**SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549------------------FORM 10-K**
| [ X ]                            | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    |
|----------------------------------|-----------------------------------------------------------------------------------------|
|                             | For the fiscal year ended December 31, 2001.OR                                          |
| [     ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 |

**VOICE MOBILITY INTERNATIONAL, INC.-------------------------------------------------------------------------------(Exact name of the Registrant as specified in its charter)NEVADA33-0777819(State or Other Jurisdiction ofIncorporation or Organization).(I.R.S. Employer Identification Number)13777 Commerce Parkway, Richmond, B.C. Canada V6V 2X3(Address of Principal Executive Offices)(604) 482-0000 (Issuer's Telephone Number)Securities registered or to be registered pursuant to Section 12(g) of the Act:Common Stock, $.001 Par Value**
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    Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

    State issuer's revenues for its most recent fiscal year.  $358,191.

    State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

    As of March 26, 2002 the aggregate market value of our voting and non-voting common equity held by non-affiliates was $5,195,265 based on the average bid and ask for such common equity. The calculation does not account for unexercised warrants and unexercised stock options held by non affiliates and affiliates.

**ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGSDURING THE PAST FIVE YEARS**

    Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

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APPLICABLE ONLY TO CORPORATE REGISTRANTS

    At March 26, 2002 we had outstanding 34,248,782 common share equivalents, consisting of 28,148,782 shares of Common Stock, 6,100,000 shares of Common Stock issuable on conversion of all outstanding Exchangeable Shares, represented by one Series A Preferred Stock.

    Transitional Small Business Disclosure Format (check one):

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DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the following documents are incorporated by reference into this Form 10-K:

    Registrant's Report on Form 8-K as filed on March 16, 2000 and all amendments thereto is incorporated into Part II of this Form 10-K.

    Information contained in websites referenced in this report are not to be deemed part of this report.

GENERAL INFORMATION

ENFORCEMENT OF LEGAL REMEDIES

    Certain officers and directors of Voice Mobility International, Inc. ("Voice Mobility" or the "Company") and other persons involved with our company as professional advisors are resident in Canada. As a result, it may be difficult to effect service within the United States upon such persons or to realize on any judgment by any court of the United States which is predicated on civil liabilities under the Securities Act of 1933, as amended (the "1933 Act"), or the Securities Exchange Act of 1934, as amended (the "1934 Act"). There is doubt as to the enforceability in Canada, either in original actions or through enforcement of United States judgments, of liabilities predicated solely upon violations of the 1933 Act or the 1934 Act, or the rules and regulations promulgated thereunder.

FORWARD-LOOKING STATEMENTS

    This Annual Report contains forward-looking statements based on our current expectations about our company and our industry. These forward-looking statements can be identified with text containing words such as "expects", "anticipates", "estimates" and other similar expressions. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors discussed in this Annual Report. We undertake no obligation to publicly update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

    Unless otherwise indicated, all references to "$", "US$" or "dollars" in this Annual Report refer to United States dollars and all references to "Cdn$" refer to Canadian dollars. For your convenience, the following table sets forth certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. Such rates are set forth as US dollars per Cdn$1.00.PeriodRate at FromToAverageHighLowEnd of Period01/01/9612/31/96US$0.7332US$0.7521US$0.7227US$0.729601/01/9712/31/97US$0.7220US$0.7492US$0.6898US$0.699101/01/9812/31/98US$0.6740US$0.7050US$0.6309US$0.652201/01/9912/31/99US$0.6730US$0.6930US$0.6464US$0.692901/01/0012/31/00US$0.6731US$0.6984US$0.6399US$0.666901/01/0112/31/01US$0.6357US$0.6235US$0.6711US$0.6289
    Solely for your convenience, we provide some financial information relating to our business in U.S. dollars based on exchange rates indicated. We caution you that the amounts and rates used may not always be consistent with those used in preparation of our Consolidated Financial Statements.  Our functional currency is the Canadian dollar. Accordingly, all assets and liabilities, which are denominated in foreign currencies, are translated at the year end exchange rate and revenues and expenses are translated using a weighted average exchange rate for the applicable period.   Any exchange gains and losses resulting are presented as cumulative foreign currency translation gains (losses) within other accumulated comprehensive income.

PART I
ITEM 1.  BUSINESS.
    We are a Nevada corporation, incorporated on October 2, 1997, as Equity Capital Group, Inc., and we are the successor to the voice service and related messaging business founded by Voice Mobility Inc. (commonly known as VMI) in 1993.  On June 24, 1999, we changed our name to Voice Mobility International, Inc. (commonly known as VMII).  Unless otherwise indicated, all references to Voice Mobility means VMII and its predecessor company, VMI.  See Background and Recapitalization.

    Our head office is located at 180-13777 Commerce Parkway, Richmond, British Columbia, V6V 2X3.  Sales and marketing operations are primarily based out of our Richmond office. Research, development and technical support are based out of our Victoria, British Columbia office.  We also have sales staff residing in New York, London, and Halifax.  Voice Mobility currently has 38 employees.

Brief History

    VMI was incorporated in 1994 as WGT Teleserve Inc., and was originally focused on providing enhanced telecommunications services such as voice mail, fax handling and Internet access to specific vertical markets.  In the spring of 1997, we decided to shift focus and began developing a comprehensive enhanced messaging product.  Early versions of its messaging products were subsequently released in 1998, 1999 and 2000.

    In June 1999, VMI completed a reverse acquisition whereby VMI became a wholly owned subsidiary of Nevada-based VMII.  At that point we effectively commenced operations as a US company and began trading on the OTCBB under the symbol VMII.  Between the period of June 1999 and April 2001 we raised approximately US$12 million, mostly from private investors, to fund our development initiatives and operations.

    In April 2001, we completed a Cdn$13 million equity financing and subsequently began trading on the Toronto Stock Exchange in July under the symbol VMY.

Business Overview

    We are engaged in the messaging area of the telecommunications market.  Our Enhanced Messaging software suite allows for legacy voice-mail replacement and incremental offerings such as real time call connect, voice-mail to e-mail, and fax to e-mail services. These unified communication services are facilitated by the creation of a single personal digital mailbox that can receive any type of communication regardless of its incoming format or medium.  Currently, with the proliferation of personal communication devices, such as cell phones, PDA's and laptops, the considerable challenge of managing the information retrieval process from these devices has arisen.  Users of these multiple communication methods are increasingly demanding a means of managing them.  Our offering addresses these demands through providing users access to their messages anytime, anywhere via any device.

    The mobile workforce is growing rapidly, and we expect that as it continues to grow, workers will increasingly demand instant access to voice-mails, faxes and e-mails regardless of which device they have available or their physical location.  Subscribers to our service can call a single telephone number that is associated with all other personal contact numbers.  The system will cycle through personal numbers until it finds the subscriber.  The call is then connected in real time to the subscriber.  All messages are gathered in a single box to be reviewed, stored, forwarded, or acted upon from any access device.  Fax messages can also be directed to a secondary fax machine or a temporary fax machine such as one in a client's office or in a hotel.

    Our Enhanced Messaging software suite is designed to function on industry standard hardware such as Intel processor-based servers.  It also uses peripheral hardware, such as communication boards, based upon open system architectures, which support basic standards.   This ensures compatibility with legacy equipment, which allows new customers to use the system without being required to decommission their existing older equipment.  

Core Product Offerings

    Our Enhanced Messaging software suite of services include five core service packages: Legacy Voice-mail Replacement, Real Time Call Connect, Voice-mail to E-mail, Fax to E-mail, and a Single Unified Mailbox.   The enhanced messaging platform is a combination of our Enhanced Messaging software suite installed on recommended hardware in a specified configuration.  We can provide a complete solution including hardware, system configuration, migration, operating support system integration and billing support system integration or simply supply the software with hardware and configuration recommendations.

    Legacy Voice-mail Replacement is the ability to replace existing voice-mail systems currently operating in production environments. This replacement can be achieved by a full-scale service cut-over or an incremental service cut-over. We have the ability to interface with existing "legacy" voice-mail systems, allowing for the transfer of messages between systems.  

    Real Time Call Connect is the ability for subscribers to merge all their wired and wireless communications, cellular telephone, pager, fax, home and office numbers, into a single unified phone number. 

    Voice-mail to E-mail is the ability to route voice-mail messages to a single e-mail mailbox or multiple e-mail mailboxes. This service gives the subscriber the ability to choose the method of retrieving voice-mail messages, through e-mail, traditional retrieval methods, or e-mail enabled wireless devices.

    Fax to E-mail is the ability to receive faxes through the subscriber's one number and have them delivered to one or more e-mail mailboxes. The subscriber then has the power to determine if and where the fax is printed. Our Fax-to-E-mail service converts faxes to e-mail attachments, and allows subscribers to view them on-screen, print, save, or forward them.  This functionality essentially eliminates the need for fax machines and dedicated lines, and it also minimizes the privacy concerns with respect to communal fax machines.  Our suite is also capable of providing fax notification via pagers.

    Single Unified Mailbox gives subscribers options on managing and retrieving their messages. The Voice Mobility service is e-mail neutral, so any e-mail application on the market today can be configured as the subscribers unified mailbox. In addition, subscribers are not forced to change their e-mail addresses. 

    Customers may license one or more of these services or chose to purchase the entire Enhanced Messaging software suite.

Approach to Market 

    We focus on three distinct customer groups: service providers, wholesalers and resellers.  We are focused on establishing channel, system integrator and OEM (Original Equipment Manufacturer) distribution relationships with industry-leading partners, in addition to its direct sales campaign, to target each customer group.  We feel that a mixture of direct and indirect sales is the most cost-effective and efficient way to quickly build market share.  To date we have secured Aliant Inc. as a channel in Eastern Canada.

    Of the three customer segments, we believe service providers represent the largest opportunity for us.  Tier 1 service providers in particular tend to have large existing installed bases of voice-mail users. Their legacy voice-mail services are still growing between 10% and 20% per year; the bulk of this growth coming from wireless growth and consumer adoption. The Tier I market currently is looking for methods to limit spending in legacy voice-mail technology that is between 10 and 15 years old and methods to implement enhanced messaging technology.  

    Our implementation plan has two macro stages.  First, we believe that Tier I providers, no longer willing to invest in legacy systems, will be required to replace legacy systems while at the same time the market will be requiring that they offer and implement enhanced messaging technology solutions.  Thus, at the first stage, the provider would install our enhanced messaging platform and migrate their current voice-mail customers over to the new platform without interruption in service.  Second, the provider would begin to incrementally market the value-added service available as part of enhanced messaging, such as our Real Time Call Connect, Voice Mail to Email and Fax to Email offerings.  To support our customers, we have developed significant research that identifies end users' perceptions of enhanced messaging features, pricing tolerance and willingness to buy.  This information will assist service providers in effectively marketing enhanced messaging services to their customer base.

    We currently believe that there may be further opportunities for the deployment of our applications through the consolidation presently occurring amongst telecommunications service providers.  As such organizations and networks consolidate, we believe that there likely will be incentives and opportunities to optimize architecture and service delivery platforms.  Our messaging products not only facilitate the convergence of, and migration from, legacy systems, they also facilitate the provision of a single mailbox to users with wireline and wireless service.

Pricing Model

    To generate revenues, we utilize a selection of pricing models.  Customers can purchase the software outright for a one-time license fee in the $2.50-$6.00 per subscriber range based on volumes and services provided, plus a 7.5%-18% annual support and maintenance fee. 

    Customers would also purchase the hardware required for a one time fee of $1.00 - $3.50 per subscriber based on configuration, architecture, and mix of services offered. Professional services fees for system installation, system integration with OAM&P (Operation, Administration, Maintenance and Provisioning) systems, and migration of existing voicemail subscribers would range between 15% and 25% of the software licensing fees based on the complexity of the installation.

    Customers can purchase voice mail licenses to provide services for their growth in end-users, purchase licenses for migration of voicemail customers, and purchase licenses for enhanced messaging services.  Our prime target is a Tier 1 carrier that provides messaging services to 100,000 - 10,000,000 end users.  

    We can provide a fee based solution including system configuration, migration, operating support system integration, and billing support system integration with the assistance of a system integration partner. We can also help to improve growth of the end-user base by providing marketing services for enhanced messaging.

Market Growth Forecasts

    The Radicati Group published a report entitled "Unified Messaging Market Trends 2000 - 2004" which calls for substantial growth in the unified messaging market over the next several years.   The report forecasts that revenues from the sale of unified messaging products will increase, worldwide,  from $264 million in 2000 to $3.76 billion by the end of 2004.  The most dramatic network growth will come from the Asia-Pacific region, where market share will grow from 8% to 19% by the end of 2004.  The unified messaging installed product base is expected to grow, worldwide, from 3.5 million seats in 2000 to approximately 120 million seats by year-end 2004. 

    The Radicati report forecasts that in addition to the product sales growth highlighted above, substantial growth will come in the form of services revenue.  Radicati forecasts that revenue from unified messaging services will equate to $9.8 billion worldwide by 2004.  Europe is expected to display the fastest adoption rate of unified messaging services.

    Within the report, Radicati also predicts that the messaging industry will shift from the e-mail, fax and voice-mail integration of unified messaging towards the enhanced functionality capabilities of unified communications offerings (such as our offering).  We consider ourselves to be well positioned to capitalize on this forecasted market growth, with its current technology.

Marketing and Distribution.

    We sell our products through a combination of a technically proficient direct sales force and independent sales representatives. We also utilize a network of independent sales representatives selected for their familiarity with our potential customers and their knowledge of the telecommunications equipment markets. Both the direct sales personnel and independent sales representatives generate product sales, provide product and customer service, and provide customer feedback for product development. In addition, the sales personnel and independent sales representatives receive support from our marketing, product support and customer service departments. Our marketing efforts are focused on establishing and developing long-term relationships with potential customers.  Our customers typically conduct significant technical evaluations of our products before making purchase commitments. 

Competition

    Well-established suppliers such as Lucent, Comverse, Erickson and Glenayre currently dominate Tier 1 messaging.  These competitors have provided voice mail services to both wire line and wireless carriers since the early 1980's.  In evaluating the competitive landscape, we believe our closest competitors are companies offering voice-mail and enhanced messaging platforms built to meet the high capacity and high resiliency needs of the telecommunications carrier environment.  In this segment, we have identified three core competitors: Comverse, Commworks, and Glenayre.   Lucent is also developing a replacement product.

    Our products compete on the basis of the following key characteristics: performance, functionality, reliability, pricing, scalability, time-to-market delivery capabilities and compliance with industry standards. While we believe we compete favorably with respect to the foregoing characteristics, there can be no assurance that we will be able to continue to do so. 

    Some competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than us and have achieved greater name recognition for their existing products and technologies than we have. We cannot guarantee that we will be able to successfully increase our market penetration or our overall share of the Enhanced Messaging marketplace. Our results of operations could be adversely impacted if we are unable to effectively increase our share of the Enhanced Messaging marketplace. 

    Our success depends in large part upon the rate at which Tier 1 carriers incorporate our products into their systems.   If we were not successful in increasing the use of our products by the leading Tier 1 carriers, there would be a material adverse effect on our business, financial condition and results of operations.

    No assurance can be given that our competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features. We expect our competitors to offer new and existing products at prices necessary to gain or retain market share. Certain of our competitors have substantial financial resources, which may enable them to withstand sustained price competition or a market downturn better than us. There can be no assurance that we will be able to compete successfully in the pricing of our products, or otherwise, in the future. 

Industry Description

    Difference between Enhanced Messaging, Unified Communications and Unified Messaging.

    Enhanced Messaging is designed to replace legacy voice-mail systems.  It encompasses enhanced voice-mail and Unified Communications.  Compared to legacy voice-mail systems, Enhanced Messaging is built on the latest technology, can handle significantly more users, has a distributed design, and therefore is more scalable and fully interacts with the Internet. 

    Unified Communications is a messaging feature of Enhanced Messaging.  However, the term "Unified Communications" is often used interchangeably with "Unified Messaging".  There are many significant differences between the two services.  Unified Communications tends to be far more comprehensive and technically challenging than Unified Messaging.  It combines non-real-time communications, such as message exchange, with real-time communications, such as call delivery, connectivity, line call management and notification options.  The "real-time" aspects are critical components to Unified Communications.

    All of the features discussed below should exist in a system in order for it to be considered a true Unified Communications offering:- One Number/Universal Number: When a caller dials your number a virtual attendant attempts to locate the subscriber. Unified Messaging Capabilities: System allows users to access e-mail, voice-mail, and fax messages through a single in-box via telephone or web interface.Find Me/Follow Me: Users can specify phone numbers of other locations at which the service will ring.
- Call Screening: Allows users to hear who is calling before answering incoming calls that are forwarded to them. Real-time call connection and routing: Upon caller identification, users have the option to accept incoming calls or forward them to voice-mail in real-time.Message Notification: Users can be notified of incoming calls and new or urgent messages by voice-mail, e-mail, pager or any wireless device.
    Our product currently offers all of the Enhanced Messaging features.  We are not aware of any competitor that has developed a messaging solution that incorporates the ability to emulate existing voice mail technology while also providing advanced Unified Communications features and capabilities.  Unified Communications vendors have only been deployed as a new service on the periphery of the carriers network.
Significant Customers
    In June 2001, we signed a three year contract with Haddad Advanced Technology (www.hatc.com) to market unified communications in Malaysia.  During the first year, HATC has committed to a minimum of 6,000 mailboxes per month.
    In October 2001, NBTel, a wholly owned subsidiary of Aliant Inc. (www.aliant.ca) which is one of Canada's leading high-tech companies providing integrated communications and IT solutions, installed our UCN 100 v 2.1 and launched its Fax-to-E-mail solution.
Key Strategic Partners
    **Aliant Inc.:**  The close working relationship that we have with Aliant serves as a strong endorsement of our company and our technology, and it also represents a significant revenue generating opportunity for us.  In September 1999 Innovatia Inc, a wholly owned subsidiary of Aliant Inc., took an equity position in Voice Mobility, and currently holds approximately 2.0 million shares.  Aliant and Voice Mobility have worked on joint development initiatives for two years, and in February 2001 they formalized their relationship by announcing their intentions to jointly develop the specifications for a "Next Generation" messaging platform targeted for Tier 1 carriers.  This technology will be owned by Voice Mobility.  The development initiative will take place within Aliant's state-of-the-art R&D facility known as the LivingLab innovations environment. Aliant's LivingLab provides development support through conducting rigorous testing and customer trials of new technologies, and assists in reducing the time-to-market for new technologies.    
    We expect that the close relationship with Aliant will translate into revenues for us as soon as Q1 of 2002.  The intent of the development agreement is that the resulting product will become Aliant's primary hosted solution for business and residential customers.  Aliant is Canada's third largest telecommunications company with approximately 800,000 voice-mail customers. 
Other important strategic partners include:
    **Microsoft:** We are a member of the Microsoft Certified Service Provider program.  This provides us with early access to Microsoft's software.
    **Dell Computers:** Dell is our platform manufacturer, software installer and system tester.  Dell's custom factory integration services assist us with installation, efficient delivery and quality assurance.
    **Telcordia:** Telcordia is working with us in collaboration with Aliant and their LivingLAB.
    **NMS Communications:** NMS provides access to a broad range of development resources, sales and marketing.
    **TARA:** We are an associate member of TARA (Telecommunications Applications Research Alliance.)  This membership enables us to develop new service applications and products related to communications networks.
International Markets
    We believe international markets should offer us strong opportunities in the long-term. Mature markets are seeking replacement technologies to enhance and replace legacy messaging architecture that is reaching the end of its useful life. Emerging markets are being fueled by the very basic need for high performance, low cost telecommunications infrastructure.  
    We perceive a specific opportunity with telecommunications carriers that are either introducing messaging services to their markets for the first time, or are seeking to supplant incumbent, aging, or manufacturer discontinued platforms with next generation technology that creates new revenue opportunities through the delivery of enhanced features and functionality. We believe the latter market opportunity is supported by our ability to migrate users from an existing messaging platform to our application, in a manner that protects one of the carrier's core revenue streams.
    Voice Mobility is currently marketing in Asia, Europe and Latin America, working with and targeting both incumbent and emerging telecommunications service providers. We are engaged with OEM and Systems Integration partners in these international markets as a means to further expand and facilitate market penetration and the acquisition of market share.  Key attributes of our applications that facilitate this expansion are the user-friendly ergonomics of the various user interfaces and the ability of our applications to support multi-languages on a single platform. 
    In the early part of 2002, we have experienced interest and activity from all of the international markets in which we have a presence. As we continue to offer value propositions for incumbent carriers seeking to replace legacy messaging systems, and  provide them the opportunity to enhance and expand existing revenue streams with the deployment of enhanced feature sets, and by delivering an enhanced messaging system to carriers initiating their first deployment of messaging services, we believe our presence in, and revenues from, non-North American markets will continue to expand.
    Revenues from international operations were $56,200 in fiscal 2001 and $196,573 in fiscal 2000.  See note 5 to our consolidated financial statements for financial information by geographic area.
Suppliers
    Dell is our platform manufacturer.  We currently procure, and expect to continue to procure, certain components from Dell due to unique component designs, quality and performance requirements and volume pricing discounts. If we were to replace Dell as our platform manufacturer we may have to make adjustments to both product designs and production schedules which could result in delays in production and delivery of products. Such delays could have an adverse effect on our operating results and financial condition.
Research and Development
    Our research and development team is primarily located in Victoria, British Columbia.  The research and development team also has a research analyst located in an office at the Telecom Applications Research Alliance facility in Halifax.  The research and development team designs, develops, tests, documents, and localizes as directed by our product management in our marketing group.  The research and development team's business direction on each major feature for each release is detailed in written business requirements created by the business requirements team.  A change control board also directs the lower level problems and enhancements for all other development work.  Releases are coordinated with both marketing and sales to ensure timely delivery of the grouped features for both the clients and the target market.  Appropriate technology is chosen for all work after performing a technical analysis of each requested feature and also ensuring a match for that release's system requirements.  All development work is carried out with reviews and decision gates as part of an overall product development process.  The research and development team follows industry best practices for software engineering and encourages continuous process improvement.  Research and development expenses for the fiscal years ended December 31, 2001, 2000 and 1999 are $4,618,284, $2,709,048 and $2,250,153 respectfully.
Intellectual Property
    We rely on trade secrets to protect our intellectual property. We execute confidentiality and non-disclosure agreements with our employees and limit access to and distribution of our proprietary information.  We do not have and do not intend to apply for patents on our products.  Management believes that the patent application process in many countries in which we intend to sell products would be time-consuming and expensive and any patent protection may be out of date by the time the patent is granted.  
    The departure of any of our management or significant technical personnel, the breach of their confidentiality and non-disclosure obligations, or the failure to achieve our intellectual property objectives may have a material adverse effect on our business, financial condition and results of operations. We believe our success depends upon the knowledge and experience of our management and technical personnel and our ability to market our existing products and to develop new products. We do not have non-compete agreements with our employees who are employed on an "at-will" basis. Therefore, employees may and have left us to go to work for a competitor. While we believe that we have adequately protected our proprietary technology, and we will take all appropriate and reasonable legal measures to protect it, the use of our processes by a competitor could have a material adverse effect on our business, financial condition and results of operations. 
EMPLOYEES
    As of March 26, 2002, we employed 38 people, 11 of who are engaged in marketing and sales, 20 in research, development and support, and 7 in management and administration.  We are not subject to any collective bargaining agreements and we consider relations with our employees to be excellent.
RISK FACTORS
    OUR BUSINESS FACES SIGNIFICANT RISKS.  THE RISKS DESCRIBED BELOW MAY NOT BE THE ONLY RISKS WE FACE.  ADDITIONAL RISKS THAT WE DO NOT YET KNOW OF OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.

