------------------------------------------
                                    127,500  $218,708  559,099 $701,620
     -------------------------------------------------------------------

(i)        On November 1, 2002 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a three-year
           warrant terminating on October 23, 2005 to purchase up to 20,000 of
           our common shares at $2.60 per share in regards to the compensation
           payable by us for these services.

(ii)       On November 1, 2002 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a three-year
           warrant terminating on October 23, 2005 to purchase up to 2,500 of
           our common shares at $2.60 per share in regards to the compensation
           payable by us for these services.

(iii)      On May 14, 2003, the Company entered into an agreement for business
           development services. This agreement is subject to certain milestones
           that if not met may allow Diversinet to terminate the retainer
           portion of the agreement and /or the entire agreement. In
           consideration for the services to be rendered Diversinet will pay a
           retainer equal to $25,000 per month, which at our discretion may be
           paid as follows: (i) $25,000 per month in cash, or (ii) $25,000 per
           month by the issuance of 41,667 common shares per month, or (iii)
           $20,000 per month in cash and issuance of 8,333 common shares per
           month. The Company has elected to pay the first six months by way of
           250,000 common shares.

(iv)       On May 14, 2003, the Company entered into an agreement for public
           relations services. In consideration for the services to be rendered
           in accordance with the agreement, the Company issued a three-year
           cashless exercisable warrant terminating on May 12, 2006 to purchase
           up to 100,000 of our common shares at $0.60 per share and 200,000
           common shares, being 16,667 common shares per month for 12 months in
           regards to the compensation payable by us for these services. The
           consultant opted to have a cashless exercise and received 69,099
           common shares.

(v)        On July 1, 2003, the Company entered into an agreement for advisory
           board consulting services. In consideration for the services to be
           rendered in accordance with the agreement, we issued a three-year
           warrant terminating on June 30, 2006 to purchase up to 50,000 of our
           common shares at $0.62 per share in regards to the compensation
           payable by us for these services.

(vi)       On July 1, 2003, the Company entered into an agreement for advisory
           board consulting services. In consideration for the services to be
           rendered in accordance with the agreement, we issued a five-year
           warrant terminating on August 1, 2008, vesting equally on a quarterly
           basis over three years, to purchase up to 25,000 of our common shares
           at $0.62 per share in regards to the compensation payable by us for
           these services.

(vii)      On July 17, 2003, the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, we issued 40,000 of our common
           shares in regards to the compensation payable by us for these
           services.

(viii)     On August 20, 2003 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a one-year
           warrant terminating on August 20, 2004 to purchase up to 25,000 of
           our common shares at $3.40 per share in regards to the compensation
           payable by us for these services.

(ix)       On September 1, 2003 the Company entered into an agreement for
           consulting services. In consideration for the services to be rendered
           in accordance with the agreement, Diversinet issued a two-year
           warrant terminating on September 30, 2005 to purchase up to 5,000 of
           our common shares at $2.50 per share in regards to the compensation
           payable by us for these services.

7.   BASIC AND DILUTED LOSS PER SHARE:

     Common shares issuable upon the exercise of options and warrants that could
     dilute basic loss per share in the future were not included in the
     computation of diluted loss per share because to do so would have been
     anti-dilutive for the two-months ended December 31, 2003. Anti-dilutive
     options amounted to 783,946 at December 31, 2003. Anti-dilutive warrants
     amounted to 905,404 at December 31, 2003.


<PAGE>

8.   INTEREST IN JOINT VENTURE:

     On June 4, 2001, the Company entered into an agreement with an Asian
     company to establish a joint venture to conduct certain of the Company's
     Asian activities. Each party holds a 50% interest in the joint venture.
     These financial statements reflect the Company's proportionate interest in
     the joint venture's assets, liabilities, revenue and expenses.