    The following risks and uncertainties could affect our operating results and financial condition and could cause our actual results to differ materially from our historical results.

*Our Business Model is in Its Early Stages and May Not Be as Successful as We Anticipate.*

    In early 1998, the focus of our predecessor's business by necessity shifted to research and development efforts needed to develop a Windows 2000 platform-based product line.  Given this shift in our business focus, even though our predecessor and we have had limited revenues from operations since 1993, we are at an early stage of entering the commercial marketplace.  Our future operating results are subject to a number of risks, including our ability to implement our strategic plan, to attract qualified personnel and to raise sufficient financing as required.  Our management's inability to guide growth effectively, including implementing appropriate systems, procedures and controls, could have an adverse effect on our financial condition and operating results.

*We Are Located in Canada but Do Business Primarily in the U.S., Which Subjects Us to Risks in Exchange Rate Fluctuations.*

    We face foreign currency exchange risk because a majority of our revenue is denominated in U.S. dollars and a majority of our operating costs are incurred in Canadian dollars.  We have derived substantially all of our revenues to external customers from sales by our Canadian operations and substantially all of our assets are located in Canada.  Significant fluctuations in the foreign exchange rate between U.S. and Canadian currency will result in fluctuations in our annual and quarterly results.  If the Canadian dollar were to strengthen in relation to the U.S. dollar, our effective costs would rise in relation to our revenues, adversely affecting our profitability and competitive position.  For information on our revenues by geographic areas, see Note 5 to our Consolidated Financial Statements.

*We Hold No Patents on Our Technology.*

    We do not have and do not intend to apply for patents on our products.  We rely on trade secrets to protect our intellectual property. Management believes that the patent application process in many countries in which we intend to sell products would be time-consuming and expensive and any patent protection may be out of date by the time the patent is granted.  

    The departure of any of our management or significant technical personnel, the breach of their confidentiality and non-disclosure obligations, or the failure to achieve our intellectual property objectives may have a material adverse effect on our business, financial condition and results of operations. We believe our success depends upon the knowledge and experience of our management and technical personnel and our ability to market our existing products and to develop new products. Employees may and have left us to go to work for a competitor. While we believe that we have adequately protected our proprietary technology, and we will take all appropriate and reasonable legal measures to protect it, the use of our processes by a competitor could have a material adverse effect on our business, financial condition and results of operations. Our ability to compete successfully and achieve future revenue growth will depend, in part, on our ability to protect our proprietary technology and operate without infringing upon the rights of others. We may not be able to successfully protect our proprietary technology, and our proprietary technology may otherwise become known or be independently developed by competitors.  Competitors' products may add features, increase performance or sell at lower prices. We cannot predict whether our products will continue to compete successfully with such existing rival architectures or whether new architectures will establish or gain market acceptance or provide increased competition with our products. 

*We May Not Be Able to Obtain Adequate Financing to Implement Our Growth Strategy*

    Successful implementation of our growth strategy may require continued access to capital. If we do not generate sufficient cash from operations, our growth could be limited unless we are able to obtain capital through additional debt or equity financings. We cannot assure you that debt or equity financings will be available as required. We have incurred significant operating losses that raises substantial doubt about our ability to raise additional financing and to continue as a going concern. Even if financing is available, it may not be on terms that are favorable to us or sufficient for our needs. If we are unable to obtain sufficient financing, we may be unable to fully implement our growth strategy.

*We Are Currently Dependent on a Limited Number of Customers*

    Sales to one customer, Aliant, Inc., comprised 56% of our revenues in fiscal 2001. Sales to three customers comprised 93% of revenues in 2000. Sales to three customers comprised 100% of revenues in 1999.  If our business strategy is successful, we expect that we will become less dependent on such significant customers in the future as sales increase.  However, if we are unable to successfully diversify our customer base, our business, financial condition and results of operations would be materially and adversely affected.

*Our Business Is Subject to Risks Related to Rapid Technological Change, Which Could Increase Cost and Uncertainty.*

    The telecommunications industry is characterized by rapidly changing technology and evolving industry standards.  Our success will depend heavily on our continuing ability to develop and introduce enhancements to our existing systems and new products that meet changing markets.  We can make no assurance that our technology or systems will not become obsolete due to the introduction of alternative technologies.  If we are unable to continue to innovate successfully, our business and operating results could be adversely affected.

*We Operate in a Highly Competitive Industry.*

    The market for unified messaging software is highly competitive and subject to frequent product introductions with improved price and/or performance characteristics.  Even if we are able to introduce products which meet evolving customer requirements in a timely manner, there can be no assurance that our new products will gain market acceptance.  Many companies, including CommWorks, Comverse, Glenayre, and Sema Oryx and others, may have greater financial, technical, sales and marketing resources, better name recognition and a larger customer base than ours.  In addition, many of our large competitors may offer customers a broader product line which may provide a more comprehensive solution than ours.  Increased competition in the unified messaging industry could result in significant price competition, reduced profit margins or loss of market share, any of which could have a material adverse effect on our business and profitability.

*We Are Exposed To General Economic Conditions.*

    As a result of recent unfavorable economic conditions, revenues and spending within the North American telecommunications industry may have been adversely affected. If the economic conditions in North America continue or worsen or if a wider or global economic slowdown occurs, we may experience a material adverse impact on our business, operating results, and financial condition.

*Economic Conditions in the United States, Canada, and Globally, Affecting the Telecommunications Industry, as well other Trends and Factors Affecting the Telecommunications Industry, Are Beyond our Control and May Result in Reduced Demand and Pricing Pressure on our Products.*

    There are trends and factors affecting the telecommunications industry, which are beyond our control and may affect our operations. Such trends and factors include: 

- adverse changes in the public and private equity and debt markets and our ability, as well as the ability of our customers and suppliers, to obtain financing or to fund working capital and capital expenditures; adverse changes in the credit ratings of our customers, potential customers and suppliers;adverse changes in the market conditions in our industry and the specific markets for our products;
- visibility to, and the actual size and timing of, capital expenditures by our customers and potential customers; inventory practices, including the timing of product and service deployment, of our customers and potential customers;policies of our customers and potential customers regarding utilization of single or multiple vendors for the products they purchase;
- the overall trend toward industry consolidation and rationalization among our customers, potential customers, competitors, and suppliers; conditions in the broader market for communications products, including data networking products and computerized information access equipment and services;the effects of war and acts of terrorism.
    Economic conditions affecting the telecommunications industry, which affect market conditions in the telecommunications and networking industry, in the United States, Canada and globally, affect our business. Reduced capital spending and/or negative economic conditions in the United States, Canada, Europe, Asia, Latin America and/or other areas of the world could result in reduced demand for or pricing pressure on our products. 
*We May be Materially and Adversely Affected by Continued Reductions in Spending on Telecommunications Infrastructure by Our Customers.*
    A continued slowdown in capital spending by service providers may affect our revenues more than we currently expect. Moreover, the significant slowdown in capital spending by service providers has created uncertainty as to market demand. As a result, revenues and operating results for a particular period can be difficult to predict. In addition, there can be no certainty as to the severity or duration of the current industry adjustment. As a result of the recent changes in industry and market conditions, many of our customers have reduced their capital spending on telecommunications infrastructure. Our revenues and operating results are expected to continue to be affected by the continued reductions in capital spending on telecommunications infrastructure by our customers.
BACKGROUND AND RECAPITALIZATION
    Our predecessor company, VMI, was incorporated in 1993, as a British Columbia corporation. In December 1997, the shareholders of VMI entered into a transaction with Acrex Ventures Ltd. ("Acrex"), an inactive company listed on the Vancouver Stock Exchange with no business operations, through which the Voice Mobility business plan would be financed. Prior to entering into the agreement with VMI, Acrex had approximately 150 shareholders, excluding participants in the Acrex private placements.
    The proposed transaction with VMI was intended to be a "reverse takeover" by VMI (the "RTO Concept"), and characterized as a recapitalization of VMI for accounting purposes.
    Between December 1997 through March 1999, Acrex consummated a series of four private placements undertaken in Canada, and raising an aggregate of Cdn$2,022,500 (approximately $1.4 million). In each private placement, investors were offered units ("Acrex Units") consisting of Acrex common shares and warrants to acquire Acrex common shares. Pending regulatory approval and finalization of the transaction between Acrex and VMI, the net proceeds of such private placements of approximately $1.26 million were loaned to VMI to fund research and development activities, operations, and working capital.
    On August 30, 1998, Acrex applied to the Vancouver Stock Exchange to approve its acquisition of VMI as the basis for its first business operations. However, by March 31, 1999, the application had not been approved by the Vancouver Stock Exchange, being still in process, and the share acquisition agreement between Acrex and the VMI shareholders expired. Because of these continuing delays, management of Acrex and VMI decided to pursue other sources of financing to expedite the strategy.
    Thus, in March 1999, as an alternative to financing Voice Mobility's business plan through Acrex, the directors and certain principals and shareholders of VMI and Acrex initiated discussions with Equity Capital Group, Inc. ("Equity Capital"), an unrelated Nevada corporation with shares listed on the OTC Bulletin Board. The discussions were focused on structuring a transaction in which the combined shareholders of VMI and Acrex and the investors in the Acrex private placements would acquire control of Equity Capital. Because the Acrex private placements contemplated the combination of VMI and the financing of Voice Mobility's business plan, the principals of VMI and Acrex effectively worked in concert as the effective shareholder or "stakeholder" group implementing the Voice Mobility business plan and the RTO Concept. Further, the three directors controlling VMI, were also Directors of Acrex and effectively controlled the board of directors of Acrex.
    Equity Capital's acquisition of VMI was intended to mirror Acrex's application to the Vancouver Stock Exchange in August 1998 to provide the investors in the Acrex private placements with essentially the same economic position in Equity Capital as they would have expected in the acquisition of Voice Mobility by Acrex. This would be accomplished by mirroring the capital structure of Equity Capital to the proposed capital structure of Acrex as proposed to the Vancouver Stock Exchange. Thus, the number of common shares and warrants of Equity Capital which each investor in the Acrex private placements would receive was intended to mirror the number of shares and warrants to have been received in the form of Acrex Units.
    On April 1, 1999, certain principals of Voice Mobility Inc. took the first steps to implement the Voice Mobility business plan through Equity Capital by entering into a stockpurchase agreement with Equity Capital and its majority shareholder to acquire an aggregate of 8,418,000 common shares of Equity Capital, representing over 90% of the outstanding common stock of Equity Capital for a cash purchase price of $200,000. Of such 8,418,000 shares, 8,293,000 shares were newly issued shares and 125,000 shares were acquired from Equity Capital's majority shareholder. The $200,000 purchase price was placed in trust with Equity Capital's attorney subject to the closing of Equity Capital's acquisition of Voice Mobility (which was consummated on June 24, 1999 as described below) and other conditions. Among others, the April 1, 1999 agreement also contemplated that Equity Capital would be a "shell" corporation, with no assets or liabilities. From April 1999 to June 24, 1999, Equity Capital completed the assignment of its remaining assets and liabilities to Pioneer Growth Corporation, an unrelated third party. The 8,418,000 shares of Equity Capital were held in trust by attorneys-in-fact for the purchasers subject to the closing of the acquisition of Voice Mobility.
    Following April 1, 1999, the original shareholders of Voice Mobility Inc. were advised that they could face significant Canadian income tax liability as a result of a cross-border transaction with the U.S. entity Equity Capital. The shareholders of Voice Mobility Inc. immediately thereafter began to seek legal counsel and tax advisors with sufficient professional experience in such dealings. It took some time to find and retain qualified securities counsel and tax accountants with experience in such transactions. Once the tax accountants and securities lawyers were consulted it was determined that the most effective means of minimizing personal Canadian taxes for the Voice Mobility Inc. shareholders and to comply with Canadian tax legislation, required the formation of a new corporation, Voice Mobility Canada Limited ("VM Canada"), as a wholly owned subsidiary of Equity Capital. The formation of VM Canada took time to complete because certain special share rights had to be properly structured and drafted, various name searches needed to be conducted, and the company needed to be incorporated and capitalized.
    Thus, on June 24, 1999, Equity Capital, through its newly created wholly owned subsidiary, VM Canada, acquired 100% of the outstanding common shares of VMI. In such acquisition, the shareholders of VMI exchanged their shares of VMI for 6,600,000 Exchangeable Shares of VM Canada. Each VM Canada Exchangeable Share is exchangeable for one VMII common share at any time at the option of the shareholder, and will be exchanged no later than July 1, 2009, and is entitled to the same voting, dividend and other rights as one VMII common share. In addition, a share of preferred voting stock was issued to the transfer agent in trust for the holders of the VM Canada Exchangeable Shares, to provide a mechanism for holders of the VM Canada Exchangeable Shares to exercise their voting rights. We consider each Exchangeable Share as equivalent to a share of its common stock. Concurrent with this transaction, Equity Capital changed its name to our current name, Voice Mobility International, Inc.
    Following the completion of the acquisition of VMI, on July 1, 1999, the $200,000 purchase price for the 8,418,000 common shares of Equity Capital was released by Equity Capital's attorney.
    Following completion of the acquisition of VMI, VMII (formerly Equity Capital) took the next steps in fulfilling Acrex's obligations to its investors under the Acrex private placements. The 8,418,000 shares of Equity Capital held by the attorneys-in-fact were issued as follows: 5,010,907 shares were issued to the Acrex private placement investors, with each of the Acrex private placement investors allowed to participate in such offering substantially pro rata in relation to their participation in Acrex; 2,256,093 shares were issued to certain original shareholders of Acrex; 101,000 shares were issued to an original shareholder of Voice Mobility Inc.; and 1,050,000 shares were issued to certain finders and outside professional advisors who assisted in the consummation of the combined April 1 and June 24 transaction.
    On June 30, 1999, VMII completed its undertaking to fulfill Acrex's obligations to its investors under the Acrex private placements by issuing warrants to acquire an aggregate of 4,793,000 shares of Common Stock of VMII to the investors in the Acrex private placements. Such warrants were issued to the investors substantially pro rata to the number of warrants the investors were to have received in each of the Acrex private placements, at the same exercise prices, as adjusted for the currency translation from Canadian dollars to U.S. dollars. Thus, upon completion of transactions, the original investors in the Acrex private placements received, in the aggregate through the April 1999 offering of Common Stock and the June 1999 offering of warrants, substantially the equivalent economic terms in the form of VMII Common Stock and warrants, which they would have received in the Acrex Units. As a result, Acrex discharged its obligations under the private placements.
    Upon completion of such transactions at June 24, 1999, the stakeholders in Voice Mobility and Acrex (consisting of the original shareholders of VMI (43%), certain shareholders of Acrex (15%), and the investors in the Acrex private placement (32%)) held approximately 90% of the capital stock of VMII (formerly Equity Capital), thereby constituting a recapitalization of VMI through the acquisition of Equity Capital.
ITEM 2.  PROPERTIES.
    Our United States office is located in shared office premises at Suite 200, 5031 South Ulster Parkway, Denver, Colorado, 80237 under a month-to-month arrangement with the lessor of the premises who is not affiliated with us.  We pay no rent under an oral understanding.
    We lease the offices of our operating subsidiary, VMI, consisting of approximately 4,900 square feet at 13777 Commerce Parkway, Richmond, BC V6V 2X3 at a basic rate of Cdn$75,950 per year plus expenses.  The lease expires on December 31, 2002.
    We also lease an engineering facility at 20 - 3318 Oak Street, Victoria, BC, V8X 1R1, of 8,784 square feet, under a lease with an unaffiliated party that expires on May 31, 2004, at Cdn$9,131 per month plus expenses.
    We believe that existing facilities are adequate for our needs through at least the end of 2002.  Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms.
ITEM 3.  LEGAL PROCEEDINGS.
    On April 23, 2001, Breakthrough Financial Marketing Inc., a former consultant to Voice Mobility, issued to us a Notice of Intention to Arbitrate under the Arbitration Act (Alberta), claiming breach of contract by Voice Mobility Inc. and/or Voice Mobility International, Inc. relating to consulting services and registration of stock options. The relief sought by Breakthrough are damages under several causes of action for an aggregate of approximately $900,000 and an order that the consulting contract be renewed, as well as alternative relief in the form of fair value compensation, interest and costs. On September 25, 2001 a settlement was agreed to by both parties with a payment of $109,975 (Cdn. $170,000) to Breakthrough Financial Marketing Inc.
    On August 8, 2001, Sharon Ho commenced an action in the Superior Court of California against Voice Mobility International, Inc. and the predecessor corporation, Equity Capital Group, to recover damages as a result of an alleged breach of contract.  On October 10, 2001, we entered into an indemnification agreement with the former majority shareholder of Equity Capital Group to indemnify us against any claims or liabilities that existed prior to the April 1, 1999 and June 1, 1999 share purchase agreements.  Also on October 10, 2001, we entered into a settlement agreement with the former majority shareholder of Equity Capital Group. Under the agreement, the former shareholder is to pay us $290,000 to cover the costs of the Sharon Ho settlement and additional related legal expenses. The settlement amount is to be paid in set installments from October 10, 2001 to October 25, 2002. In addition to the indemnification and settlement agreements, Voice Mobility International, Inc. has also obtained a security agreement, a guaranty agreement and a stock pledge agreement to further protect and collateralize its position.  On October 15, 2001, a settlement agreement and mutual release was signed between the Voice Mobility International, Inc. and Ms. Ho. The settlement agreement sets forth payments owing to Ms. Ho by Voice Mobility in the sum of $252,500 to be paid in set installments from October 10, 2001 to October 1, 2002.  On March 8, 2002, a shareholder and Director of the Company indemnified the Company against any losses that may be incurred on the collectibility of the settlement amount related to Voice Mobility and the former majority shareholder of Equity Capital Group. 
    On August 24, 2001, Manschot Opportunity Fund, LP and Galladio Capital Management, BV filed suit in the Superior Court of the State of California, County of Orange (Case No. 01CC10988) against Voice Mobility International, Inc., Funkart Holdings, Inc., Pioneer Growth Corporation, Robert L. Cashman and Greg Harrington.  The suit relates to an alleged December 1998 agreement between Motorsports Promotions, Inc. and Funkart Holdings, Inc., during the time period prior to Voice Mobility Inc.'s April 1999 reverse acquisition of Equity Capital Group, Inc., the predecessor company to Voice Mobility International.  Plaintiffs allege to be creditors of Motorsports Promotions, acquiring Motorsports' rights under the alleged agreement at a UCC public sale.  Defendant Funkart Holdings is alleged to have been a subsidiary of Equity Capital Group during the period in question, but which was assigned to Pioneer Growth Corporation, a company unaffiliated with Voice Mobility International, pursuant to the reverse acquisition.  The suit alleges that during the period in question, Voice Mobility International also was the alter-ego of defendant Cashman.  The suit alleges breach of contract and breach of fiduciary duty and seeks compensatory damages in excess of $1,325,000, prejudgment interest and punitive damages.  Voice Mobility has tendered the defense and indemnity of such claims to Mr. Cashman.  We believe that there is no substantive merit to the claims against Voice Mobility International and we intend to defend the lawsuit vigorously if Mr. Cashman fails to perform the defense and  indemnification obligations he has accepted.
    On December 31, 2001, Budd Stewart, a former employee of Voice Mobility, filed a Writ of Summons and Statement of Claim with the Supreme Court of British Columbia, claiming breach of an implied employment contract and stock option agreement by Voice Mobility Inc.  The relief sought by Mr. Stewart is damages under several causes of action for an aggregate of approximately $1,825,892.  We believe that there is no substantive merit to the claims and we intend to vigorously defend the action.
    We anticipate that, from time to time, we periodically may become subject to other legal proceedings in the ordinary course of our business.  We are not a party to any other litigation required to be disclosed under Item 103 of Regulation S-K as at the date of this filing.   We are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact of the above matters which seek damages of material or indeterminate amounts, and therefore cannot determine whether these actions, suits, claims or proceedings will, individually or collectively, have a material adverse effect on our business, results of operations, and financial condition. We intend to vigorously defend these actions, suits, claims and proceedings. 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
    There were no matters submitted to a vote of our security holders either through solicitation of proxies or otherwise in the fourth quarter of the fiscal year ended December 31, 2001.
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    Our common stock was listed and commenced trading on the OTC Bulletin Board on June 30, 1999 under the symbol "VMII", on the Frankfurt Stock Exchange on April 12, 2000 under the symbol "VMY"and on the Toronto Stock Exchange on July 16, 2001 under the symbol "VMY".  Since June 30, 1999, trading in our common stock has been limited and sporadic.  The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the OTC Bulletin Board:
PERIODHIGH (U.S.$)LOW (U.S.$)VOLUME2000  First Quarter..............................$11.00$2.002,339,600  Second Quarter..........................$9.13 $4.691,762,500  Third Quarter.........................$7.25$5.001,827,500  Fourth Quarter...........................$5.25$1.941,974,9002001   First Quarter.............................. $3.00$1.91914,700  Second Quarter..........................$2.00$1.29771,600  Third Quarter.........................$1.52$0.321,075,400  Fourth Quarter...........................$0.53$0.20984,1002002  January 1 - March 26$0.35$0.131,185,300
    These quotations were taken from the OTC Bulletin Board Historical Research Service. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not necessarily represent actual transactions.

    The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the Toronto Stock Exchange:
PERIODHIGH (Cdn.$)LOW (Cdn.$)VOLUME2001   First Quarter..............................N/AN/AN/A  Second Quarter..........................N/AN/AN/A  Third Quarter.........................$2.50$0.60168,438  Fourth Quarter...........................$0.75 $0.35723,9402002  January 1 - March 26$0.50 $0.25              2,649,634
    The number of shareholders of record as at March 26, 2002 was 154.  At March 26, 2002 we had outstanding 34,248,782 common share equivalents, consisting of 28,148,782 shares of Common Stock and 6,100,000 shares of Common Stock issuable on conversion of all outstanding Exchangeable Shares, represented by one Series A Preferred Stock.  The closing sale price for our common stock on March 26, 2002, as reported on the OTC Bulletin Board, was $0.23. 

    We have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends. Our current policy is to retain earnings, if any, for use in operations and in the development of its business. Our future dividend policy will be determined from time to time by the Board of Directors. 

RECENT SALES OF UNREGISTERED SECURITIES

    The following sets forth certain information concerning our currently outstanding securities which were sold or issued by us during the last fiscal year without the registration of the securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements.

    On April 3, 2001, in a private placement transaction, we issued special warrants to acquire, for no additional consideration, an aggregate of 6,500,000 units, each unit consisting of one share of our common stock and a one-half of a share warrant to acquire a share of common stock at a price of Cdn$ 2.00 per share. In this transaction, an aggregate of 6,500,000 special warrants were issued at a price of Cdn$ 2.00 per special warrant. To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder. To the extent that U.S. securities laws were applicable to the issuance of the common stock and share warrants upon exercise of the special warrants, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder.

    On April 3, 2001, in a private placement transaction, we issued special compensation options exercisable for no additional consideration into compensation options. The compensation options will entitle the agents in the special warrant private placement transaction to purchase 650,000 units at the price of Cdn$2.00 per unit. Each unit consists of one common share and one-half of one share warrant. Each whole share warrant will entitle the holder to purchase one additional common share at the price of Cdn$2.25 per share. The compensation options are non-transferable and expire on April 3, 2003. The agents may exercise the agents' compensation options by way of a "cashless" exercise (they may elect, when exercising, to satisfy their obligation to pay the cash exercise price to the company by accepting a lesser number of common shares). To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder.

    On April 25, 2001, in connection with the issuance of a promissory note in the principal amount of Cdn$300,000, we issued to one purchaser 100,000 Class K warrants, each entitling the holder to one share of common stock per warrant, exercisable at $1.50 per share at any time up to April 25, 2004. To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder. 

    On May 11, 2001, in connection with the issuance of two promissory notes in the aggregate principal amount of Cdn$500,000, we issued to two purchasers an aggregate of 166,667 Class L warrants, each entitling the holder to one share of common stock per warrant, exercisable at $1.50 per share at any time up to May 11, 2004. To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder. 

    On June 14, 2001, in connection with the issuance of two promissory notes in the aggregate principal amount of Cdn$600,000, we issued to two purchasers an aggregate of 200,000 Class M warrants, each entitling the holder to one share of common stock per warrant, exercisable at $1.50 per share at any time up to June 14, 2004.  On December 28, 2001, the Class M warrant holders terminated all Class M warrants.  To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder.

    On June 25, 2001, in connection with the issuance of two promissory notes in the aggregate principal amount of Cdn$500,000, we issued to two purchasers an aggregate of 166,667 Class N warrants, each entitling the holder to one share of common stock per warrant, exercisable at $1.50 per share at any time up to June 25, 2004.  On December 28, 2001, the Class N warrant holders terminated all Class N warrants.  To the extent that U.S. securities laws were applicable to the issuance, the issuance was made in reliance on Section 4(2) of the Securities Act and Regulation S thereunder.

    On March 30, 2001, we retracted 80,969 shares of our Series B Preferred at $3.00 per share for aggregate cash of $242,907. The retraction reduced the number of Series B Preferred shares outstanding from 666,667 to 585,698.

    On December 28, 2001, the Class L, M and N warrants, exercisable into an aggregate of 533,334 shares of common stock were cancelled by the holders.

ITEM 6: SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands, except per share data)