     The following amounts included in the consolidated financial statements
     represent the Company's proportionate interest in the joint venture at
     December 31, 2003:


-----------------------------------------------------------------
                                      December 31, 2003
-----------------------------------------------------------------
     Cash                                $       37
     Accounts receivable                         56
     Prepaid expenses                           445
     Capital assets                         172,495
-----------------------------------------------------------------
     Total assets                        $  173,033
-----------------------------------------------------------------
     Accounts payable                    $   80,950
     Accrued liabilities                      4,369
-----------------------------------------------------------------
     Total liabilities                   $   85,319
-----------------------------------------------------------------
     Revenue                             $      181
     Expenses                               170,944
-----------------------------------------------------------------
     Loss                                $ (170,763)
-----------------------------------------------------------------

     During the two months ended December 31, 2003, the Company recognized
     revenue of $nil from sales to the joint venture. As at December 31, 2003,
     the Company had contributed approximately $636,993 (2002 - $626,054) into
     the joint venture. The Company has to date committed to contribute an
     additional $6,200 to the joint venture for the Company's proportionate
     share of the joint venture requirements. This amount is expected to be
     contributed within the next six months.

9. INCOME TAXES:

     The tax effects of significant temporary differences representing future
     tax assets is as follows:

----------------------------------------------------------------------
                                                     December 31, 2003
----------------------------------------------------------------------

     Future tax assets:
     Operating loss carryforwards                          $10,813,090
     Capital loss carryforwards                                567,607
     Share issue costs                                         121,514
     Research and development costs                          2,736,323
     Capital assets, accounting basis less than tax basis    5,706,491
----------------------------------------------------------------------
                                                            19,945,025
     Valuation allowance                                   (19,945,025)
----------------------------------------------------------------------
     Net future tax assets                                 $        -
----------------------------------------------------------------------

     In assessing the realizability of future tax assets, management considers
     whether it is more likely than not that some portion or all of the future
     tax assets will not be realized. The ultimate realization of future tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers projected future taxable income, uncertainties related to the
     industry in which the Company operates and tax planning strategies in
     making this assessment.

     At December 31, 2003, the Company has non-capital losses available for
     carryforward for Canadian income tax purposes amounting to $28,324,000.
     These losses expire in the following fiscal years:

-------------------------------------------------------------------------
     2004                                                 $2,854,000
     2005                                                  4,250,000
     2006                                                  4,142,000
     2007                                                 10,862,000
     2008                                                  3,254,000
     2009                                                  2,539,000
     2010                                                    423,000
-------------------------------------------------------------------------
                                                         $28,324,000
-------------------------------------------------------------------------

     The Company also has non-capital losses available for carryforward for
     United States income tax purposes amounting to $1,628,000, expiring between
     2018 and 2023.


<PAGE>

10. SEGMENTED INFORMATION:

     The Company operates in a single reportable operating segment. This segment
     derives its revenue from the sale of secured wireless and identity
     management solutions and related products and services. As at December 31,
     2003, 60% of the capital assets were located in Canada, 22% were located in
     the United States and 18% in Hong Kong.

     A summary of sales to major customers that exceeded 10% of total sales and
     the approximate amount due from these customers during each of the years in
     the three-year period ended October 31, 2003 and the fourteen month period
     ended December 31, 2003, are as follows:

--------------------------------------------------------------------------
                            Sales            Accounts Receivable
                December 31, 2003             December 31, 2003
--------------------------------------------------------------------------
     Customer 1               30%           $      203,752
     Customer 2               20%                  125,746
--------------------------------------------------------------------------

     The Company does not consider itself to be economically dependent on any
     single customer or supplier.

     Revenue for the two months ended December 31, 2003 is attributable to
     geographic location based on the location of the customer, as follows:

---------------------------------------------------
                         December 31, 2003
---------------------------------------------------
     Sales:
        United States      $1,378,769
        Canada                     -
        Other                 70,000
        Asia                   5,904
---------------------------------------------------
                           $1,454,673
---------------------------------------------------

11. COMMITMENTS AND CONTINGENCIES:

     (a)  Litigation:

        Management is of the opinion that the claims listed below are without
        merit and will not materially impact the Company. As a result, no
        provision for loss has been made in these consolidated financial
        statements.

          (i)  The Company has been served with a statement of complaint, as a
               co-defendant, wherein the plaintiff is seeking rescission of an
               international offering private placement transaction it entered
               into with the Company in August 1995, in which the plaintiff
               purchased 212,500 common shares (850,000 common shares prior to a
               one-for-four reverse split) from the Company for $3,700,000. The
               plaintiff is also seeking damages in the amount of $3,700,000
               plus interest and costs.