    The following table presents selected financial data for us as at December 31, 2001 and for the five fiscal years ended December 31, 2001.  We derived the selected financial data set forth below with respect to our statements of operations for the three fiscal years ended December 31, 2001 and our balance sheets as at December 31, 2001 and 2000, from our consolidated financial statements that are included elsewhere in this Form 10-K.  The selected financial data set forth below with respect to our statements of operations for each of the two fiscal years ending December 31, 1998 and the balance sheet data as at December 31, 1999, 1998 and 1997, was derived from our consolidated financial statements which are not included in this Form 10-K.  The following selected financial data should be read in conjunction with the  consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K.  The statement of operations data and the balance sheet data are derived from our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.
Year Ended December 31, 2001Year Ended December 31, 2000Year Ended December 31, 1999Year Ended December 31, 1998Year Ended December 31, 1997Statement of Operations Data:Sales$358$275$56$119$520Expenses:    Cost of sales50865275260    Sales and marketing2,2383,5891,19119060    Research and development4,6182,7092,25028466    General and administrative and other3,7453,5423,412501303Total expenses10,6519,9266,9051,050689Net loss(10,293)(9,651)(6,849)(931)(169)Deemed dividend on Series B Preferred Stock--(1,451) ------Dividends paid on preferred stock57Reduction of beneficial conversion feature on retraction of 80,969 Series B preferred stock(110)--------Net income (loss) attributable to common stockholders$(10,240)$(11,102)$(6,849)$(931)$(169)Basic and diluted net loss per common share$(0.34)$(0.46)$(0.41)$(0.14)$ (0.03)Weighted average number of common stock and common stock equivalents outstanding used in basic and diluted per share calculation 30,06824,03116,9046,6006,600December 31, 2001December 31, 2000December 31, 1999December 31, 1998December 31, 1997Balance Sheet Data:Cash and cash equivalents$1,732$603$121$37$1Working capital1,5061,634(1,126)(1,432)(483)Total assets4,3364,66585227982Current Liabilities1,0491,1031,4531,577274Long term Liabilities1,576------233Total Liabilities2,6251,1031,4531,577507Total stockholders' equity (deficiency)1,7113,562(602)(1,298)(425)The foregoing table assumes no exercise of anystock options or warrants outstanding as of December 31, 2001. Asof December 31, 2001, there were options and warrants outstandingto purchase a total of 12,019,936 shares of common stock with aweighted average exercise price of $1.89 per share.
The following selected financial data are derived from thecontinuing financial statements of Voice Mobility Inc., a companyincorporated under the laws of the Canada Business Corporation Actin 1993. Through a series of transactions in June 1999, VoiceMobility Inc. was recapitalized and acquired the net assets ofVoice Mobility International, Inc. (formerly Equity Capital Group,Inc.), an inactive United States company registered on the OTCBulletin Board. The Consolidated Financial Statements are acontinuation of the financial statements of the accountingacquirer, Voice Mobility Inc.ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS.OVERVIEW    You should read the following discussion ofour financial condition and results of operations together with thefinancial statements and the notes to financial statements includedelsewhere in this filing prepared in accordance with accountingprinciples generally accepted in the United States. This discussioncontains forward-looking statements that reflect our plans,estimates and beliefs. Our actual results could differ materiallyfrom those anticipated in these forward-looking statements.    Voice Mobility International, Inc. is a Nevada corporation engagedin the development and sales and marketing of unified voicemessaging software through its wholly owned operating subsidiaries,Voice Mobility Inc. and Voice Mobility (US) Inc. Our EnhancedMessaging software suite allows for legacy voice-mail replacementand incremental offerings such as real time call connect,voice-mail to e-mail, and fax to e-mail services. These unifiedcommunication services are facilitated by the creation of a singlepersonal digital mailbox that can receive any type of communicationregardless of its incoming format or medium. The principalgeographic markets include North America, Latin America, Europe andAsia.**Results of Operations for the fiscal years ended December 31,2001 compared to December 31, 2000**    *Sales* – Sales for the fiscal year ended December 31,2001 were $358,191 compared to $275,190 for the fiscal year endedDecember 31, 2000 representing an increase of 30%. Sales for thefiscal year ended December 31, 2001 were for software licensesales, mailbox subscriptions, computer hardware and supportservices of which $189,801 represented sales to NBTel. The increaseto sales is attributed to the increase in the volume of goods soldcompared to the same period last year. Sales for the fiscal yearended December 31, 2000 were for recognition of deferred revenuefrom 1999, sale of third party computer hardware and software,server installation and setup charges, and software licenserevenue.    In the third quarter of 2001, we recognized revenue from softwarelicense sales of $350,000 to Digital China. We have been unable tocollect funds from this sale to Digital China and have thereforereversed the revenue recognized of $350,000. As a result, sales forthe three-month period ended September 30, 2001, previouslyreported as $388,621 on our Form 10-Q filed on November 13, 2001,have now been retroactively adjusted to $38,621 as a result of thisadjustment.    In April 2000 we entered into a three year license agreement withIkano Communications, Inc. and received $250,000 for theinstallation and set up of our unified communication software. The$250,000 was deferred and is being recognized ratably over the termof the agreement. For the fiscal year ended December 31, 2001, wehave recognized $83,333 of the deferred amount.    *Cost of sales* – Cost of sales were $49,999 and $86,498for the fiscal years ended December 31, 2001 and 2000 respectively,representing a 42% decrease. Cost of sales for the fiscal yearended December 31, 2001 is comprised of commissions on softwarelicense sales, telephony hardware, amortization of the telephonyhardware and third party software, installation costs of ourunified communications product at existing customer sites. Cost ofsales for the fiscal year ended December 31, 2000 is comprised ofthird party software licenses, telephony hardware, data and voicetransmission costs, and installation costs.    In the third quarter of 2001, we recorded costs related to revenuefrom software license sales to Digital China. We have been unableto collect funds from this sale and have therefore reversed therevenue recognized and related costs of sales of $82,250. As aresult, cost of sales for the three-month period ended September30, 2001, previously reported as $99,558 on our Form 10-Q filed onNovember 13, 2001, have now been retroactively adjusted to $17,308as a result of this adjustment.Operating Expenses    *Sales & Marketing* - Our sales and marketing costsconsist primarily of personnel, advertising, promotions, publicrelations, trade shows and business development. Total costs were$2,237,563 and $3,588,642 for the fiscal years ended December 31,2001 and 2000 respectively representing a decrease of 38%. Thesecosts reflect employee stock option compensation cost of $nil and$1,178,996 for the fiscal years ended December 31, 2001 and 2000respectively.    The decrease of $172,083 (net of stock based compensation) in salesand marketing expense between the fiscal years ended December 31,2001 and 2000, is primarily a result of a decrease in the number ofsales and marketing personnel, consulting fees, and correspondingdecrease in advertising and promotions, general sales and marketingexpenses.    *Research and Development* - Our research and developmentcosts consist primarily of personnel, data and voice transmission,and related facility costs. Research and development costs were$4,618,284 and $2,709,048 for the fiscal years ended December 31,2001 and 2000 respectively, representing an increase of 70%. Thesecosts reflect employee stock option compensation cost of $257,934and $964,673 for the fiscal years ended December 31, 2001 and 2000respectively.    The incremental increase of $2,615,975 (net of stock basedcompensation) in research and development expense between thefiscal years ended December 31, 2001 and 2000, is a primarily aresult of expenses incurred to develop a carrier-classified unifiedcommunications product and acceleration in the development processfor two new versions of our unified communications product.    Of the $2,615,975, $1,707,989 was incurred under an agreement withInnovatia Inc., a wholly owned subsidiary of Aliant Inc., todevelop a carrier-classified unified communications product. Theintent of the development agreement is that the resulting productwill become Aliant’s primary hosted messaging solution forbusiness and residential customers.    The primary reason for the remaining increase in costs of $907,986is a result of acceleration in the development process resulting intwo new versions of our unified communications product.    *General and Administrative* - Our general and administrativecosts consist primarily of personnel costs, professional and legalcosts, consulting fees, travel, and the lease of office space.Total general and administrative costs were $3,623,980 and$3,639,028 for the fiscal years ended December 31, 2001 and 2000respectively, representing a decrease of 0.004%. These costsreflect employee stock option compensation cost of $45,633 and$162,089 for the fiscal years ended December 31, 2001 and 2000respectively. A further $125,250 and $880,500 of stock optioncompensation costs were recorded for the fiscal years endedDecember 31, 2001 and 2000 respectively for stock option grantsawarded to non-employees in exchange for consulting services.    The incremental increase of $856,658 (net of stock basedcompensation) in general and administrative costs between thefiscal years ended December 31, 2001 and 2000, is a primarily aresult of an increase in legal fees accounting for $409,208 of theincrease of $856,658. Legal fees during the period incurred relatedto regulatory and registration filings. Consulting fees during theperiod increased $194,323. The primary reason for the remainingincrease in costs of $253,127 is a result of depreciation andamortization, insurance, office and telecommunication that is dueto the increase in headcount in 2001 compared to the same periodlast year. We anticipate that general and administrative costs willcontinue to grow in the foreseeable future as we implement ourmarket growth strategies.    *Interest Expense* – Our interest expense was $281,017and $16,411 for the fiscal years ended December 31, 2001 and 2000respectively. The increase in interest expense resulted from theincrease in financing activities in 2001.    *Interest Income* – Interest income was $160,095 and$113,490 for the fiscal years ended December 31, 2001 and 2000respectively. In 2001, we earned interest income on cash thoughterm deposits.    *Income Taxes* – At December 31, 2001 we have $3,683,000US tax net operating losses that expire in the years 2019 throughto 2021. As at December 31, 2001 we have Canadian tax net operatinglosses of approximately $13,629,000 that will expire in the years2002 through to 2008. Non-capital losses of our Canadian operatingsubsidiary, Voice Mobility Inc., are restricted by Canadian IncomeTax Law and may not be available entirely for use in future yearspursuant to Section 111(4) of the Canadian Income Tax Act.    Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for incometax purposes. For fiscal years ended December 31, 2001 and 2000respectively, we recognized a valuation allowance equal to deferredtax assets for which realization is uncertain.**Results of Operations for the fiscal years ended December 31, 2000compared to December 31, 1999**    *Sales* – Sales for the fiscal year ended December 31,2000 were $275,190 compared to $55,997 for the fiscal year endedDecember 31, 1999 representing an increase of 391%. Sales for thefiscal year ended December 31, 2000 represent the recognition of$93,016 in deferred revenue from 1999, $98,162 for the sale ofthird party computer hardware and software, $21,512 for serverinstallation and setup charges, and $62,500 of software licenserevenue based on our software license agreement with IkanoCommunications Inc. Sales for the fiscal year ended December 31,1999 were from the sale of a software license and third partyhardware and software.    We entered into a three year license agreement with IkanoCommunications, Inc. and received $250,000 for the installation,set up and maintenance of our Unified Communication software.Revenue from this arrangement is recognized ratably over the termof the agreement. $62,500 of the payment was recognized in thefiscal year ended December 31, 2000    *Cost of sales* - Cost of sales is comprised of third partysoftware licenses, telephony hardware, data and voice transmissioncosts, and installation costs. Cost of sales were $86,498 and$51,843 for the fiscal years ended December 31, 2000 and 1999respectively representing a 67% increase.Operating Expenses    *Sales & Marketing* - Our sales and marketing costsconsist primarily of personnel, advertising, promotions, publicrelations, trade shows and business development. Total costs were$3,588,642 and $1,190,754 for the fiscal years ended December 31,2000 and 1999 respectively representing an increase of 201%. Thesecosts reflect employee stock option compensation cost of $1,178,996and $597,891 for the fiscal years ended December 31, 2000 and 1999respectively.    The incremental increase of $1,816,783 (net of stock basedcompensation) in sales and marketing expense between the fiscalyears ended December 31, 2000 and 1999, is a result of an increasein sales and marketing personnel, advertising and promotions,travel and participation in industry trade shows, consulting fees,and general sales and marketing expenses. These costs have beenprimarily incurred as result of market development efforts.    *Research and Development* - Our research and developmentcosts consist primarily of personnel, data and voice transmission,and related facility costs. Research and development costs were$2,709,048 and $2,250,153 for the fiscal years ended December 31,2000 and 1999 respectively representing an increase of 20%. Thesecosts reflect employee stock option compensation cost of $964,673and $1,023,429 for the fiscal years ended December 31, 2000 and1999 respectively.    The incremental increase of $517,651 (net of stock basedcompensation) in research and development expense between thefiscal years ended December 31, 2000 and 1999, is a result of anincrease in research and development personnel costs, leased officespace and utility costs, data and voice transmission costs, andgeneral research and development costs.    *General and Administrative* - Our general and administrativecosts consist primarily of personnel costs, professional and legalcosts, consulting fees, travel, and the lease of office space.Total general and administrative costs were $3,639,028 and$2,351,643 for the fiscal years ended December 31, 2000 and 1999respectively, representing an increase of 55%. These costs reflectemployee stock option compensation cost of $162,089 and $1,289,260for the fiscal years ended December 31, 2000 and 1999 respectively.A further $880,500 of stock option compensation cost was recordedfor the fiscal year ended December 31, 2000 for stock option grantsawarded to non-employees in exchange for consulting services.    The incremental increase of $1,534,056 (net of stock basedcompensation) in general and administrative costs between thefiscal years ended December 31, 2000 and 1999, is a result of anincrease in personnel costs, professional and legal costs,consulting fees, depreciation and amortization, lease of officespace, and other general administrative costs. We anticipate thatgeneral and administrative costs will continue to grow in theforeseeable future as we implement our market growthstrategies.    *Interest Expense* – Our interest expense was $16,411 and$70,209 for the fiscal years ended December 31, 2000 and 1999respectively. The decrease in interest expense resulted from thedecrease in notes payable in 2000.    *Interest Income* – Interest income was $113,490 and nilfor the fiscal years ended December 31, 2000 and 1999 respectively.In 2000, we earned interest income on cash though termdeposits.    *Income Taxes* – At December 31, 2000 we have $136,000 UStax net operating losses that expire in 2020. As at December 31,2000 we have Canadian tax net operating losses of approximately$9,328,000 that will expire in the years 2001 through to 2007.Non-capital losses of our Canadian operating subsidiary, VoiceMobility Inc., are restricted by Canadian Income Tax Law and maynot be available entirely for use in future years pursuant toSection 111(4) of the Canadian Income Tax Act.    Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for incometax purposes. For fiscal years ended December 31, 2000 and 1999respectively, we recognized a valuation allowance equal to deferredtax assets for which realization is uncertain.**Results of Operations for the fiscal years ended December 31,1999 compared to December 31, 1998**    *Sales* - Sales for the fiscal year endedDecember 31, 1999 were $55,997 compared to $119,248 for the fiscalyear ended December 31, 1998 representing an decrease of 53%. Salesfor the fiscal year ended December 31, 1999 were from the sales ofa software license and third party hardware and software. Sales forthe fiscal year ended December 31, 1998 were from the sale of thirdparty hardware and software, server installation and setup charges.All sales over both periods were sales of equipment and softwarethat was in the beta stage of development.    *Cost of Sales* - Cost of sales iscomprised of third party software licenses, telephony hardware,data and voice transmission costs, and installation costs. Cost ofsales were $51,843 and $75,439 for the fiscal years ended December31, 1999 and December 31, 1998, respectively, representing a 31%decrease.Operating Expenses    *Sales and Marketing* - Our sales andmarketing costs consist primarily of personnel costs, stockcompensation, advertising, promotions, public relations, tradeshows and business development. Total costs were $1,190,754 and$189,691 for the fiscal years ended December 31, 1999 and December31, 1998, respectively, representing an increase of 528%. Theincrease of $1,001,063 reflects employee stock option compensationcost of $597,891.    The incremental increase of $403,172 in salesand marketing expense between the two years is a result of anincrease of $167,325 in sales and marketing personnel costs,$64,366 in promotions, $117,514 for travel and participation inindustry trade shows, and $53,967 in general sales and marketingcosts. These sales and marketing expenditures have been incurred asresult of market development efforts.    *Research and Development* - Our researchand development costs consist primarily of personnel costs, stockcompensation, data and voice transmission, and related facilitycosts. Research and development costs were $2,250,153 and $283,918,for the fiscal years ended December 31, 1999 and December 31, 1998,respectively, representing an increase of 693%. The increase of$1,966,235 in research and development costs from 1998 to 1999primarily reflects an employee stock option compensation cost of$1,023,429.    The incremental increase of $942,806 inresearch and development costs between the two years is the resultof an increase of $344,928 in personnel costs, $34,988 in leasedoffice space and utility costs, $29,512 in data and voicetransmission costs and $33,378 in general research and developmentcosts. $500,000 in research and development costs was recognized inaccordance with an arrangement with Aliant Inc. dated March 26,1999. As a result of the acquisition of VMI, we were obligated toissue 1,428,571 shares of our common stock valued at $500,000.    *General and Administrative* - Ourgeneral and administrative costs consist primarily of personnelcosts, stock compensation, professional and legal costs, consultingfees, travel, and the lease of office space. General andadministrative costs were $2,351,643 and $460,911 for the fiscalyears ended December 31, 1999 and December 31, 1998, respectively,representing an increase of 410%. The increase of $1,890,732primarily reflects an employee stock option compensation cost of$1,289,260.    The incremental increase of $601,472 ingeneral and administrative costs between the two years is theresult of an increase of $110,560 in personnel costs, $247,873 inprofessional and legal costs, $52,208 in consulting fees, $11,167in lease of office space, $60,000 in accruals for interest, and$119,664 in general administrative costs.    *Acquisition fee for recapitalization*– The acquisition fee of $200,000 was for payments related tolegal fees in the reverse acquisition of VMII. These fees have beenexpensed as a fee for the recapitalization in the year endedDecember 31, 1999.    *Interest Expense* - Our interest expenseis primarily related to short-term debt. Interest expense was$70,209 and $39,887 for the fiscal years ended December 31, 1999and December 31, 1998, respectively. The increase of $30,322between the two years resulted from an increase in notes payableand shareholder advances.    *Income Taxes* - Deferred income taxesreflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. For fiscalyears ended December 31, 1999 and 1998 respectively, the Companyhas recognized a valuation allowance equal to deferred tax assetsfor which realization is uncertain.    *Extraordinary Loss* - In March 1999 VMIand Acrex agreed to a loan settlement transaction with IbexInvestments Ltd. ("Ibex"). Pursuant to these understandings VMIIissued warrants to purchase 500,000 shares of Common Stock to Ibexin settlement of a loan made by Ibex to VMI in the principal amountof $167,000. The original loan agreement did not provide for thesettlement of debt with equity instruments. Consequently anextraordinary loss of $790,000 has been recorded based on thedifference between the fair value of the equity instruments issuedand the carrying value of the retired debt. The fair value of thewarrants was estimated using the Black Scholes option pricingmodel.**Fluctuations in Annual and Quarterly Results**    Our annual and quarterly operating results mayfluctuate significantly in the future as a result of numerousfactors, including:- The amount and timing of expendituresrequired developing strategic relationships to enhance sales andmarketing.    Changes in the growth rate of Internet usageand acceptance by consumers of unified messaging systems.Emergence of new services and technologiesin the market in which we compete; and fluctuations of foreigncurrency exchange rates.