          (ii) During fiscal 2000, the Company and its wholly owned Barbados
               subsidiary, The Instant Publisher Ltd., were sued by a company
               that alleged that the Company breached a dealer agreement entered
               into in 1995 by the Company's former printing business and is
               seeking damages of $1,533,950 and damages of $25,000,000 for loss
               of reputation and loss of opportunity, pre-judgment and
               post-judgment interest, and costs.

          (iii) 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.

          (iv) In addition to the above, in the ordinary course of business, the
               Company and its subsidiaries have legal proceedings brought
               against them.

     (b) Lease commitments:

        Total future minimum lease payments including operating costs are as
follows:

--------------------------------------------------------------------------------
        2004                                             $ 620,188
        2005                                               458,585
        2006                                               307,605
--------------------------------------------------------------------------------
                                                         $1,386,378
--------------------------------------------------------------------------------

12. STOCK INCENTIVE PLAN:

     The Company grants options to certain employees, officers, directors and
     consultants under a share option plan (the "Plan"), enabling them to
     purchase common shares of the Company. The exercise price of an option
     under the Plan may not be less than the current market price of common
     shares on the day immediately proceeding the day the share option was
     granted. The Plan provides that the number of common shares reserved for
     issuance under the Plan shall not exceed 2,022,291 common shares. These
     options generally vest on a quarterly basis over three years and expire
     five years after the date of grant. As at December 31, 2003, the number of
     common shares reserved for future issues of stock options amounts to
     688,573.

<PAGE>

<TABLE>
<CAPTION>

       --------------------------------------------------------------------- -- ---------------------------
                               Options outstanding                                    Options vested
       ---------------------------------------------------------------------    ---------------------------

         Range of exercise         Number          Weighted        Weighted           Number      Weighted
                     price    outstanding           average         average      exercisable       average
                                                  remaining  exercise price                       exercise
                                                contractual                                          price
                                               life - years
       -------------------- -------------- ----------------- ---------------    ------------- -------------
<S>          <C>     <C>          <C>                  <C>            <C>            <C>             <C>
             $0.62 - $3.00        897,400              4.51           $1.91          104,850         $1.72

             $3.70 - $6.10        109,726              3.62            5.02           43,511          5.08

           $12.40 - $30.00         85,520              2.12           19.87           74,299         20.27

           $45.60 - $48.80          4,750              .045           46.95            4,750         46.95

          $51.88 - $149.40         21,450              1.17           88.94           21,450         88.94
       -------------------- -------------- ----------------- ---------------    ------------- -------------
                                1,118,846              3.55           $5.45          248,860       $ 16.23
       -------------------- -------------- ----------------- --------------- -- ------------- -------------
</TABLE>

Changes for the employee stock option plan during the two month period ended
December 31, 2003 were as follows:


<TABLE>
<CAPTION>
                                                              Two months ended December 31, 2003
       ----------------------------------------------  ------------------ -------------------------------

                                                        Number of shares       Weighted average exercise
                                                                                                   price
       ----------------------------------------------  ------------------ -------------------------------
<S>                                                            <C>                                <C>
       Options outstanding, October 31, 2003                   1,037,929                          $ 5.71

       Options granted                                            81,000                            2.05

       Options exercised                                            (83)                            0.62
       ----------------------------------------------  ------------------ -------------------------------

       Options outstanding, December 31, 2003                  1,118,846                          $ 5.45
       ----------------------------------------------  ------------------ -------------------------------

       Options exercisable, December 31, 2003                    248,860                          $16.23
       ----------------------------------------------  ------------------ -------------------------------

       Weighted   average   fair  value  of  options                                              $ 2.05
       granted during the two month period
       ----------------------------------------------  ------------------ -------------------------------
</TABLE>

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

     The Company is exposed to the following risks related to financial assets
     and liabilities:

     (a) Currency risk:

        The Company is subject to currency risk through its activities in
        Canada, United Kingdom, Europe and Asia. Unfavourable changes in the
        exchange rate may affect the operating results of the Company.

        The Company does not actively use derivative instruments to reduce its
        exposure to foreign currency risk. However, dependent on the nature,
        amount and timing of foreign currency receipts and payments, the Company
        may enter into forward exchange contracts to mitigate the associated
        risks.