- Unanticipated delays in product developmentthat could adversely affect our revenues or results ofoperations.    The failure or unavailability of third-partytechnologies and services could limit our ability to generaterevenue.    In addition, a portion of our revenue relies on the numberof mailboxes our customers sell and therefore our revenue mayfluctuate depending on the marketing and sales campaigns of ourcustomers.******Liquidity and Capital Resources**    As of December 31, 2001, we had $1,732,200 in cash and cashequivalents and a working capital balance of $1,505,963.    During the first quarter of 2001, we received $1.8 million inproceeds from the release of preferred stock from escrow and duringthe year we received $0.4 million from the sale of our common stockto employees through our employee stock option plan.    In April 2001, we sold 6.5 million SpecialWarrants in a public offering, generating $8.4 million in cash,before offering expenses. Prior to our public offering, we fundedour operations primarily through equity private placements and debtfinancing.    Our operating activities resulted in net cash outflows of $7.6million in 2001, $5.5 million in 2000, and $2.1 million in 1999.The operating cash outflows for these periods resulted fromsignificant investments in research and development, sales,marketing and services, which led to operating losses in allperiods.    Investing activities resulted in net cash outflows of $0.9 millionin 2001, $1.9 million in 2000, and $0.5 million in 1999. Theinvesting activities consisted primarily of purchases of propertyand equipment as a result of growth of our company and ourdevelopment activities. These capital expenditures consisted ofhardware, software, equipment, and furniture for our growingemployee headcount, and our research and development needsincluding test equipment. At December 31, 2001, we did not have anymaterial commitments for future capital expenditures.    In February 2001, we entered into a three year developmentagreement with Innovatia Inc., a shareholder and a wholly ownedsubsidiary of Aliant Inc. The agreement is to develop acarrier-classified unified communications product that will becomeAliant’s primary hosted messaging solution for business andresidential customers. In consideration of the services provided,we had originally agreed to pay quarterly fees based directly onthe value of the work performed beginning February 2001. We had theoption to elect to pay for some or all of the services in cash orcommon shares. On December 28, 2001, we agreed to settle the valueof the services provided to date by Innovatia of $1.7 million inthe form of a promissory note bearing interest at prime plus 1%.The promissory note is repayable in quarterly payments over theterm commencing July 2002 and for the ten consecutive quartersthereafter. We have the option to elect to settle some or all ofthe amounts owing in cash or common shares. On December 28, 2001,we also issued 500,000 common shares to Innovatia at a market priceof $0.26 per share as partial payment of the promissory note.    On December 28, 2001, the Class F, G, I, L, Mand N warrants, exercisable into an aggregate of 3,533,334 sharesof common stock were cancelled by the holders.    On March 4, 2002, we renegotiated the remaining term of theFebruary 2001 agreement. The term of the revised agreement is forthe period January 1, 2002 to December 31, 2003. Innovatia willcontinue to provide the originally agreed services, however, inconsideration of the services provided, we have agreed to payInnovatia a cash royalty within 30 days after the end of eachcalendar quarter equal to 10% on the gross revenue received for thesale of our products globally within the quarter.    On March 6, 2002, in connection with the exercise of 500,000 VMCanada Exchangeable Shares, we issued 500,000 common shares. Therewas no cash or other consideration involved in this transaction asit was an exchange only.    We currently anticipate that revenues willincrease in the long-term as we increase our sales and marketingactivities and introduce new versions of our software that aretechnologically feasible and of carrier class quality. We haveimplemented significant cost reductions and expect to keep ouroperating costs to a minimum until cash is available throughfinancing or operating activities. However, based on currentprojections, if we are unable to increase revenues over historicallevels, we will have negative cash flows in excess of $3 millionfor the balance of fiscal 2002 and we will need to raise additionalfunds through equity or debt financing to meet our current andfuture financial commitments. To date, we have incurred significantoperating losses that raises substantial doubt about our ability toraise funds and to continue as a going concern. Based on currentprojections, we anticipate significant revenues from Tier Itelecommunications providers in 2002 from revenues generatedthrough the replacement of legacy voice mail systems. Such revenueswill afford us the ability to fund a portion of our dailyoperations and service our debt obligations, however, it isreasonably likely that we will need to raise additional fundsthrough equity or debt financing to meet our current and futurefinancial commitments. We believe we have the ability to raise suchadditional funds. However, there are no assurances that we will besuccessful in achieving these objectives. In addition, as a resultof the current slowdown in capital spending by telecommunicationsservice providers, revenues from service providers may be adverselyaffected more than we currently project. See "Risk Factors".    Inflation has not had a significant effect to date on our resultsof operations.ITEM 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.    We are exposed to market risk from changes inforeign currency exchange rates and interest rates which couldimpact our results of operations and financial condition. We manageour exposure to these market risks through our regular operatingand financing activities.    We face foreign currency exchange risk because the majority of ourrevenues are denominated in U.S. dollars and a majority of ouroperating costs are incurred in Canadian dollars. The fluctuationsin the foreign exchange rate between the U.S. and Canadian currencywill result in fluctuations in our annual and quarterly results.Management has not employed the use of foreign currency derivativefinancial instruments that would allow the reduction in ourexposure to exchange rate movements. Management does not expect anysignificant change in the strategies it employs to manage exposurein the near future.    We maintain a short-term investment portfolio consisting of termdeposits with an average maturity of less than 90 days. Theseshort-term investments are subject to interest rate risk and wemanage this risk by maintaining sufficient cash balance such thatwe are typically able to hold our investments to maturity.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA.    The Financial Statements and relatedinformation required to be filed hereunder beginning on page 47 ofthis Form 10-K.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE.    Information related to our changes inaccountants is incorporated by reference from our filing made onForm 8-K as filed with the Commission on March 16, 2000.PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.    The following table sets forth the names,positions and ages of our executive officers and directors. All ourdirectors serve until the next annual meeting of shareholders oruntil their successors are elected and qualify. The board ofdirectors elects officers and their terms of office are, except tothe extent governed by employment contract, at the discretion ofthe board of directors.NameAgePositionRandy G. Buchamer45Chairman of the Board of Directors and Chief Executive OfficerJames J. Hutton36President and a DirectorJames Hewett49Chief Financial Officer, Treasurer and Assistant SecretaryDavid Grinstead44Exec. Vice President, Business DevelopmentWilliam Gardiner46Vice President, Business DevelopmentWilliam E. Krebs55DirectorDavid Scott67DirectorMorgan Sturdy49DirectorRobert E. Neal47DirectorDonald A. Calder57Director
    Randy G. Buchamer was appointed ChiefExecutive Officer in August 2001, was appointed Chairman of theBoard of Directors in September 2000 and has served as a Directorsince August 1999. . From February 1998 to March 1999, Mr. Buchamerserved as the Managing Director of Operations for the Jim PattisonGroup and was responsible for supporting the $4.4 billionoperations of 55 companies owned by the Jim Pattison Group. From1996 to 1998, he served as Vice President and Chief OperatingOfficer of Mohawk Oil Retail SBU and from 1989 to 1996 as VicePresident Corporate Services and Chief Information Officer forMohawk Oil Company. From 1987 to 1988, he was Retail MarketSpecialist for Digital Equipment of Canada Limited. Mr. Buchamerfounded and served, from 1981 to 1988, as President of VartechSystems Corporation and RB Computer Products, an IBM value addedreseller and North American software publisher and distributor ofretail, distribution and manufacturing software solutions. From1979 to 1981, he was Sales Manager and, from 1978 to 1979, a SalesRepresentative for Micom Canada Ltd. He received his Executive MBAfrom Simon Fraser University's Executive Management DevelopmentProgram in 1994 and attended the Business Administration program atthe University of Illlinois. He also has completed courses at theIBM Canada Business Management School. He is a member of theVancouver Board of Trade and the Sales and Marketing ExecutivesAssociation of Vancouver.    James J. Hutton was appointed President in August 2001. Prior tothis appointment, he served as our Chief Executive Officer fromApril 1998 to August 2001. Mr. Hutton was appointed to the Board ofDirectors in June of 1999 and has served as a Director of oursubsidiary, VMI since 1998. From January 1998 to the present, Mr.Hutton has also served as a director of Acrex Ventures Ltd. From1990 to the present, he has also served as Director and Presidentof South Sycamore Group Holdings, a family company involved indiversified investments. Mr. Hutton served as Canadian RegionalManager for Ascend Communications (1995-1998). He served in variouscapacities for Gandalf Systems, Inc., from 1989 to 1995, startingas a sales executive and becoming Western Regional Manager. From1987 to 1989, Mr. Hutton was a Sales Trainee in the AutomotiveElectronics Group of Amp of Canada. Mr. Hutton attended theUniversity of British Columbia.    James Hewett was appointed Chief FinancialOfficer in May 2000. From 1999 to 2000, Mr. Hewett was VicePresident, Finance and Administration for Steels IndustrialProducts Ltd. From 1997 to 1999, he served as Chief FinancialOfficer with Nice Systems Canada Ltd., a computer telephonyinterface provider of call logging and quality performance productsfor call centers. In 1997, Nice Systems acquired DeesCommunications Ltd., a developer of telephony hardware products andsoftware products used for quality improvements in call centers.From 1993 to 1997, Mr. Hewett served as Chief Financial Officerwith Dees Communications Ltd. Mr. Hewett received his Bachelor ofScience from the University of British Columbia and is a member ofthe British Columbia Institute of Chartered Accountants.    David Grinstead was appointed Executive VicePresident, Business Development in March 2000. Mr. Grinstead was adirector from May 1999 to March 2000. Before joining VoiceMobility, Mr. Grinstead was the Director, New BusinessOpportunities-Telecommunications at Aliant Inc., atelecommunications and data services organization based in EasternCanada, with assets of $3 billion and annual revenues of $1.7billion and the parent company of Maritime Tel & Tel. He isresponsible for the development of new business opportunities,services, and products with a particular focus on the creation ofexportable business, intellectual property and e-commerceopportunities as well as the development and implementation of newbusiness development and e-commerce strategies. From 1997 throughJanuary 1999, Mr. Grinstead was Vice-President, Market &Technology Development with The Bermuda Telephone Company Limited,Hamilton, Bermuda. In this capacity, Mr. Grinstead was responsiblefor all revenue generation, business development, strategicplanning and corporate communications activities. Mr. Grinsteadalso held full operating responsibility for BTC Mobility, thecellular subsidiary, and was Chairman of the Board of LogicCommunications Inc., Bermuda's largest Internet service providerand systems integrator. Immediately, prior to joining The BermudaTelephone Company, Mr. Grinstead was Vice-President, CustomerSolutions and Service of Northwestel Inc., a subsidiary of BellCanada Enterprises and President of Northwestel Cable TV Inc, andExecutive Vice-President of Ardicom Digital Communications Inc. Hepreviously was Chief Operating Officer of MultiServices Canada Inc,and held senior management roles with Picker International and DHLWorldwide Express.    William Gardiner has been Vice President – BusinessDevelopment since May 1998. William Gardiner served as Presidentfrom November 1997 to April 1998, and served as a consultant from1995 to 1997. At Voice Mobility, he engineered the basic concept ofthe "follow me" number which is an integral feature of our UnifiedCommunication software suite and was responsible for introducingthe first e-mail to voice service in Canada, as well as callconnect, same line fax, fax to voice, and e-mail to voice. Mr.Gardiner earned a Diploma in Computer Technology from Computer DataInstitute in 1989.    William E. Krebs was appointed to the Board in June of 1999 and hasserved as the Chairman of the board from 1995 to September 2000.From 1995 to September 2000, Mr. Krebs was our Treasurer andSecretary. From January 1995 to the present, Mr. Krebs has alsoserved as a director of Acrex Ventures Ltd. He also has served asPresident and a director of Pacific Western Mortgage Corp. since1987 and served as President and a Director of Pacific WesternCapital Corp. from 1994 to 1995. From 1997 to 1999, he was adirector of WaveRider Communications, Inc. (NASDAQ: WAVC) and wasits Secretary from 1997 through May 1999. Mr. Krebs served asDirector and President of TelcoPlus Enterprises Ltd. and its whollyowned subsidiary, Intertec Telecommunications Inc., from 1990 to1995. Mr. Krebs is a Chartered Accountant and practiced as suchfrom 1970 to 1980. He served as a Director and President ofCT&T Telecommunications Inc. from 1990 to 1995. Mr. Krebs hasbeen a member of the Canadian Institute of Chartered Accountantssince 1973.    David Scott was appointed to the Board inApril 2000. He is a veteran investment executive with more than 30years experience in the venture capital and mutual fund industries.Prior to starting his own advisory business, Mr. Scott wasPresident from 1994 to 1999 of MDS Venture Pacific Inc., aVancouver-based venture capital manager. From 1988 to 1994 he wasPresident, Discovery Enterprises Inc., a venture capital managerwith $30 million in assets under management. He held variousinvestment industry positions, including President, Toronto SharedVentures Inc., a partnership between North American Life and theMolson Company, President of money manager, Elliott & PageLtd., President, ScotiaFund Financial Services Inc., an RSP companyhe founded and subsequently sold to a major bank, and various othermutual fund and senior investment community positions. Mr. Scottcurrently devotes substantially all of his time to directorshipsand advisory roles with public, private and not for profitcompanies.    Morgan Sturdy was appointed to the Board April2000. Most recently, he was Executive Vice-President and ChiefOperating Officer of NICE Systems North America, which is a leadingglobal provider of integrated digital recording and qualitymanagement solutions, a publicly traded on the NASDAQ. For twelveyears prior, he served as President of Dees CommunicationsEngineering Ltd., an innovator in computer telephony solutions,which was then sold to NICE Systems. From 1997 to 1999, he wasChairman of the Board of Directors of Hothaus Technologies, aleader in DSP solutions for Voice over IP, which was subsequentlyacquired by Broadcom for Cdn$414 million in 1999. He is a currentdirector of several publicly traded companies, including Q/MediaServices Corporation, Intrinsyc Software, Infowave Software, Inc.,TIR Systems, and is a nominee to be a director of Digital DispatchSystems. Additionally, he sits on the board of privately heldWaveMakers Research Inc. Mr. Sturdy is a past director of NationalWireless Canadian Research Foundation, past director of theTechnology Industry Association of British Columbia, Chairman ofAcetech, and the current Chairman of Softworld 2001.    Robert E. Neal was appointed to the Board inSeptember 2000. He is President of Innovatia, a company withinAliant Inc.’s emerging business division that focuses on thedeveloping and selling of Internet-based technology. He has beenPresident of Innovatia since 1997. Mr. Neal is a member of theBoard as the nominee of Aliant, pursuant to an understanding withAliant. Aliant is one of VMII’s early investors and currentlyits largest customer in Canada. A native of Saint John, NewBrunswick, Mr. Neal began his career in the communications industryin 1979 at NBTel. In 1992 he became General Manager of NBTelMobility and helped bring about a six-fold increase in the customerbase. He was made president of Datacor (Atlantic) Inc. in 1996 andbecame president of NBTel interActive and General Manager of Exportat NBTel in the next year. In 1998, he was appointed Vice Presidentof New Business Development. He currently also serves as a Directorof iMagicTV and Chairman of Prexar, Aliant’s US Internetcompany, headquartered in the state of Maine.    Donald A. Calder was appointed to the Board inFebruary 2002. Mr. Calder is the Vice Chair of the Board andExecutive Committee of the Vancouver 2010 Bid Corporation, whichhas the objective to win the right to host the Olympic Winter Gamesand Paralympic Games in 2010. Mr. Calder was CEO of BC Telecom from1997 to 1999 and was previously the Executive Vice President ofNetwork and Operations at BC Telecom and Group Vice President ofMarketing and Development with Stentor Resource Centre Inc. Whileat BC Telecom, Mr. Calder was responsible for negotiating andstructuring the merger between BC Telecom and TELUS, which spawnedthe TELUS that exists today. Among his other community commitments,he is chair of the Vancouver General Hospital and University ofBritish Columbia Hospital Foundation. Mr. Calder sits on the boardof directors of the United Way of the Lower Mainland and wasChairman of the 1999 annual fundraising campaign prior to becomingCEO of the Bid Committee.    Section 16(a) of the Securities Exchange Actof 1934 requires our officers and directors, and persons who ownmore than ten percent of a registered class of our equitysecurities, to file reports of ownership and changes in ownershipwith the Securities and Exchange Commission. Officers, directorsand greater than ten-percent shareholders are required by SECregulation to furnish us with copies of all Section 16(a) formsthey file.    Based solely on our review of the copies of such forms received byour company, or written representations from certain reportingpersons that no Form 5 were required for those persons, we believethat, during the year of 2001 all filing requirements applicable toits officers, directors, and greater than ten-percent beneficialowners were complied with.ITEM 11. EXECUTIVE COMPENSATION.The following table shows, for the three-yearperiod ended December 31, 2001, the cash and other compensation wepaid to our Chief Executive Officer and to each of our executiveofficers who had annual compensation in excess of $100,000.SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation (1)AwardsPayoutsName and Principal PositionYearSalary ($)Bonus ($)OtherRestricted Stock Awards ($)SecuritiesUnder Options/SARsGranted (#)LTIPPayouts ($)Randy BuchamerCEO (from Aug. 2001)20012000199949,872N/AN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A400,000N/A50,000N/AN/AN/AJames J. HuttonPresident (former CEO from May 1998 – Aug. 2001)200120001999105,55598,52872,60051,648N/AN/AN/AN/AN/AN/AN/AN/A00250,000N/AN/AN/AThomas G. O’Flaherty(former President from Jan. 2000 to June 2001)200120001999105,797104,238N/A32,28030,000N/AN/AN/AN/AN/AN/AN/A125,000625,000N/AN/AN/AN/AWilliam GardinerVice President (CEO from Nov. 1997 to Apr. 1998)20012000199957,40161,70936,720N/AN/AN/AN/AN/AN/AN/AN/AN/A00200,000N/AN/AN/ADavid GrinsteadEVP Business Development20012000199992,58592,32061,25627,43800N/AN/AN/AN/AN/AN/A26,600500,000 50,000N/AN/AN/A(1) Compensation was paid to Mr. Buchamer, Mr. Hutton, Mr.O’Flaherty, Mr. Gardiner and Mr. Grinstead by VMI, ouroperating subsidiary.OPTION GRANTS IN THE LAST FISCAL YEAR    The following table presented in accordancewith the Exchange Act and the Regulations thereunder sets forthindividual grants of stock options under the Voice MobilityInternational, Inc. Second Amended and Restated 1999 Stock OptionPlan during the most recently completed financial year to each ofthe Named Executive Officers:Options/SAR Grants in Last Fiscal Year(Individual Grants)NameSecurities under Options/SAR Granted(1)(2)% of Total Options/SARs Granted toEmployees in Fiscal YearExercise or Base Price($/Sh) (2)Expiration DatePotential Realizable Value at AssumedAnnual Rates of Stock Price Appreciation for Option Term (3)  5%           10% Randy Buchamer350,00050,00015.92.3Cdn.$1.37Cdn.$2.06Aug. 14, 2006June 13, 2006Cdn.$301,555Cdn.$ 64,776Cdn.$764,200Cdn.$164,155James J. Hutton00N/AN/AN/AN/AThomas G. O’Flaherty125,0005.6$2.50Dec. 31, 2005 *cancelled on June 29,2001.N/AN/AWilliam Gardiner00N/AN/AN/AN/ADavid Grinstead26,6001.2Cdn.$2.63April 22, 2006Cdn.$43,996Cdn.$111,495(1) All of the above options are subject to theterms of our Second Amended and Restated 1999 Stock Option Plan andare exercisable only as they vest. The options have a term of 5years from the date of grant.(2) All options were granted at an exercise priceequal to the fair market value of our common stock on the date ofgrant.(3) Potential realizable values are net of exercise price, but beforededuction of taxes associated with exercise. These amountsrepresent certain assumed rates of appreciation only, based on theSecurities and Exchange Commission rules, and do not represent ourestimate of future stock prices. No gain to an optionee is possiblewithout an increase in stock price, which will benefit allstockholders commensurately. A zero percent gain in stock pricewill result in zero dollars for the optionee. Actual realizablevalues, if any, on stock option exercises are dependent on thefuture performance of our common stock, overall market conditionsand the option holders’ continued employment through thevesting period.AGGREGATED OPTION/EXERCISES IN LAST FISCAL YEAR AND 2001 FISCALYEAR END OPTION/VALUES    The following table sets forth informationwith respect to the exercise of options to purchase shares of ourcommon stock during the fiscal year ended December 31, 2001 to eachperson named in the Summary Compensation Table and the unexercisedoptions held as of the end of 2001 fiscal year.****Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR ValuesNumber of Securities Underlying Unexercised Options/SARsValue of Unexercised in-the-money Options/SARs at FY-end ($)NameSecurities Acquired on ExerciseAggregate Value RealizedExercisable/UnexercisableExercisable/UnexercisableRandy Buchamer0$075,000/375,000$0James J. Hutton0$0250,000/0$0Thomas G. O'Flaherty0$0458,333/166,667$0William Gardiner0$0160,000/0$0David Grinstead0$0355,555/221,045$0COMPENSATION OF DIRECTORS    We currently compensate our directors with acash compensation of Cdn$1,000 for participation in each formalmeeting held by the Board of Directors. Our non-employee directorsare also granted 50,000 incentive stock options annually. EmployeeDirectors are granted incentive stock options based on theirindividual employment agreements. All stock option grants are madepursuant to our Second Amended and Restated 1999 Stock OptionPlan.EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ANDCHANGE-IN-CONTROL ARRANGEMENTS    In August 2001, Voice Mobility entered into anemployment agreement with Randy Buchamer, who serves as ChiefExecutive Officer of VMI. The agreement provides for an annualsalary of Cdn$200,000. Mr. Buchamer’s agreement provides forthe grant of options under our Second Amended and Restated 1999Stock Option Plan of 350,000 shares of VMII common stock forCdn.$1.37 per share, which options vest in equal thirds over thenext three years.    In February 2000, Voice Mobility entered intoan employment agreement with David Grinstead, who serves asExecutive Vice President of Business Development of VMI. Theagreement provides for an annual salary of Cdn$130,000 andincentive compensation payments based on performance. Mr.Grinstead’s agreement provided for the grant of options underour 1999 Stock Option Plan of 500,000 shares of VMII common stockfor $2.125 per share, which options vest in equal thirds over threeyears.    In April 2000, Voice Mobility entered into an employment agreementwith James Hutton, who serves as President of VMI. The agreementprovides for an annual salary of Cdn$150,000.    On June 29, 2001, Tom O’Flaherty resigned his position asPresident and Director of VMI. As part of his final settlement, Mr.O’Flaherty will remain in salary continuance up to December31, 2002. In the case of re-employment with another company, we arerequired to pay the difference, if any, between his new monthlybase salary and the monthly base salary which he was earning atVMI. Under the settlement, Mr. O’Flaherty agreed to foregoany rights he may have under his employment agreement to anyadditional monetary bonuses and associated options for 2001 and2002. As at December 31, 2001, we accrued $103,591 in salarypayable to Mr. O'Flaherty through December 31, 2002.REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION     The CompensationCommittee (the “Committee”) of the Board of Directorsdetermines compensation for the chief executive officer, reviewsand makes recommendations regarding compensation of executiveofficers, and supervises the administration of the Company’sequity plans for executives and all employees. The Committee iscomposed of three outside directors, Messrs. Neal, Scott andSturdy. No member is an employee or former employee of theCompany.Executive Compensation Objectives    On behalf of the Board of Directors, the Committee reviews andmakes recommendations concerning:- The compensation policywith respect to employees of the Corporation or any of itssubsidiaries insuring that the Corporation is in compliance withall legal compensation reporting requirements;   The compensation of the President and the Chief Executive Officer and other officers of theCorporation;Management compensation programs including, stock option plans, incentiveplans, and perquisites;
- The annual, or more often if appropriate review of:       a. Management succession plans and process;
  b. Performance appraisal and management and employee development programs;
  c. Contingency plans in the event of the unexpected disability of key management;
  d. Proposed personnel changes involving officers reporting to the Chief ExecutiveOfficer;    Components of Compensation      Executive compensation at Voice Mobility consistsprimarily of base salary and stock options.        *Base Salary* . Voice Mobilitytargets executives’ base salaries according to theWatson/Wyatt 2000/2001 Salary Survey. In determining each executiveofficer’s base salary, the Committee takes into accountcompetitive market data for similar positions at high-technologycompanies, individual responsibilities and performance, andinternal equity within Voice Mobility.    *Stock Options* . The Company’s equity incentives havebeen in the form of stock options. Stock options are issued at anexercise price of fair market value on the date of grant. Optionsgranted in fiscal 2001 vest ratably over three years.Fair-market-value stock options become valuable and exercisableonly if the executive officer continues to work at Voice Mobilityand the stock price subsequently increases.  CEO Compensation      The ChiefExecutive Officer’s salary and stock option grants follow thepolicies set forth above. Randy Buchamer succeeded James Hutton asChief Executive Officer (CEO) of Voice Mobility on August 15, 2001.In deciding on Mr. Buchamer’s compensation package, theCommittee considered compensation practices at companies similar insize and complexity to Voice Mobility; Mr. Buchamer’s basesalary is set at Cdn$200,000 per year. Upon becoming CEO, Mr.Buchamer received a stock option stock grant of 350,000 shares, torecognize his new responsibilities and deliver a significantportion of his compensation in a manner that is aligned withshareholder interests.      THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS Robert Neal David ScottMorgan SturdySTOCK PRICE PERFORMANCE GRAPH    The graph below shows the two and ahalf-year cumulative total stockholder return assuming theinvestment of $100 (and the reinvestment of any dividendsthereafter) on June1999, the first trading day of Voice MobilityInternational, Inc.’s common stock, in each of Voice MobilityInternational, Inc’s common stock, the NASDAQ Telecomm Index,and a peer group.(1) Voice Mobility’s stock price performanceshown in the following graph is not indicative of future stockprice performance.Comparison of 2.5 Years (6/30/99 to 12/31/01)Cumulative Total ReturnAmong Voice Mobility, The NASDAQ Telecomm Index, and The Peer GroupComposite(1)The peer groupis composed of companies that are members of the NASDAQ TelecommIndex and are companies developing unified communications softwarewhich is in a sector related to Voice Mobility’s business.The following companies were selected by Voice Mobility andmaintained by NASDAQ:ComverseTechnology Inc.3Com CorpGlenayre Technologies Inc.ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT    We have setforth in the following table certain information regarding ourcommon stock beneficially owned on December 31, 2001 for (i) eachshareholder we know to be the beneficial owner of 5% or more of ouroutstanding common stock, (ii) each of our executive officers anddirectors, and (iii) all executive officers and directors as agroup. In general, a person is deemed to be a "beneficial owner" ofa security if that person has or shares the power to vote or directthe voting of such security, or the power to dispose or to directthe disposition of such security. A person is also deemed to be abeneficial owner of any securities of which the person has theright to acquire beneficial ownership within 60 days. As ofDecember 31, 2001, we had outstanding approximately 34,248,782common share equivalents, consisting of 27,648,782 shares of CommonStock, 6,600,000 shares of Common Stock issuable on conversion ofall outstanding Exchangeable Shares, represented by one Series APreferred Stock.NAME OF BENEFICIAL OWNER(1)AMOUNT AND NATURE OF BENEFICIALOWNERSHIPPERCENT OF CLASSEdith M. Both843 Ida LaneKamloops, B.C.V2B 6V22,650,000i7.7%William E. Krebs2,543,897ii7.4%James J. Hutton2,146,778iii6.3%Innovatia Inc.4th Floor, Collins Bank Building1869 Upper Water StreetHalifax, Nova ScotiaCanada  B3J 1S91,986,071iv5.8%Randy Buchamer83,333v*William Gardiner180,000vi*David H. Grinstead383,333vii1.1James C. Hewett61,250viii*Morgan Sturdy83,333ix*David D. Scott83,333x*Robert E. Neal83,333xi***Directors and Executive Officersas a Group (9 persons)**5,648,59016.5%
*Less than 1%(1)The address for each person named above is #180 - 13777 Commerce Parkway, Richmond, British Columbia, Canada V6V 2X3 unless otherwise indicated.i.Stock owned by E.W.G. Investments Ltd. of which Ms. Both is a controlling shareholder.ii.Includes 1,762,500 shares owned by Pacific Western Mortgage Corporation of which Mr. Krebs is the sole shareholder; of these, 512,500 are held in escrow. Includes 581,397 shares owned by Margit Kristiansen, Mr. Krebs' wife; of these, 257,923 are held in escrow.  Mr. Krebs disclaims beneficial ownership of the shares owned by his wife. Includes 200,000 escrow shares held in a self-directed registered retirement savings plan.iii.Includes 1,312,500 share held in escrow.  Includes 36,778 shares which are owned by Janis Gurney, Mr. Hutton's wife, over which Mr. Hutton disclaims beneficial ownership; of these, 27,584 are held in escrow. Includes 250,000 Plan Options exerciseable in the next 60 days. Includes 110,000 shares held in a self-directed registered retirement savings plan; of these, 82,500 are held in escrow.iv.Includes 37,500 shares of common stock issuable upon exercise of underlying share warrants.v.Includes 83,333 Plan Options exercisable within the next 60 days.vi.Includes 160,000 Plan Options exercisable within the next 60 days.  Includes 20,000 common shares; of these, 15,000 are held in escrow.vii.Includes 383,333 Plan Options exercisable within the next 60 days.viii.Includes 61,250 Plan Options exercisable within the next 60 days.ix.Includes 83,333 Plan Options exercisable within the next 60 days.x.Includes 83,333 Plan Options exercisable within the next 60 days.xi.Includes 83,333 Plan Options exercisable within the next 60 days.ITEM 13. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.    During the yearended December 31, 2001, Pacific Western Mortgage Corporation, acorporation controlled by William Krebs, one of our directors, waspaid $11,867 [2000 - $85,000; 1999 - $40,392]  for consultingservices.    During the year ended December 31, 2001, Karina Ventures, Inc. acompany controlled by John Curry, a director from August 2001 toMarch 2002 and our former Chief Financial Officer, was paid $24,508[2000 - $40,000; 1999 - $13,464]  for consulting services.    During the yearended December 31, 2001, we sold to Innovatia Inc., one of ourshareholders and a wholly owned subsidiary of Aliant Inc., and toNB Tel, also a wholly owned subsidiary of Aliant Inc., products andservices totaling $202,011 [2000 - $68,649; 1999 - $42,072] .Innovatia Inc. is a holder of more than 5% of our outstandingstock.    On February 27, 2001, we entered into a three year developmentagreement with Innovatia Inc., a wholly owned subsidiary of AliantInc. Robert E. Neal, a member of our Board of Directors, is thePresident of Innovatia, and serves as Aliant's nominee to our Boardpursuant to an understanding with Aliant. Our three yeardevelopment agreement with Innovatia is to develop acarrier-classified unified communications product that will becomeAliant’s primary hosted messaging solution for business andresidential customers. Under the agreement, Innovatia will licenseto us certain intellectual property on a non-exclusivenon-transferable basis for use in the development and verificationof current products and will provide specific professional, projectmanagement, administrative and support services. In considerationof the services provided, we originally agreed to pay quarterlyfees based directly on the value of the work performed beginningFebruary 1, 2001. We originally had the option to elect to pay forsome or all of the services in cash or common shares.    On December 28,2001, Innovatia agreed to settle the value of the services providedto date by Innovatia of $1,707,989 (Cdn$2,720,142) in the form of apromissory note bearing interest at prime plus 1% (the prime rateat December 31, 2001 was 4%). The promissory note is repayable inquarterly payments over the term commencing July 1, 2002 and forthe ten consecutive quarters thereafter. Each quarterly payment isdue on or before the first business day following the quarter endedand is calculated as the lesser of $142,314 (Cdn$226,678) or 40% ofthe net aggregate amount of invoices issued by us to Aliant in thepreceding quarter. In the event that the net amount of invoices fora quarter exceed $142,314 (Cdn$226,678), we will carry forward thedifference between net amount of invoices and $142,314(Cdn$226,678) and include that amount in the calculation for thefollowing quarter. Payment for the period January 1, 2002 to June30, 2002 will be calculated in the same manner and will be payableon October 1, 2002 in addition to the payment for the third quarterbeginning July 1, 2002. We have the option to elect to settle someor all of the amounts owing in cash, common shares or a combinationthereof and have the right at any time to prepay the whole or anyportion of the balance owing without penalty. Any part of theprincipal amount or accrued interest not paid after the lastscheduled quarterly payment will be payable in common shares insuccessive quarters thereafter. The equity value of such anissuance is calculated based upon the weighted average tradingprice of our common shares on the Toronto Stock Exchange over the10 trading days immediately prior to the date on which such sharesare to be issued. The number of common shares issuable isdetermined by dividing the amount due calculated in the same mannerabove by Cdn$1.56.    On December 28,2001, in connection with the issuance of the promissory note toInnovatia, we issued 500,000 common shares to Innovatia at a marketprice of $0.26 (Cdn$0.42) per share. The $132,059 (Cdn$210,000)fair value of the common shares issued was deducted from theoriginal principal amount owing under the promissory note resultingin a balance owing of $1,575,930 (Cdn$2,510,142) at December 31,2001. In accordance with the requirements of the Toronto StockExchange, the issuance of these shares was subject to our reducingthe balance of shares reserved for issuance under our current stockoption plan by 500,000 common shares until we receive shareholderapproval.    On March 4,2002, we renegotiated the remaining term of the originaldevelopment agreement with Innovatia signed on February 27, 2001.The term of the revised agreement is for the period January 1, 2002to December 31, 2003. Innovatia will continue to provide the sameservices as per the original agreement, however, in considerationof the services provided, we agreed to pay Innovatia a cash royaltywithin 30 days after the end of each calendar quarter equal to 10%on the gross revenue received for the sale of our products globallywithin the quarter. If the contract is terminated the royaltypayments will continue for six months after the terminationdate.    On June 29,2001, Tom O’Flaherty resigned his position as President andDirector of VMI. As part of his final settlement, Mr.O’Flaherty will remain in salary continuance up to December31, 2002. In the case of re-employment with another company, we arerequired to pay the difference, if any, between his new monthlybase salary and the monthly base salary which he was earning atVMI. Under the settlement, Mr. O’Flaherty agreed to foregoany rights he may have under his employment agreement to anyadditional monetary bonuses and associated options for 2001 and2002. As at December 31, 2001, we accrued $103,591 in salarypayable to Mr. O'Flaherty through December 31, 2002.    In August 2001,Voice Mobility entered into an employment agreement with RandyBuchamer, who serves as Chief Executive Officer of VMI. Theagreement provides for an annual salary of Cdn$200,000. Mr.Buchamer’s agreement provides for the grant of options underour Second Amended and Restated 1999 Stock Option Plan of 350,000shares of VMII common stock for Cdn.$1.37 per share, which optionsvest in equal thirds over the next three years.    In February2000, Voice Mobility entered into an employment agreement withDavid Grinstead, who serves as Executive Vice President of BusinessDevelopment of VMI. The agreement provides for an annual salary ofCdn$130,000 and incentive compensation payments based onperformance. Mr. Grinstead’s agreement provided for the grantof options under our 1999 Stock Option Plan of 500,000 shares ofVMII common stock for $2.125 per share, which options vest in equalthirds over three years.ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No.Description of Document3.1Articles of Incorporation (1)3.2Articles of Amendment of Articles of Incorporation (1)3.6Amended and Restated Bylaws (4)4.1Common Stock Certificate (1)4.2Form of Warrant (1)4.3Certificate of Designation of Series A Preferred Stock (1)4.4Certificate of Designation of Series B Preferred Stock (5)4.5Certificate of Amendment to Certificate of Designation of Series B Preferred Stock *5.1Opinion of Jones Vargas (6)10.1Amended and Restated 1999 Stock Option Plan (4)10.2Employment Agreement of James Jay Hutton (1)10.3Employment Agreement of William Gardiner (1)10.4Employment Agreement of Jason Corless (1)10.5Employment Agreement of Budd Stewart (1)10.6Employment Agreement of Geoff Heston (1)10.7Acquisition Agreement of Voice Mobility Inc. (1)10.8Agreement and Plan of Distribution of Equity Capital Group, Inc. (1)10.9List of Subsidiaries of Registrant (5)10.10Debt Settlement Agreement with Maritime Tel & Tel (1)10.11Voting, Support and Exchange Trust Agreement (1)10.12Debt Settlement Agreement with Pacific Western Mortgage Corporation (1)10.13Debt Settlement Agreement with Ernest Weir Gardiner (1)10.14Stock Purchase Agreement (1)10.15Form of Subscription Agreement (1)10.16Exchange Agreement (1)10.17Employment Agreement of Thomas G. O'Flaherty (5)10.18Employment Agreement of David Grinstead (5)10.19Form of Series B Preferred Stock Subscription Agreement (5)10.20Form of Class I Stock Purchase Warrant (5)10.21Escrow Agreement, as amended (6)10.22Agency Agreement (6)10.23Special Warrant Indenture (6)10.24Share Warrant Indenture (6)10.25Form of Subscription Agreements for Special Warrants (6)10.26LivingLAB Agreement Between Voice Mobility Inc. and Innovatia (6)10.27Non-Negotiable Promissory Note in favor of Ibex Investments Ltd., as amended (8)10.28Class K Stock Purchase Warrant (6)10.29Non-Negotiable Promissory Note in favor of Alliance Equities Ltd. (7)10.30Non-Negotiable Promissory Note in favor or Interior Holdings Ltd. (7)10.31Form of Class L Stock Purchase Warrant (7)10.32Non-Negotiable Promissory Note in favor of Alliance Equities Ltd.(8)10.33Non-Negotiable Promissory Note in favor of Interior Holdings Ltd.(8)10.34Form of Class M Stock Purchase Warrant (8)10.35Non-Negotiable Promissory Note in favor of Alliance Equities Ltd. (8)10.36Non-Negotiable Promissory Note in favor of Interior Holdings Ltd. (8)10.37Form of Class N Stock Purchase Warrant (8)10.38Escrow Agreement among the Company, Computershare Trust Company of Canada and certain shareholders of the Company dated July 3, 2001 (8)10.39Settlement Agreement between Thomas O'Flaherty and the Company dated June 29, 2001 (8)10.40Employment Agreement of Randy Buchamer*10.41Amended LivingLAB Agreement Between Voice Mobility Inc. and Innovatia Inc.* 10.42Addendum to LivingLAB Agreement *10.43Employment Agreement of James Hutton *16.1Letter of Bedford Curry & Co., Chartered Accountants, regarding  change in certifying accountants. (2)16.2Letter of Ernst & Young LLP, Chartered Accountants, regarding change in certifying accountants. (2)23.1Consent of Ernst & Young LLP, Chartered Accountants *23.2Consent of Bedford Curry & Co., Chartered Accountants (8)23.3Consent of Jones Vargas (included in Exhibit 5.1) (6)24.1Power of Attorney (6)* Filed herewith.(1) Previously submitted with our Registration Statement on Form10-SB, as originally filed on September 17, 1999, and allamendments thereto.(2) Previously submitted with our Form 8-K, as filed on March 16,2000.(3) Previously submitted with our Form 10-KSB, as filed on March30, 2000.(4) Previously submitted with our Definitive Schedule 14A as filedon May 19, 2000.(5) Previously submitted with our Form 10-KSB, as filed on April11, 2001.(6) Previously submitted with our Registration Statement on FormS-1, as originally filed on May 10, 2001(7) Previously submitted with our Pre-effective Amendment No.#1 tothe Registration Statement on Form S-1, as filed on June 8,2001.(8) submitted with our Post-effective Amendment No.#1 to theRegistration Statement on Form S-1, as filed on July 16, 2001.(b) Reports ofForm 8-KWe made nofilings on Form 8-K during the fourth quarter of fiscal 2001.**REPORT OF INDEPENDENTAUDITORS**To the Board of Directors andShareholders of**Voice Mobility International, Inc.**We have auditedthe accompanying consolidated balance sheets of **Voice MobilityInternational, Inc.** as of December 31, 2001 and 2000 and therelated consolidated statements of operations, stockholders’equity (deficiency) and cash flows for each of the three years inthe period ended December 31, 2001. These financial statements arethe responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with auditing standardsgenerally accepted in the United States. Those standards requirethat we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for ouropinion.In our opinion, the financial statements referred to above presentfairly, in all material respects, the consolidated financialposition of Voice Mobility International, Inc. at December 31, 2001and 2000, and the consolidated results of its operations and itscash flows for each of the three years in the period ended December31, 2001, in conformity with accounting principles generallyaccepted in the United States.The accompanyingfinancial statements have been prepared assuming that VoiceMobility International, Inc. will continue as a going concern. Asdiscussed in Note 1 to the financial statements, theCompany’s recurring operating losses raise substantial doubtabout its ability to continue as a going concern.Management’s plans in regard to these matters are alsodescribed in Note 1. The financial statements do not include anyadjustments that might result from the outcome of thisuncertainty.Vancouver, Canada,/s/ ERNST & YOUNG LLPJanuary 28, 2002 (except for Note 13which is as of March 8, 2002)Chartered Accountants**Voice Mobility International, Inc.****CONSOLIDATED BALANCESHEETS**[See Note 1 - Nature ofBusiness and Basis of Presentation] As at December 31(expressed in U.S. dollars)20012000$$**ASSETS****Current**Cash and cash equivalents**1,732,200**602,527Restricted cash *[note 8[c] ]***—**2,000,000Accounts receivable [net of allowance for doubtful debts:2001 - $26,014; 2000 - $4,222]  *[note 4]***222,268**18,634Other receivables**266,881**50,886Note receivable *[notes 3 and 4]***232,500**—Prepaid expenses**100,850**65,133**Total current assets****2,554,699**2,737,180Property and equipment, net *[note 6]***1,780,935**1,927,731**4,335,634**4,664,911**LIABILITIES AND STOCKHOLDERS’ EQUITY****Current**Accounts payable**445,936**413,662Accrued liabilities**57,062**316,464Employee related payables**182,154**160,560Note payable *[note 3]***205,000**—Deferred revenue**158,584**212,500**Total current liabilities****1,048,736**1,103,186 Promissory note payable *[note 7]***1,575,930**—**Total liabilities****2,624,666**1,103,186Commitments and contingencies *[note 11]* **Stockholders’ equity***[note 8]*Common stock, $0.001 par value, authorized 100,000,000,27,648,782 outstanding [2000 - 20,201,282] **27,649**20,202Preferred stock, $0.001 par value, authorized 1,000,000Series A Preferred stock issued and outstanding, 1**1**1Series B Preferred stock issued and outstanding, 585,698 [2000- 666,667] **586**667Additional paid-in capital**31,323,354**22,871,377Accumulated deficit**(29,563,804)**(19,323,693)Other accumulated comprehensive income**(76,818)**(6,829)**Total stockholders’ equity****1,710,968**3,561,725**4,335,634**4,664,911*See accompanying notes***Voice Mobility International, Inc.****CONSOLIDATED STATEMENTS OF OPERATIONS**[See Note 1 - Nature of Business and Basis of Presentation] As at December 31(expressed in U.S. dollars)****200120001999$$$ **Sales***[note 5]***358,191**275,19055,997Cost of sales**49,999**86,49851,843Gross profit**308,192**188,6924,154 **Operating expenses**Sales and marketing *[note 8[d] ]***2,237,563**3,588,6421,190,754Research and development *[note 8[d] ]***4,618,284**2,709,0482,250,153General and administrative *[note 8[d] ]***3,623,980**3,639,0282,351,643Acquisition fee for recapitalization**—**—200,000**10,479,827**9,936,7185,992,550Loss from operations**10,171,635**9,748,0265,988,396Interest income**(160,095****)**(113,490)—Interest expense**281,017**16,41170,209Loss before extraordinary items**10,292,557**9,650,9476,058,605Extraordinary loss on settlement of debt *[note8[b] ]***—**—790,000**Net loss****10,292,557**9,650,9476,848,605Foreign currency translation losses**69,989**42,33139,737**Comprehensive loss****10,362,546**9,693,2786,888,342 **Earnings (loss) per share***[note 8[f] ]*Basic and diluted loss per sharebefore extraordinary items**(0.34)**(0.46)(0.36)Basic and diluted loss per share**(0.34)**(0.46)(0.41)*See accompanying notes***Voice Mobility International, Inc.****CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY (DEFICIENCY)**[See Note 1 - Nature ofBusiness and Basis of Presentation] As at December 31(expressed in U.S. dollars)****OtherCommon StockStock to be IssuedSeries A Preferred StockSeries B Preferred StockAdditionalAccumulatedNumberNumberNumberNumberPaid-inAccumulatedComprehensiveof SharesAmountof SharesAmountof SharesAmountof SharesAmountCapitalDeficitIncomeTotal#$#$#$#$$$$$Balance, December 31, 19988,400,00059———————(1,373,141)75,239(1,297,843)Exchange of Voice Mobility Inc. common stock(8,400,000)(59)——11——58———Acquisition of Equity Capital Group, Inc.453,756454——————(454)———Stock to be issued pursuant to Acrex Ventures Ltd. stocksubscriptions8,327,0998,32790,90191————1,255,582——1,264,000Stock subscription receivable from Acrex Ventures Ltd.————————(43,333)——(43,333)Acquisition fee for recapitalization————————200,000——200,000Stock issued on settlement of Pacific Western MortgageCorporation note payable750,000750——————249,250——250,000Warrants issued on settlement of Ernest Gardiner notepayable————————33,000——33,000Warrants issued on settlement of Ibex Investment Ltd. notepayable————————957,000——957,000Stock issued on settlement of amounts due to Aliant Inc.1,428,5711,429——————498,571——500,000Common stock issued pursuant to exercise of common stockwarrants——3,160,0003,160————1,510,173——1,513,333Stock based compensation————————2,910,580——2,910,580Foreign currency translation loss——————————(39,737)(39,737)Net loss—————————(6,848,605)—(6,848,605)Balance December 31, 199910,959,42610,9603,250,9013,25111——7,570,427(8,221,746)35,502(601,605) Stock subscriptions received pursuant to stock subscriptionsfrom Acrex Ventures Ltd.90,90191(90,901)(91)————43,333——43,333Common stock issued pursuant to private placements, net ofshare issue costs of $75,0003,050,0003,050——————7,238,950——7,242,000Common stock issued pursuant to exercise of common stockwarrants5,594,0005,594(3,160,000)(3,160)————951,084——953,518Common stock issued pursuant to exercise of stock options506,955507——————430,992——431,499Preferred stock and detachable warrants issued pursuant toprivate placement——————666,6676671,999,333——2,000,000Beneficial conversion feature and deemed dividend on preferredstock————————1,451,000(1,451,000)——Stock based compensation————————3,186,258——3,186,258Foreign currency translation loss——————————(42,331)(42,331)Net loss————————(9,650,947)—(9,650,947)Balance, December 31, 200020,201,28220,202——11666,66766722,871,377(19,323,693)(6,829)3,561,725 Common stock issued pursuant to special warrants6,500,0006,500——————7,643,334——7,649,834Common stock issued on settlement of amounts due to InnovatiaInc.500,000500——————131,559——132,059Common stock issued pursuant to exercise of stock options447,500447——————405,178——405,625Warrants issued pursuant to promissory notes————————226,967——226,967Series B preferred stock retraction——————(80,969)(81)(352,378)109,552—(242,907)Dividends paid on preferred stock—————————(57,106)—(57,106)Repurchase of vested stock options————————(31,500)——(31,500)Stock based compensation————————428,817——428,817Foreign currency translation loss——————————(69,989)(69,989)Net loss—————————(10,292,557)—(10,292,557)Balance, December 31, 200127,648,78227,649——11585,69858631,323,354(29,563,804)(76,818)1,710,968*See accompanying notes***Voice Mobility International, Inc.****CONSOLIDATED STATEMENTS OF CASH FLOWS**[SeeNote 1 - Nature of Business and Basis of Presentation] As at December 31(expressed in U.S. dollars)200120001999$$$**OPERATING ACTIVITIES**Net loss**(10,292,557)**(9,650,947)(6,848,605)Non-cash items included in net lossAmortization**909,746**545,988148,150Stock issued on settlement of amountsdue to Innovatia, Inc.**132,059**——Promissory note payable issued for services**1,575,930**——Stock issued on settlement of amountsdue to Aliant Inc.**—**—500,000Extraordinary loss on settlement of note payable**—**—790,000Stock based compensation**428,817**3,186,2582,910,580Bad debt expense**59,856**(17,331)204Interest on promissory notes payable**226,967**——Loss on disposal of property and equipment**5,391**——**(6,953,791)**(5,936,032)(2,499,671)Net change in operating assets and liabilities *[note12]***(655,274)**456,469406,026**Cash used in operating activities****(7,609,065)**(5,479,563)(2,093,645) **INVESTING ACTIVITIES**Purchase of property and equipment**(955,808)**(1,857,636)(519,548)Proceeds on sale of property and equipment**7,998**——**Cash used in investing activities****(947,810)**(1,857,636)(519,548) **FINANCING ACTIVITIES**Proceeds from issuance of special warrants,net of financing costs**7,649,834**——Proceeds from issuance of common stock**—**7,102,033—Proceeds from release of preferred stock from escrow**1,757,093**——Proceeds on exercise of stock options**405,625**431,499—Proceeds on exercise of warrants**—**953,5181,513,333Proceeds on promissory notes payable and warrants**1,404,214**——Repayment of promissory notes payable**(1,397,305)**(624,360)—Change in amounts due to Acrex Ventures Ltd.**—**—997,994Cash proceeds from advances**—**—183,300Repurchase of vested stock options**(31,500)**——Dividends paid on preferred stock**(57,106)**——**Cash provided by financing activities****9,730,855**7,862,6902,694,627 Effect of foreign currency on cash**(44,307)**(43,676)2,165**Increase in cash and cash equivalents****1,129,673**481,81583,599Cash and cash equivalents, beginning of year**602,527**120,71237,113**Cash and cash equivalents, end of year****1,732,200**602,527120,712*See accompanying notes***1. NATURE OF BUSINESS AND BASIS OF PRESENTATION****Nature of business**Voice Mobility International, Inc., (the ‘Company’) isa Nevada corporation engaged in the development and sales andmarketing of unified voice messaging software through its whollyowned operating subsidiaries, Voice Mobility Inc. and VoiceMobility (US) Inc. The Company’s Enhanced Messaging softwaresuite will allow for legacy voice-mail replacement and incrementalofferings such as real time call connect, voice-mail to e-mail, andfax to e-mail services. These unified communication services arefacilitated by the creation of a single personal digital mailboxthat can receive any type of communication regardless of itsincoming format or medium. The Company’s principal geographicmarkets include North America, Europe and Asia.**Basis ofpresentation**The financial statements have been prepared by management inaccordance with accounting principles generally accepted in theUnited States on a going concern basis, which contemplates therealization of assets and the discharge of liabilities in thenormal course of business for the foreseeable future.The Company incurred an operating loss of $10,171,635 for the yearended December 31, 2001 [2000 - $9,748,026; 1999 - $5,988,396]  thatraises substantial doubt about its ability to continue as a goingconcern. Management has been able, thus far, to finance theoperations, as well as the growth of the business, through a seriesof equity and debt financing. Management plans to continue to seekother sources of financing on favorable terms, however, there areno firm commitments for any additional financing, and there can beno assurance that any such commitment can be obtained on favorableterms, if at all. Management believes it has implementedsignificant cost reductions and expects to keep its operating coststo a minimum until cash is available through financing or operatingactivities. Management expects revenues to increase from in 2002from the deployment of the unified communications software productwhich will afford the Company the ability to fund its dailyoperations and service its debt obligations. There are noassurances that the Company will be successful in achieving thesegoals.In view of these conditions, the ability of the Company to continueas a going concern is uncertain and dependent upon achieving aprofitable level of operations and, if necessary, on the ability ofthe Company to obtain necessary financing to fund ongoingoperations. Management believes that its current and future plansenable it to continue as a going concern. These financialstatements do not give effect to any adjustments which would benecessary should the Company be unable to continue as a goingconcern and therefore be required to realize its assets anddischarge its liabilities in other than the normal course ofbusiness and at amounts different from those reflected in theaccompanying financial statements.**1. NATURE OF BUSINESSAND BASIS OF PRESENTATION (cont’d.)**For the years ending December 31, 1999 and prior, the Company was adevelopment stage company.**1999 Recapitalizationof the Company**These consolidated financial statements are the continuingfinancial statements of Voice Mobility Inc. (“VMI“) a companyincorporated under the laws of the Canada Business Corporations Actin 1993. Through a series of transactions in June 1999, VMI wasrecapitalized and acquired the net assets of Voice MobilityInternational, Inc. (“VMII“)(formerly Equity Capital Group,Inc.) an inactive United States company registered on the NASDOver-the-Counter Bulletin Board.Prior to the reverse acquisition of VMII, the shareholders of VMIhad been negotiating to acquire Acrex Ventures Ltd. (“Acrex”)aninactive public company trading on the Vancouver Stock Exchange(VSE) with no assets or liabilities. Pending approval of thistransaction by the VSE, Acrex and VMI entered into four privateplacements for proceeds totaling $1,400,000 (Cdn$2,022,500). Thenet proceeds of $1,264,000 were advanced to VMI to fund operations.Under these arrangements stock subscriptions in the privateplacements entitled investors to one common stock of Acrex and onewarrant entitling the holder to acquire one common stock of Acrex.At the time of this arrangement the fair value of the warrants wasdetermined to be nominal since the exercise price of these warrantsexceeded the fair value of the VMI common stock. This arrangementbetween Acrex and VMI expired on March 31, 1999. In connection withthe acquisition of VMII, the Acrex investors agreed to assign allproceeds from the four private placements to VMII and contribute anadditional $.02 per share for an aggregate $200,000, in exchangefor common stock and common stock warrants with terms andconditions substantially identical to the warrants that would havebeen issued by Acrex to the subscribers of its four privateplacements. Accordingly, the issuance of common stock and warrantsof VMII to Acrex investors has been reflected as a recapitalizationof VMI in the amount of $1,264,000 in the year ended December 31,1999. As at December 31, 1999, $43,333 was receivable from Acrexinvestors and was presented as a reduction of additional paid incapital. The $43,333 was collected in fiscal 2000.