     (b) Fair values:

        The fair values of the Company's financial instruments approximate their
        carrying amounts due to their short-term nature.

     (c) Credit risk:

        Financial instruments, which potentially subject the Company to
        concentrations of credit risk, consist principally of cash equivalents,
        short-term investments and accounts receivable. Cash equivalents and
        short-term investments are maintained at high-quality financial
        institutions.

        The Company generally does not require collateral for sales on credit.
        The Company closely monitors extensions of credit. Management assesses
        the need for allowances for potential credit losses by considering the
        credit risk of specific customers, historical trends and other
        information.

14. RELATED PARTY TRANSACTIONS:

     Related party transactions are in the normal course of operations and are
     measured at the exchange amount, which is the amount established and agreed
     to by the related parties.

     As at December 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
     instalments of $300,000 on January 2, 2004 and $300,000 on January 2, 2005
     and bears no interest.


<PAGE>

15.RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
   PRINCIPLES ("GAAP"):

     The consolidated financial statements are prepared in accordance with
     Canadian generally accepted accounting principles. Material differences
     between Canadian and United States generally accepted accounting principles
     are described below.

---------------------------------------------------
                   December 31, 2003
---------------------------------------------------
     Share capital:
        Canadian GAAP                    $49,191,482
        Elimination of reduction
         of share capital (a)             30,089,054
---------------------------------------------------
     U.S. GAAP $79,280,536
---------------------------------------------------
     Deficit and comprehensive loss:
        Canadian GAAP                   $(41,481,762)
        Elimination of reduction
         of share capital (a)            (30,089,054)
        Compensation expense (b)           (991,696)
---------------------------------------------------
     U.S. GAAP $(72,562,512)
---------------------------------------------------

     Consolidated statements of loss:
        Loss under Canadian GAAP         $ (783,376)
        Compensation expense (b) -
---------------------------------------------------
     Loss under U.S. GAAP                $(783,376)
---------------------------------------------------

     Basic and diluted loss per share
        under U.S. GAAP                 $   (0.07)

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

        Loss under U.S. GAAP            $(783,376)
        Other comprehensive loss
        being cumulative
        translation adjustment (c)        415,813
---------------------------------------------------
     Compensation loss under U.S.
---------------------------------------------------
     GAAP                              $(367,563)

     (a) Share capital and deficit:

        On March 1, 1999, the shareholders approved a resolution to reduce the
        stated capital of the Company by $30,089,054 to eliminate the deficit as
        at October 31, 1999. Under Canadian GAAP, a reduction of the share
        capital of outstanding common shares is allowed with a corresponding
        offset to deficit. This reclassification, which the Company made in 2000
        to eliminate the deficit that existed at October 31, 1999, did not meet
        the criteria specified by U.S. GAAP and results in an increase to share
        capital with a corresponding increase in deficit of $30,089,054.

     (b) Options to consultants:

        Effective November 1, 2002, the Company adopted the new CICA Handbook
        section 3870, "Stock-Based compensation and Other Stock Based Payments".
        As a result, the Company has recognized compensation expense on options
        issued to consultants in the current period. This resulted in no U.S.
        GAAP differences in the current period. Prior to the adoption of 3870,
        the company did not recognize compensation expense when stock or stock
        options were issued to consultants. Any consideration paid on exercise
        of stock options or purchase of stock was credit to share capital.

        Under U.S. GAAP, the Company recorded compensation expense for stock or
        stock options granted in exchange for services from consultants. During
        the year ended October 31, 2001, the Company issued 50,000 stock options
        to consultants. The Company has recorded compensation expense of
        $36,673, of which $9,033 relates to the options issued in fiscal 2001 to
        consultants.

        During the fiscal year 2002, the Company has recorded compensation
        expense of $35,052 relating to options granted to consultants.

     (d) Other comprehensive loss (income):


<PAGE>

        FASB Statement of Financial Accounting Standards No. 130, "Reporting
        Comprehensive Income" (SFAS 130") requires disclosure of comprehensive
        income, which includes reported net income as adjusted for other
        comprehensive income. Other comprehensive income is defined as the
        change in equity of a business enterprise during a period from
        transactions and other events and circumstances from non-owner sources.