**1. NATURE OF BUSINESSAND BASIS OF PRESENTATION (cont’d.)**VMI received advances in the form of notes payable from PacificWestern Mortgage Corporation (“PWMC”)a shareholder of VMI andErnest Gardiner, an Acrex investor. In March 1999, these partiesagreed to settle amounts owing to them by VMI. PWMC agreed to theissuance of 750,000 common shares of Acrex, at their fair value, insettlement of $250,000 (Cdn$375,000) of amounts owing by VMI. Thefair value of the shares issued was determined by management to be$0.35 (Cdn$0.50) per share. Ernest Gardiner agreed to the issuanceof warrants to acquire 101,000 common shares of Acrex at $0.35(Cdn$0.50) per share, in settlement of $33,000 (Cdn$50,500) ofamounts owing by VMI. The fair value of the warrants was determinedto be equivalent to the debt settled.Pursuant to share purchase agreements dated April 1, 1999and June 24, 1999, the stakeholders of VMI, sold their interest,and had transferred to them 125,000 shares of common stock ofEquity Capital Group, Inc. by the majority shareholder of EquityCapital Group, Inc., and VMII issued 8,293,000 shares of VMIIcommon stock and the right to acquire an additional 6,600,000shares of VMII common stock in exchange for $200,000 and all thecapital stock of VMI. As a result of this transaction, thestakeholders in Voice Mobility and Acrex (consisting of theoriginal shareholders of VMI, certain shareholders of Acrex, andthe investors in the Acrex private placement) effectively acquired15,018,000 common stock equivalents of VMII which represented acontrolling interest of approximately 90%. This transaction isconsidered an acquisition of VMII (the accounting subsidiary/legalparent) by VMI (the accounting parent/legal subsidiary) and hasbeen accounted for as a purchase of the net assets of VMII by VMI.Accordingly, this transaction represents a recapitalization of VMI,the legal subsidiary effective June 24, 1999.VMI’s assets and liabilities are included in the consolidatedfinancial statements at their historical carrying amounts.Operating results to June 24, 1999, are those of VMI. At June 24,1999, VMII had no assets and no liabilities. For purposes of thisacquisition the fair value of the net assets of VMII of $nil wasascribed to the 453,756 previously outstanding common stock of VMIIdeemed to be issued in the acquisition. The additional $200,000paid for this transaction was expensed as a fee for therecapitalization in the year ended December 31, 1999.**2. SIGNIFICANTACCOUNTING POLICIES**The following is a summary of significant accounting policies usedin the preparation of these consolidated financial statements:**Principles ofconsolidation**The accompanying consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries, VoiceMobility Inc., Voice Mobility (US), Inc., Voice Mobility CanadaLimited, an inactive company and VM Sub Limited, also an inactivecompany. All intercompany balances and transactions have beeneliminated on consolidation.**Use of estimates**The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the period. Actualresults could differ from those estimates.**Revenuerecognition**The Company recognizes license revenue upon shipment of a productto the client if a signed contract exists, the fee is fixed anddeterminable, collection of resulting receivables is probable, andany uncertainties with regard to customer acceptance areinsignificant. For contracts with multiple elements (e.g.deliverable and undeliverable products, maintenance and otherservices), the Company allocates revenue to each element of thecontract based on objective evidence of its fair value when it isdeterminable. The Company recognizes revenue allocated toundelivered products when the criteria for product revenue setforth above are met.To the extent that objective evidence of fair value is notdeterminable, the Company defers revenue until the earlier of thepoint at which (1) sufficient evidence exists or (2) all elementsof the arrangement have been delivered. If the only undeliveredelement relates to post contract support, the Company defersrevenue and recognizes it ratably over the term of theagreement.**2. SIGNIFICANTACCOUNTING POLICIES (cont’d.)****Foreign currency**These consolidated financial statements have been presented inUnited States dollars. The functional currency of the Company isthe Canadian dollar. Accordingly, all assets and liabilities of theCompany, which are denominated in foreign currencies, aretranslated at the year end exchange rate and revenues and expensesare translated using a weighted average exchange rate for theapplicable period. Any exchange gains and losses resulting arepresented as cumulative foreign currency translation gains (losses)within other accumulated comprehensive income.Monetary assets and liabilities denominated in foreigncurrencies are translated at the exchange rate in effect at thebalance sheet date. Other balance sheet items and revenues andexpenses are translated at the exchange rates prevailing on therespective transaction dates. Gains and losses on foreign currencytransactions are reflected in the consolidated statements ofoperations.**Financialinstruments**The Company’s financial instruments consists of cash and cashequivalents, accounts receivable, other receivables, notereceivable, accounts payable, note payable and promissory notepayable. Unless otherwise stated the fair value of the financialinstruments approximates their carrying value. The Company has notentered into foreign exchange derivative contracts.**Cash and cashequivalents**Cash and cash equivalents consist of cash and short term depositswith original maturities of ninety days or less and are recorded atamortized cost.**Property andequipment**Property and equipment are carried at cost. Amortization isprovided using the straight line method over the assets estimateduseful lives as follows:Computer equipment3 yearsComputer software2 yearsComputer equipment for customer useTerm of contractOffice equipment and furniture5 yearsLeasehold improvementsTerm of the lease**2. SIGNIFICANTACCOUNTING POLICIES (cont’d.)**The Company begins to amortize computer equipment for customer usewhen the equipment is installed at the customer site. Amortizationon computer equipment for customer use is recorded as cost of saleson the income statement.In 2000, the Company changed its amortization policy from thedeclining balance method to the straight line method. Thecumulative effect of this change in accounting policy was notsignificant to the 2000 financial statements.**Software developmentcosts**Costs incurred internally to develop computer software products andthe costs to acquire externally developed software products (whichhave no alternative future use) to be sold, leased or otherwisemarketed are charged to expense until the technological feasibilityof the product has been established. After technologicalfeasibility is established and until the product is available forgeneral release, software development, product enhancements andacquisition costs will be capitalized and amortized on a product byproduct basis.**Advertising**Advertising costs are expensed in the period incurred. Advertisingexpense for the year ended December 31, 2001 was $162,000 [2000 -$355,000; 1999 - $66,000] .**Stock basedcompensation**The Company accounts for stock-based employee compensationarrangements using the intrinsic value method in accordance withthe provisions of Accounting Principles Board Opinion No. 25,“for Stock Issued to Employees“(“25“)andcomplies with the disclosure provisions of Statement of FinancialAccounting Standards No. 123, “for Stock-BasedCompensation“(“123“)Under APB 25, compensationexpense for employees is based on the difference between the fairvalue of the Company’s stock and the exercise price if any,on the date of the grant. The Company accounts for stock issued tonon-employees at fair value in accordance with SFAS 123. TheCompany uses the Black-Scholes option pricing model to determinethe fair value of stock options granted to non-employees.**2. SIGNIFICANTACCOUNTING POLICIES (cont’d.)****Income taxes**The Company follows the liability method of accounting for incometaxes. Under this method, deferred tax assets and liabilities aredetermined based on the difference between the financial reportingand tax bases of assets and liabilities using enacted tax ratesthat will be in effect for the year in which the differences areexpected to reverse.**Earnings per share**Basic earnings (loss) per share is computed by dividing income(loss) available to common stockholders by the weighted averagenumber of common stock and exchangeable shares outstanding for theperiod. Diluted earnings (loss) per share reflects the dilutivepotential of outstanding securities using the treasury stockmethod.**Comprehensiveincome**Comprehensive income includes all changes in equity except thoseresulting from investments by owners and distributions to owners.Other accumulated comprehensive income consists only of accumulatedforeign currency adjustments for all years presented.**Recentpronouncements**In August 2001, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 144(“144”)“for the Impairment or Disposal of Long-LivedAssets”which addresses financial accounting and reporting forthe impairment or disposal of long-lived assets and supersedes SFAS121, “for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of”and the accounting andreporting provisions of Accounting Principles Board Opinion No. 30,“the Results of Operations”for a disposal of a segment ofa business. SFAS 144 is effective for fiscal years beginning afterDecember 15, 2001. The Company does not expect that the adoption ofthe Statement will have a significant impact on its financialposition and results of operations.**3. NOTES RECEIVABLEAND PAYABLE**On August 8, 2001, a plaintiff commenced an action in the SuperiorCourt of California against the Company and the predecessorcorporation, Equity Capital Group, Inc. (“ECG”)to recoverdamages as a result of an alleged breach of contract.On October 10, 2001, the Company signed an indemnificationagreement with the former majority shareholder of ECG to indemnifythe Company against any claims or liabilities that existed prior tothe April 1, 1999 and June 1, 1999 share purchase agreementsdescribed in Note 1 - 1999 Recapitalization of the Company.Also on October 10, 2001, the Company and the former majorityshareholder of ECG signed a settlement agreement, a securityagreement for specified manufacturing assets of an existingbusiness and a stock pledge agreement for 10,000 common shares ofCoast Envelope, a California company, held by the former majorityshareholder of ECG. In accordance with the settlement agreement,the former shareholder is to pay the Company $290,000 to cover thecosts of the plaintiff settlement and additional related legalexpenses. The settlement amount is to be paid in set installmentsfrom October 10, 2001 to October 25, 2002. The security and stockpledge agreements are in place to further collateralize theCompany’s position in addition to the indemnificationagreement. As at December 31, 2001, the outstanding balance on thenote receivable is $232,500.On October 15, 2001, a settlement agreement and mutual release wassigned between the Company and the above noted plaintiff. Thesettlement agreement sets forth payments owing to the plaintiff bythe Company in the sum of $252,500 to be paid in set installmentsfrom October 10, 2001 to October 1, 2002. As at December 31, 2001,the outstanding balance on the note payable is $205,000.**4. CONCENTRATION OFCREDIT RISK**Financial instruments, which potentially subject the Company toconcentrations of credit risk, consist principally of cash and cashequivalents, accounts receivables and the note receivable. TheCompany performs ongoing credit evaluations of its customers andmaintains allowances for potential credit losses which, whenrealized, have been within the range of management’sexpectations.Amounts owing from one customer comprised 92% of the accountsreceivable balance at December 31, 2001. Amounts owing from threecustomers comprised 86% of the accounts receivable balance atDecember 31, 2000.**5. SEGMENTEDINFORMATION**The Company operates in one major line of business, thedevelopment, manufacture and marketing of unified voice messagingsystems. The Company derived substantially all of its revenues toexternal customers from sales by its Canadian operations and hassubstantially all its assets in Canada. Sales to one customercomprised 56% of revenues in 2001. Sales to three customerscomprised 93% of revenues in 2000. Sales to three customerscomprised 100% of revenues in 1999.Revenue from external customers, by location of customer, is asfollows:******Canada********US****Barbados****Other****ConsolidatedTotal** 2001301,99141,200—15,000358,191200078,611106,12690,453—275,190199955,997———55,997**6. PROPERTY ANDEQUIPMENT****Accumulated Cost**Amortization**Net Book Value$$$ **2001**Computer equipment**2,256,869****1,059,176****1,197,693**Computer software**556,056****352,959****203,097**Computer equipment for customer use**227,966****17,712****210,254**Office equipment and furniture**183,465****61,967****121,498**Leasehold improvements**108,663****60,270****48,393****3,333,019****1,552,084****1,780,935** **2000**Computer equipment1,975,443476,2771,499,166Computer software401,356185,986215,370Office equipment and furniture177,82638,456139,370Leasehold improvements107,23633,41173,8252,661,861734,1301,927,731**7. PROMISSORY NOTEPAYABLE**On February 27, 2001, the Company entered into a three-yeardevelopment agreement with Innovatia Inc. (“Innovatia“) an existingshareholder of the Company and a wholly owned subsidiary of AliantInc. (“Aliant“) The purpose of the agreement is to developa carrier-classified unified communications product to which theCompany will have exclusive title. Under the agreement, Innovatiawill license certain intellectual property to the Company on anon-exclusive non-transferable basis for use in the development andverification of current products and will provide specificprofessional, project management, administrative and supportservices. In consideration of the services provided, the Companyagreed to pay $5.7 million over three years in quarterlyinstallments of $475,000 commencing the quarter ended April 30,2001. The Company had the option to pay for some or all of theservices in cash or common shares. It is the Company’sintention to negotiate a non-exclusive licensing agreement withAliant for use of the product.OnDecember 28, 2001, the Company and Innovatia agreed to terminatethe three-year development agreement. In settlement of the servicesprovided under this agreement, the Company issued to Innovatia aCanadian dollar denominated promissory note in the amount of$1,707,989 (Cdn $2,720,142). Immediately thereafter, the Companyrepaid $132,059 (Cdn $210,000) of the promissory note by issuing500,000 common shares at a market price of $0.26 (Cdn $0.42) pershare. In accordance with the requirements of the Toronto StockExchange, the issuance of these common shares resulted in anequivalent reduction in the number of common shares reserved forissuance under the Company’s current stock option plan. The promissory note bears interest at prime plus 1% (prime rate atDecember 31, 2001 was 4%) and is repayable in quarterlyinstallments until repaid in full. The amount payable each quarter(“Amount Payable”) is the lesser of $142,314 (Cdn $226,678)and 40% of the net aggregate amount of invoices(“Amount”) issued by the Company to Aliant in the quarter.The Maximum Amount Payable, if any, for the first two quartersended June 30, 2002 will be due on October 1, 2002. All subsequentamounts payable, if any, will be due on or before the firstbusiness day following the quarter end date. In the event theInvoiced Amount for a particular quarter exceeds $142,314(Cdn$226,678), the Company will carry forward the differencebetween the Invoiced Amount and $142,314 (Cdn$226,678) and includethe difference in the calculation of Maximum Amount Payable forsubsequent quarters. The Company has the option, until December 31,2004, to settle some or all of the promissory note, principal andinterest, in cash, common shares or a combination thereof. If paidby common shares, the number of common shares issuable isdetermined by the weighted average trading price of theCompany’s common share on the Toronto Stock Exchange over theten trading days immediately prior to the date on which the commonshares are to be issued.**7. PROMISSORY NOTEPAYABLE (cont’d.)**After December 31, 2004, any amount of the promissory note whichremains unpaid will continue to be settled as the lesser of$142,314 (Cdn$226,678) and 40% of the net aggregate amount ofinvoices issued by the Company to Aliant in the quarter, howeverthe Company is required to settle only with common shares and thenumber of common shares payable each quarter, if any, is determinedby dividing the Maximum Amount Payable by Cdn$1.56. The Company isrequired to obtain shareholders and regulatory approval to issuecommon shares to settle the promissory note, other than for the500,000 common shares issued on December 28, 2001. If such approvalis not obtained, the Company can only repay the promissory note incash.**8. SHARE CAPITAL****[a] Authorized**On June 9, 2000, the Board of Directors approved a resolution toincrease the authorized shares of common stock from 50,000,000 to100,000,000, par value $.001 per share. The Company is alsoauthorized to issue up to 1,000,000 shares of preferred stock, parvalue $.001 per share.In connection with the 1999 recapitalization of VMI described innote 1, Voice Mobility Canada Limited (VM Canada) issued 6,600,000VM Canada Exchangeable Shares. VM Canada is a wholly ownedsubsidiary of VMII. Each VM Canada Exchangeable Share isexchangeable for one VMII common share at any time at the option ofthe shareholder, and will be exchanged no later than July 1, 2009,and has essentially the same voting, dividend and other rights asone VMII common share. A share of Series A preferred voting stock,which was issued to a trustee in trust for the holders of the VMCanada Exchangeable Shares, provides the mechanism for holders ofthe VM Canada Exchangeable Shares to have voting rights in VMII.The Company considers each Exchangeable Share as equivalent to ashare of its common stock and therefore the Exchangeable Shares areincluded in the computation of basic earnings per share.**8. SHARE CAPITAL(cont’d.)**As at December 31, 2001 the holders of the Exchangeable Shares areentitled to 6,600,000 individual votes in all matters of VoiceMobility International, Inc. As the Exchangeable Shares areconverted into common stock of the Company, the voting rightsattached to the share of Series A preferred voting stock areproportionately reduced.**[b] Common stock****2001****Public Offering**On April 3, 2001, the Company completed an offering of 6,500,000Special Warrants at a price of Cdn$2.00 per Special Warrant foraggregate gross proceeds of $8,429,440 (Cdn$13,000,000). EachSpecial Warrant was exercisable, without payment of additionalconsideration, into one Unit of the Company (a “Unit”)EachUnit consisted of one common share and one half of onenon-transferable share purchase warrant of the Company. Each wholewarrant entitles the holder to acquire one common share at a priceof Cdn$2.25, or on a cashless basis, at any time on or before April3, 2003. The cashless exercise provision allows the holder toutilize the net appreciation in the market value of the underlyingcommon stock to pay the exercise price.TheSpecial Warrants were exercised by the holders on July 20, 2001,being the fifth business day following the “Date”whichwas the latest of: (i) June 8, 2001, the date a registrationstatement for the underlying securities was declared effective bythe United States Securities and Exchange Commission, and (ii) July10, 2001, the date the last receipt was issued for a finalprospectus qualifying the issuance of the underlying securities bythe British Columbia, Alberta, Ontario, Quebec and New Brunswicksecurities regulatory commissions and (iii) July 15, 2001, the daypreceding the date the listing of the Company’s common shareson The Toronto Stock Exchange became effective. The agents were paid a commission of $590,084 (Cdn$910,000),representing 7% of the gross proceeds, and were reimbursed $64,844(Cdn$100,000) in legal costs. The company also incurred $124,678(Cdn$192,271) in legal and professional fees. The aggregatefinancing costs of $779,606 (Cdn$1,202,271) were recorded as areduction to the gross proceeds within stockholders’equity. In addition, the agents received a special compensation optionthat entitles them to purchase 650,000 Units at Cdn$2.00 per Unitat any time on or before April 3, 2003. Each Unit consists of onecommon share (the “option”)and one-half of one commonshare purchase warrant (the “warrant”)each wholecompensation warrant being exercisable to purchase one additionalcommon share at a price of Cdn$2.25 per share at anytime on orbefore April 3, 2003.**8. SHARE CAPITAL(cont’d.)**In addition to the direct financing costs, the Company incurredcosts of $94,068 in respect of the Canadian prospectus and $137,483in respect of the U.S. registration statement which were expensedin the Consolidated Statement of Operations.**Promissory Notes and Warrants**Between the months of April to July 2001, the Company issued aseries of promissory notes to shareholders in the aggregateprincipal amount of $1,404,214 (Cdn$2,150,000), which wererepayable on the earlier of July 18, 2001 or the next equityfinancing. No interest accrued on the notes. Fees of $48,580(Cdn$74,750) were due on maturity. In connection with the issuanceof the notes, the Company issued a series of 633,334 warrants(100,000 Class K warrants, 166,667 Class L warrants, 200,000 ClassM warrants, and 166,667 Class N warrants), each entitling theholder to one share of common stock per warrant, exercisable at$1.50 per share with expiry dates ranging from April 25, 2004 toJune 25, 2004. The notes including the fees were repaid in full for$1,445,885 (Cdn$2,224,750) on July 17, 2001.The gross proceeds have been allocated to the promissory notes andthe Class K, L, M and N warrants based on the relative fair valueof each security at the time of issuance. Accordingly, $1,177,247was allocated to the promissory notes and $226,967 was allocated tothe Class K, L, M and N warrants in aggregate. The fair value ofthe warrants was estimated using the Black-Scholes option pricingmodel. The discount on the notes as a result of the warrants wassubject to accretion over the term to maturity of the promissorynotes. As at December 31, 2001, the $226,967 discount and the$48,580 fees have been recorded as interest expense.On December 28, 2001, the Class L, M and N warrants were cancelled[Note 8[e] ] .**8. SHARE CAPITAL(cont’d.)****2000****Private Placements**On February 15, 2000 the Company issued 2,250,000 units, at $2 perunit for gross cash proceeds of $4,500,000. Each unit comprises oneshare of common stock and one Class F warrant, entitling the holderto one common share, exercisable at $5.50 at any time up toFebruary 15, 2005. The Company also issued 100,000 common sharesand $75,000 cash to third parties as a finders fee. Cash proceedsof $4,241,700 were received in fiscal 2000 from the issuance of theunits, net of the $75,000 finders fee and the $183,300 in unsecuredadvances received in December 1999. On December 2, 2000, the Boardof Directors amended the exercise price of the Class F warrants to$2.25 and amended the expiry date to November 3, 2003. On December28, 2001, 1,000,000 Class F warrants were cancelled [Note8[e] ] .On July 1, 2000 the Company issued 500,000 units, at $5.50 per unitfor net cash proceeds of $2,750,000. Each unit comprises one shareof common stock and three Class G warrants, entitling the holder toone share of common stock per warrant, exercisable at $5.50 at anytime up to July 1, 2003. On December 2, 2000, the Board ofDirectors amended the exercise price of the Class G warrants to$2.25 and amended the expiry date to November 30, 2003. On December28, 2001, the 1,500,000 Class G warrants were cancelled [Note8[e] ] .On September 29, 2000, the Company issued 200,000 units, at $0.335per unit for net cash proceeds of $67,000. Each unit comprises oneshare of common stock and one Class H warrant, entitling the holderto one share of common stock per warrant, exercisable at $0.50 atany time up to December 29, 2000. On December 20, 2000, 200,000Class H warrants were exercised for net cash proceeds ofCdn$100,000.**1999****Common Stock and Warrants Issued on Settlement of Debt**By an agreement dated March 26, 1999 Aliant Inc.(“Aliant“)Acrex, and VMI agreed to recognize past contributionsof Aliant on a joint development project to a maximum amount of$335,200 (Cdn$500,000). It was agreed that VMI would not berequired to reimburse Aliant the $335,200, unless VMI became apublic company or was owned by a public company. On March 26, 1999it was determined this amount would be settled by the issuance of1,428,571 shares of the public entity. The identical terms of thedebt settlement agreement involving Acrex were assumed by VMII. Thedevelopment project expense including a beneficial conversionfeature of $164,800, calculated at its intrinsic value at thecommitment date, was recorded as research and developmentexpense.**8. SHARE CAPITAL(cont’d.)**On June 29, 1999, the Company issued 500,000 warrants with anexercise price of $0.35 per common stock in settlement of a$167,000 loan and a revision to the repayment terms of a $628,770(Cdn$907,500) note payable to Ibex Investment Ltd. (“Ibex”)TheCompany has recorded an extraordinary loss of $790,000 based on thedifference between the fair value of the equity instruments issuedand the carrying value of the debt settled. The fair value of thewarrants granted to Ibex was estimated on the date of the grantusing the Black Scholes option pricing model with the followingassumptions: no dividend yield; risk free interest rate of 5.5%;expected volatility of 89%; and an expected life of one year.