     (d) Interest in joint venture:

        Canadian GAAP requires the proportionate consolidation of interests in
        joint ventures. Proportionate consolidation is not permitted under U.S.
        GAAP and interests in joint ventures are accounted for on the equity
        basis. However, as allowed by the Securities and Exchange Commission
        ("SEC"), reclassification is not required in a SEC filing when specified
        criteria are met and information disclosed. These criteria have been met
        and the information is disclosed in note 8.

        Although the adoption of proportionate consolidation has no impact on
        net earnings or shareholders' equity, it does increase assets,
        liabilities, revenue, expenses and cash flows from operations from those
        amounts otherwise reported under U.S. GAAP.

     (e) Short-term investments:

        Short-term investments consist of corporate debt securities. For U.S.
        GAAP purposes, the Company classifies its debt securities as
        available-for-sale, which are recorded at fair value.

        Unrealized holding gains and losses, net of the related tax effect, on
        available-for-sale securities are excluded from earnings and are
        reported as a separate component of other comprehensive income until
        realized. Realized gains and losses from the sale of available-for-sale
        securities are determined on a specific identification basis. During the
        periods presented, there have been no unrealized holding gains or losses
        on short-term investments.

        A decline in the market value of any available-for-sale security below
        cost that is deemed to be other than temporary results in a reduction in
        carrying amount to fair value. The impairment is charged to earnings and
        a new cost basis for the security is established.

     (f) Notes to consolidated financial statements:

        In order to comply with U.S. GAAP, the following notes to the
        consolidated financial statements would need to be added:

        (i) Stock-based compensation plan:

           Under U.S. GAAP, for any stock options with an exercise price that is
           less than the market price on the date of grant, the difference
           between the exercise price and the market price on the date of grant
           is recorded as compensation expense ("intrinsic value-based method").
           As the Company grants stock options at the fair market value of the
           shares on the day immediately preceding the date of the grant of the
           options, no compensation expense is recognized under the intrinsic
           value-based method.

           SFAS No. 123, Accounting for Stock-Based Compensation, requires pro
           forma disclosures of net income and earnings per share, as if the
           fair value-based method as opposed to the intrinsic value-based
           method of accounting for employee stock options had been applied. The
           disclosures in the following table show the Company's loss for the
           year and loss per share on a pro forma basis using the fair value
           method as determined by using the Black-Scholes option-pricing model.
           Assumptions used when valuing the options at their date of grant
           using in the Black-Scholes option pricing model include: risk-free
           interest rate of 3.092%, estimated life of three years, expected
           divided yield of 0% and volatility of 150%.

---------------------------------------------------
                   December 31, 2003
---------------------------------------------------
         Loss under U.S. GAAP           $ (783,946)
         Compensation expense(2,206)
---------------------------------------------------
         Pro forma loss under U.S. GAAP   (781,740)
         Pro forma loss per common
         share:
         Basic and diluted              $  (0.12)
---------------------------------------------------
         Weighted average number of
         common shares                 6,478,296

        (ii)Recent accounting pronouncements:

           In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
           Associated with Exit or Disposal Activities" which requires companies
           to recognized 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 Company
           does not believe that adoption of SFAS No. 146 will have a material
           effect on its results of operations and financial position.

           In December 2001, the Accounting Standards Board in Canada issued
           CICA Handbook Section 3870 "Stock-Based Compensation and Other
           Stock-Based Payments". This section establishes standards for the
           recognition, measurement, and disclosure of stock-based compensation
           and other stock-based payments made in exchange for goods and
           services provided by employees and non-employees. It applies to
           transactions in which shares of common stock, stock options, or other
           equity instruments are granted or liabilities incurred based on the
           price of common stock or other equity instruments. The Company will
           adopt Section 3870 for its fiscal year beginning November 1, 2002.
           The adoption of this standard will not have a material impact on the
           Company's financial position or results of operations.


<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.

16.   SUBSEQUENT EVENTS:

        (a)    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.

        (b)    In February 2004, the Company amended the DSS Software
               Technologies share purchase agreement. The promissory note (see
               note 3) 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.