**[c] Preferred stock**On December 29, 2000 the Company issued 666,667 units at $3.00 perunit for cash proceeds of $2,000,000. Each unit comprised one shareof Series B non-voting convertible preferred stock and threequarter of a Class I warrant, entitling the holder to one share ofcommon stock per warrant, exercisable at $1.75 at any time up toNovember 29, 2003. Each share of Series B preferred stock isconvertible, at the option of the holder, into two shares of commonstock and will automatically be converted into common stock as ofDecember 31, 2002. Holders of the Series B preferred stock areentitled to a $0.195 per annum dividend. The dividends are notcumulative. The funds and the preferred stock certificates wereplaced in escrow pursuant to an escrow agreement. The funds couldbe withdrawn by the Company in increments of up to $500,000 onJanuary 15, 2001, January 31, 2001, February 15, 2001 and February28, 2001 on a cumulative basis and the preferred stock certificateswould be released to the investors concurrent with the cashdisbursements. At December 31, 2000, the proceeds were presented asrestricted cash. Based on the relative fair values of the preferred stock anddetachable warrants on the date of issuance, the Company allocated$1,451,000 of the proceeds to preferred stock and $549,000 of thegross proceeds to the warrants. The agreement contains a beneficialconversion feature that allows the investors to convert thepreferred stock to common stock at an effective conversion ratewhich is less than the closing price of the Company’s commonstock on December 29, 2000. The amount of the beneficial conversionfeature is limited to the proceeds allocated to the preferred stockof $1,451,000 and is presented as a preferred stock dividend.The agreement provides that under certain conditions, the Companycan retract, at its option, the Series B preferred stock, at $3.00per share together with all accrued and unpaid dividends. On March30, 2001, the Company retracted 80,969 Series B Preferred shares at$3.00 per share for aggregate cash of $242,907. The retractionreduced the number of Series B Preferred shares outstanding from666,667 to 585,698. Upon retraction, a portion of the retractionprice was allocated to the beneficial conversion feature anddecreased net loss attributable to common stockholders by$109,552.**8. SHARE CAPITAL(cont’d.)**On August 14, 2001, the Company paid cash dividends of $57,106 toholders of Series B preferred stock.On December 28, 2001, the Class I warrants were cancelled [Note8[e] ] .**[d] Stock options****Second Amended and Restated 1999 Stock Option Plan**On June 14, 2001, an amendment to the Amended and Restated 1999Stock Option Plan was approved to meet the requirements for listingof the Company’s securities on The Toronto StockExchange.TheSecond Amended and Restated 1999 Stock Option Plan(“Plan”)authorizes an aggregate amount of 10,000,000 commonshares to be issued pursuant to the exercise of stock options.The Plan provides for the granting of options which either qualifyfor treatment as incentive stock options or non-statutory stockoptions and entitles directors, employees and consultants topurchase common shares of the Company. Options granted are subjectto approval of the Board of Directors or the Stock OptionCommittee.The options generally vest over a period of two to three years fromthe date of grant and immediately become exercisable once vested.Any options that do not vest as the result of a grantee leaving theCompany are forfeited and the common shares underlying them arereturned to the reserve. The options generally have a term of fiveyears.**8. SHARE CAPITAL(cont’d.)**Activity under the Plan is as follows:**Options Outstanding****Shares Available for Grant****Numberof Shares****Priceper Share****WeightedAverageExercise Price** Balance, December 31, 1998————Shares authorized5,000,000———Options granted(3,252,750)3,252,7500.75 - 2.38$0.94Options forfeited265,834(265,834)0.75$0.89Balance, December 31, 19992,013,0842,986,9160.75 - 2.38$0.94Additional shares authorized5,000,000———Options granted(4,577,795)4,577,7950.75 - 9.50$4.13Options forfeited74,180(74,180)0.75 - 2.00$1.19Options exercised—(506,955)0.75 -3.05$0.87Balance, December 31, 20002,509,4696,983,5760.75 - 9.50$3.03Options granted(2,207,732)2,207,7320.35 - 2.75$2.04Options forfeited2,298,872(2,298,872)0.75 - 9.50$4.48Options exercised—(447,500)0.75 - 1.00$0.89Common shares issued toInnovatia, Inc. *[note 7]*(500,000)———Balance, December 31, 20012,100,6096,444,9360.35 - 7.25$2.16The weighted average remaining contractual life and weightedaverage exercise price of options outstanding and of optionsexercisable as at December 31, 2001 are as follows:**Options Outstanding**Options Exercisable**Range ofExercisePrices****NumberOutstanding atDecember 31,2001****WeightedAverageExercisePrice****WeightedAverageRemainingContractualLife (years)****NumberExercisable atDecember 31,2001****WeightedAverageExercisePrice**$0.35 - 1.002,650,917$0.844.801,876,139$0.86$1.01 - 3.002,662,632$2.024.151,393,289$2.08$3.01 - 5.0036,000$3.053.1021,556$3.05$5.01 - 7.00970,387$5.493.80598,304$5.48$7.01 - 7.25125,000$7.254.30125,000$7.256,444,936$2.164.304,014,288$2.18As at December 31, 2001, 1,496,006 [2000 – nil]  optionsoutstanding have an exercise price denominated in Canadian dollarswith a weighted average exercise price of Cdn$1.82.**8. SHARE CAPITAL (cont’d.)**The Company incurred non-cash stock based compensation expensereported in the statement of operations as follows:**2001****2000****1999**$$$**Sales and marketing****-**1,178,996597,891**Research and development****257,934**964,6731,023,429**General and administrative****170,883**1,042,5891,289,260**428,817**3,186,2582,910,580Of the $428,817 total stock based compensation expense in 2001,$125,250 relates to options granted to consultants at fair value[2000 - $880,500; 1999 - $nil] . The remaining $303,567 [2000 -$965,820; 1999 - $2,910,580]  is a result of options granted toemployees in 2000 and 1999 with an exercise price less than themarket price of the common stock on the date of grant. As at December 31, 2001, the Company has $21,765 [2000 - $325,332;1999 - $1,106,656]  in deferred compensation to be expensed infuture periods based on the vesting terms of the underlying fixedplan options.**Pro forma disclosure of stock based compensation**Pro forma information regarding results of operations and earnings(loss) per share is required by SFAS 123 for stock-based awards toemployees as if the Company had accounted for such awards using avaluation method permitted under SFAS 123.**8. SHARE CAPITAL (cont’d.)**The fair value of the Company’s stock-based awards granted toemployees in 2001, 2000 and 1999 was estimated using theBlack-Scholes option pricing model. The option pricing assumptionsinclude a dividend yield of 0%, a weighted average expected life of2.5 years [2000 - 2.5 years; 1999 - 2.0 years] , a risk freeinterest rate of 3.20% [2000 - 5.87%; 1999 - 5.50%]  and an expectedvolatility of 114% [2000 - 118%; 1999 - 89%] . The weighted averagefair value of options granted during 2001 was $0.78 [2000 - $3.15;1999 - $1.60] . For pro forma purposes, the estimated value of theCompany’s stock-based awards to employees is amortized overthe vesting period of the underlying options. The effect on theCompany’s net loss and loss per share of applying SFAS 123 tothe Company’s stock-based awards to employees wouldapproximate the following:200120001999$$$Net loss attributable to commonshareholders**(10,240,111)**(11,101,947)(6,848,605)Compensation expense**(2,284,347)**(4,112,466)(439,786)Pro forma net loss**(12,524,458)**(15,214,413)(7,288,391) **Basic and diluted loss per share**As reported**(0.34)**(0.46)(0.41)Pro forma**(0.42)**(0.63)(0.43)**8. SHARE CAPITAL (cont’d.)****[e] Warrants**The Company has the following common stock warrantsoutstanding:**WarrantsOutstanding atJanuary 1#****WarrantsIssued#****WarrantsExercised#****WarrantsCancelled#****WarrantsOutstanding atDecember 31#****ExercisePrice$US****Expiry**Date**Proceedson Exercise$** **1999**Class A warrants—1,600,000(400,000)—1,200,0000.35Dec. 29/00133,333Class B, C and D warrants—3,193,000(2,760,000)—433,0000.50Dec. 29/001,380,000Class E warrants—601,000——601,0000.35Dec. 29/00——5,394,000(3,160,000)—2,234,0001,513,333**2000**Class A warrants1,200,000—(1,200,000)——0.35Dec. 29/00426,668Class B, C and D warrants433,000—(433,000)——0.50Dec. 29/00216,500Class E warrants601,000—(601,000)—0.35Dec. 29/00210,350Class F and G warrants—3,750,000——3,750,0002.25Nov. 30/03—Class H warrants—200,000(200,000)——0.50Dec. 29/00100,000Class I warrants—500,000——500,0001.75Nov. 29/03—2,234,0004,450,000(2,434,000)—4,250,000953,518**2001**Class F and G warrants3,750,000——2,500,0001,250,0002.25Nov. 30/03—Class I warrants500,000——500,000——Cancelled—Class K warrants—100,000——100,0001.50Apr. 25/04—Class L warrants—166,667—166,667——Cancelled—Class M warrants—200,000—200,000——Cancelled—Class N warrants—166,667—166,667——CancelledSpecial warrants—3,250,000——3,250,000Cdn.2.25Apr. 3/03—Compensation options—650,000——650,000Cdn.2.00Apr. 3/03—Compensation warrants—325,000——325,000Cdn.2.25Apr. 3/03—4,250,0004,858,334—(3,533,334)5,575,000—As at December 31, 1999, the $1,513,333 cash proceeds on exerciseof 3,160,000 warrants was collected but the share certificates werenot issued until 2000. As a result, the 3,160,000 common sharesissuable at December 31, 1999 were reported as common stock to beissued in the statement of stockholders’ equity.On December 28, 2001, 3,533,334 warrants were cancelled by thewarrant holders for no additional consideration.**8. SHARE CAPITAL (cont’d.)****[f] Earnings (loss) per share**The following table sets forth the computation of earnings (loss)per share:**2001****2000****1999****$****$****$** **Numerator:** Loss before extraordinary items**(10,292,557)**(9,650,947)(6,058,605)Reduction of beneficial conversion feature onretraction of 80,969 Series B preferred stock**109,552**——Dividends paid on preferred stock**(57,106)**——Deemed dividend on beneficial conversion feature**—**(1,451,000)—Loss before extraordinary items attributable tocommon stockholders**(10,240,111)**(11,101,947)(6,058,605) Net loss**(10,292,557)**(9,650,947)(6,848,605)Reduction of beneficial conversion feature onretraction of 80,969 Series B preferred stock**109,552**——Dividends paid on preferred stock**(57,106)**——Deemed dividend on beneficial conversion feature(1,451,000)—Net loss attributable to common stockholders**(10,240,111)**(11,101,947)(6,848,605) **Denominator:** Weighted average number of common stockoutstanding**23,468,254**17,430,77210,304,415Weighted average number of common stockissuable on exercise of exchangeable shares**6,600,000**6,600,0006,600,000Weighted average number of common stockequivalents outstanding**30,068,254**24,030,77216,904,415 **Earnings (loss) per share**: Basic and diluted loss per share beforeextraordinary items**(0.34)**(0.46)(0.36)Basic and diluted loss per share**(0.34)**(0.46)(0.41)**8. SHARE CAPITAL (cont’d.)**For the years ending December 31, 2001, 2000 and 1999, theCompany’s common shares issuable upon the exercise of stockoptions, warrants and other convertible securities were excludedfrom the determination of diluted loss per share as their effectwould be antidilutive.**9. INCOME TAXES**The Company is subject to United States federal and state incometaxes at an approximate rate of 35%. The reconciliation of theprovision (recovery) for income taxes at the United States federalstatutory rate compared to the Company’s income tax expenseis as follows:******2001****2000****1999********$****$****$** Tax expense (recovery) at U.S. statutory rates**(3,602,000)**(3,860,000)(2,739,000)Lower (higher) effective income taxes ofCanadian subsidiary**—**(354,000)(383,000)Change in valuation allowance**2,108,000**2,859,0001,221,000Change in opening valuation allowance for thereduction in future enacted tax rates**931,000**——Non-deductible expenses**563,000**1,355,0001,901,000Income tax expense (recovery)**—**——Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and theamounts used for income tax purposes. The Company has recognized avaluation allowance for those deferred tax assets for which it ismore likely than not that realization will not occur.Significant components of the Company’s deferred tax assetsas of December 31 are as follows:20012000$$Net operating loss carryforwards**6,195,000**4,308,000Property and equipment**567,000**346,000Total deferred tax assets**6,762,000**4,654,000Valuation allowance**(6,762,000)**(4,654,000)Net deferred tax assets**—**—**9. INCOME TAXES (cont’d.)**The net operating loss carryforwards expire as follows:$ **Canada**200243,0002003163,000200478,0002005845,00020062,098,00020072,698,00020087,704,00013,629,000**U.S.**2019269,00020202,701,0002021713,0003,683,00017,312,000**10. RELATED PARTY TRANSACTIONS**In addition to the transactions described in notes 3, 7 and 8, theCompany had the following related party transactions in the normalcourse of operations which were recorded at amounts established andagreed between the related parties:[a] During the year endedDecember 31, 2001, Pacific Western Mortgage Corporation, a companycontrolled by a shareholder and a Director of the Company, was paid$11,867 [2000 - $85,000; 1999 - $40,392]  for consultingservices.[b] During the year endedDecember 31, 2001, Karina Ventures Inc., a company controlled by ashareholder and a Director of the Company, was paid $24,508 [2000 -$40,000; 1999 - $13,464]  for consulting services.[c] During the year endedDecember 31, 2001, the Company sold to Innovatia, Inc., ashareholder of the Company and a wholly owned subsidiary of Aliant,Inc., and to NB Tel, also a wholly owned subsidiary of Aliant,Inc., products and services totaling $202,011 [2000 - $68,649; 1999- $42,072] . At December 31, 2001, $219,489 [2000 - $484; 1999 -$18,015]  is included in accounts receivable.**10. RELATED PARTY TRANSACTIONS(cont’d.)**[d] During the year ended December 31, 2001, the Company purchasedfrom Innovatia, Inc., a shareholder of the Company and a whollyowned subsidiary of Aliant, Inc., services totaling $1,707,989[note 7]  [2000 - $nil; 1999 - $nil] .**11. COMMITMENTS AND CONTINGENCIES**[a] The Company leases itspremises under operating leases. The minimum lease payments are asfollows: $ 2002116,477200368,801200428,6672005--2006-- 213,945The rental expense charged to the consolidated statements ofoperations in 2001 amounted to $247,000 [2000 - $189,000; 1999 -$109,000] .[b] On August 24, 2001, Manschot Opportunity Fund, LP and GalladioCapital Management, BV filed suit in the Superior Court of theState of California, County of Orange (Case No. 01CC10988) againstVoice Mobility International, Inc., Funkart Holdings, Inc., PioneerGrowth Corporation, Robert L. Cashman and Greg Harrington. The suitrelates to an alleged December 1998 agreement between MotorsportsPromotions, Inc. and Funkart Holdings, Inc., during the time periodprior to Voice Mobility Inc.‘s April 1999 reverse acquisitionof Equity Capital Group, Inc., the predecessor company to VoiceMobility International, Inc. Plaintiffs allege to be creditors ofMotorsports Promotions, acquiring Motorsports rights under thealleged agreement at a UCC public sale. Defendant Funkart Holdingsis alleged to have been a subsidiary of Equity Capital Group duringthe period in question, but which was assigned to Pioneer GrowthCorporation, a company unaffiliated with Voice MobilityInternational, Inc. pursuant to the reverse acquisition. The suitalleges that during the period in question, Voice MobilityInternational, Inc. also was the alter-ego of defendant Cashman.The suit alleges breach of contract and breach of fiduciary dutyand seeks compensatory damages in excess of $1,325,000, prejudgmentinterest and punitive damages. The Company has tendered the defenseand indemnity of such claims to Mr. Cashman. Management believesthat there is no substantive merit to the claims and they intend todefend the lawsuit vigorously if Mr. Cashman fails to perform thedefense and indemnification obligations he has accepted. TheCompany has made no provision in the financial statements on thebelief that the probability of a loss is remote.**11. COMMITMENTS AND CONTINGENCIES(cont’d.)**[c] On December 31, 2001, a former contract employee filed a Writ ofSummons and Statement of Claim with the Supreme Court of BritishColumbia claiming breach of an implied employment contract andStock Option Agreement by the Company. The relief sought is damagesunder several causes of action for an aggregate of approximately$1,825,892. The Company believes that there is no substantive meritto the claim and management intends to vigorously defend theaction. The Company has made no provision in the financialstatements on the belief that the probability of a loss isremote.[d] On June 29, 2001, Mr. O’Flaherty resigned his position asPresident and Director of the Company. As part of his finalsettlement, Mr. O’Flaherty will remain in salary continuanceup to December 31, 2002. In the case of re-employment with anothercompany, the Company will continue to pay the difference, if any,between his new monthly base salary and the monthly base salarywhich he was earning at the Company. Mr. O’Flaherty will alsoforego any rights he may have under his employment agreement to anyadditional monetary bonuses and associated options for 2001 and2002. As at December 31, 2001, the Company has accrued $103,591 forthis matter.**12. SUPPLEMENTAL CASH FLOW INFORMATION**Net changes in operating assets and liabilities are as follows:**2001**2000**1999**$**$**$******Change in accounts receivable**(229,442)**24,35853,591Change in other receivables**(220,644)**——Change in note receivable**(270,000)**——Change in prepaid expenses**(39,791)**(32,319)(15,302)Change in inventory**—**89,575(75,093)Change in accounts payable**155,006**(3,957)225,214Change in accrued liabilities**(242,016)**167,48483,641Change in employee payables**30,115**88,31643,598Change in note payable**205,000**——Change in deferred revenue**(43,502)**123,01290,377**(655,274)**456,469406,026**12. SUPPLEMENTAL CASH FLOW INFORMATION(cont’d.)**Non-cash investing and financing activities are as follows:200120001999$$$Stock issued on settlement of amount due to Innovatia,Inc.**132,059**——Restricted cash proceeds from issuance of preferredstock and detachable warrants**—**2,000,000—Stock and warrants issued to Acrex Ventures Ltd.investors**—**—1,220,667Stock issued on settlement of amount due to Aliant Inc.—500,000Stock issued on settlement of shareholder debt**—**—250,000Warrants issued on settlement of Ibex InvestmentLtd. notes payable**—**—167,000Warrants issued on settlement of Ernest Gardinernotes payable**—**—33,000Cash amounts paid for interest and income taxes are asfollows:200120001999$$$Cash paid for interest**54,000**16,00070,000Cash paid for income taxes**1,500**——**13. SUBSEQUENT EVENTS**[a] On March 4, 2002, theCompany and Innovatia signed a new development agreement. Theagreement to develop a carrier-classified unified communicationsproduct is for the period January 1, 2002 to December 31, 2003.Innovatia will continue to provide the same services as under theprevious development agreement described in Note 7. Inconsideration for these services, the Company agreed to payInnovatia a cash royalty within 30 days after the end of eachcalendar quarter equal to 10% on the gross quarterly revenuereceived for the sale of the Company’s products. If thedevelopment agreement is terminated the royalty payments willcontinue for six months after the termination date.**13. SUBSEQUENT EVENTS (cont’d.)**[b] On March 6, 2002, anexchangeable shareholder exchanged 500,000 Exchangeable Shares into500,000 common shares of the Company for no additionalconsideration. [c]  On March 8, 2002, a shareholder and Director of the Companyindemnified the Company against any losses that may be incurred onthe collectibility of the note receivable described in Note 3.**Quarterly Results of Operations(Unaudited)**Fiscal 2001 Quarters EndedFiscal 2000 Quarters EndedDecember 31, 2001September 30, 2001(1)June 30, 2001March 31, 2001December 31, 2000September 30, 2000(2)June 30, 2000(2)March 31, 2000(2)Sales241393444421063493Gross Profit21821294038682261Net Loss(1,345)(2,781)(3,197)(2,970)(1,883)(3,635)(2,188)(1,945)Basic and diluted loss per share$(0.04)$(0.10)$(0.12)$(0.11)$(0.08)$(0.15)$(0.09)$(0.08)(1) Sales for thethree-month period ended September 30, 2001, previously reported as$388,621 on our Form 10Q filed on November 13, 2001, have now beenretroactively adjusted to $38,621 as a result of annual auditadjustments.(2) Cost of sales for the three-month period ended September 30,2001, previously reported as $99,558 on our Form 10-Q filed onNovember 13, 2001, have now been retroactively adjusted to $17,308as a result of annual audit adjustment.(3) As a result of year-end adjustments, certain amounts for priorperiods have been reclassified to conform to the currentpresentations.SIGNATURE    In accordance with Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto dulyauthorized. VOICE MOBILITY INTERNATIONAL, INC.By: /s/ Randy G. BuchamerChief Executive Officer(Principal Executive Officer)By: /s/ James HewettJames HewettChief Financial Officer, Treasurer(Principal Accounting Officer)Date: March 28, 2002    Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by thefollowing persons of the registrant in the capacities and on thedates indicated.******Signature**Title**Date /s/ Randy G.  BuchamerChairman of the Board, Chief Executive OfficerMarch 28, 2002Randy G.  Buchamer/s/ James J. HuttonPresident, DirectorMarch 28, 2002James J. Hutton/s/ William E.  KrebsDirectorMarch 28, 2002William E.  Krebs/s/ Donald A. CalderDirectorMarch 28, 2002Donald Calder/s/ Robert E.  NealDirectorMarch 28, 2002Robert Neal/s/ Morgan P.  SturdyDirectorMarch 28, 2002Morgan P.  Sturdy/s/ F. David D.  ScottDirectorMarch 28, 2002F. David D.  ScottEXHIBIT 23.1**CONSENT OF INDEPENDENTAUDITORS**We consent to the incorporation by reference in the RegistrationStatements (Form S-8 No. 333-45744 and Form S-8 No. 333-34564)pertaining to the Amended and Restated 1999 Stock Option Plan ofVoice Mobility International, Inc. and in Post-Effective AmendmentNo. 1 to the Registration Statement (Form S-1 No. 333-60678) andrelated Prospectus and Prospectus Supplement No. 1 of our reportdated January 28, 2002 (except for Note 13 which is as of March 8,2002), with respect to the consolidated financial statements ofVoice Mobility International, Inc. in the Annual Report (Form 10-K)for the year ended December 31, 2001./s/ ERNST & YOUNG LLPVancouver, Canada,March 28, 2002 Chartered AccountantsEXHIBIT 4.5CERTIFICATE OF AMENDMENTTOCERTIFICATE OF THE DESIGNATIONS,VOTING POWERS, PREFERENCES AND RELATIVE,PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTSAND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THESERIES B NON-VOTING CONVERTIBLE PREFERRED STOCK OFVOICE MOBILITYINTERNATIONAL, INC.The undersigned, the dulyelected and acting President and Assistant Secretary of VoiceMobility International, Inc., a Nevada corporation, pursuant to NRS78.1955 does hereby certify as follows:WHEREAS, pursuant toauthority conferred upon the Board of Directors by ARTICLE IV ofthe Articles of Incorporation of the Company (as amended to date,the “Articles” the Board of Directors of the Company by unanimouswritten consent dated December 27, 2000 adopted a resolutioncreating a series of Preferred Stock designated as Series BNon-Voting Convertible Preferred Stock of Voice MobilityInternational, Inc.WHEREAS, a certificate ofdesignation creating a series of Preferred Stock of the Companydesignated as Series B Non-Voting Convertible Preferred Stock, wasfiled with the Nevada Secretary of State on December 29, 2000 (the“Designation”WHEREAS, a certificate ofcorrection correcting a typographical error in the OriginalDesignation was filed with the Nevada Secretary of State on January9, 2001 (the Original Designation as so corrected being hereincalled the “Designation”WHEREAS, pursuant to theauthority conferred upon the Board of Directors of the Company byARTICLE IV of the Articles and NRS 78.1955, the Board of Directorsof the Company at a meeting held June 29, 2001, adopted aresolution adopting an amendment to the New Designation.WHEREAS, a majority ofthe holders of the outstanding shares of the Company’s SeriesB Non-Voting Convertible Preferred Stock have granted their consentto an amendment to the New Designation, and there is no class ofstock of the Company senior to such Series B Non-Voting ConvertiblePreferred Stock as to the payment of distributions upon dissolutionof the Company.WHEREAS, the foregoingapproval constitutes the approval required by NRS 78.1955(3) andtherefore the approval of the stockholders required by NRS78.1955(3) has been obtained.RESOLVED, that pursuantto the authority granted by NRS 78.1955 to the Board of Directorsand the holders of the Company’s Series B Non-VotingConvertible Preferred Stock, the New Designation is hereby amendedas follows:Section 4(b) (AutomaticConversion) is hereby amended in its entirety to provide asfollows:"(b)Automatic Conversion. Each share of Series B Preferredshall automatically be converted into shares of Common Stock at thethen effective Series B Conversion Rate upon the earlier of either(i) December 31, 2002, or (ii) the written consent of the holdersof a majority of the then outstanding shares of Series B Preferred,voting together as a single class."Except as provided herein, the New Designation remains unaffectedhereby.IN WITNESS WHEREOF, theCompany has caused this Certificate of Amendment to Certificate ofDesignations to be duly executed in its corporate name on this 19thday of December, 2001. VOICE MOBILITY INTERNATIONAL, INC.By: /S/ JamesHuttonName: James HuttonIts: PresidentBy: /s/ JamesHewettName: James HewettIts: Assistant SecretaryEXHIBIT 10.40Private &ConfidentialAugust 16th, 2001Randy Buchamer2988 Brookridge DriveNorth Vancouver, BCV7R 3A8Dear Randy:This letter will confirm the offer by Voice Mobility Inc. (the"Company") of employment to you in the position of CEO with yourstart date to be August 16th, 2001. This offer will remain validuntil August 16th, 2001. The terms are as follows:Office: You will be employed in the position noted above, locatedin Vancouver, British Columbia, reporting to the ____Board ofDirectors__________. You shall devote the whole of your workingtime, attention and ability to the business of the Company. Youshall not, without written consent of the Company, accept otheremployment, including part time employment. It is acknowledged thatthe Company may be asked to approve your working on other projects,outside of working hours, which are not in competition with, orrelated to, any of your work at the Company. The Company will makereasonable allowances for such work to be done by you outside ofworking hours. It is agreed, however, that the Company may restrictsuch work in their sole discretion (not to be unreasonablywithheld). Your employment as noted above, subject to theProbationary Clause and the Termination Clause listed below, willcontinue at the discretion of the Company.Responsibilities: Your prime responsibilities will include: Directs the overall business activities and organizationalpolicies. Develops, recommends and implements through subordinates,approved annual and long-term organization policies and goals.Major duties include directing company financial organization andoperations planning activities; approving budgetary and operationsobjectives, monitoring performance relative to establishedobjectives; promoting positive relations with all external groups,including customers, the financial community, government and thegeneral public.Salary: You will be paid a gross annual salary of $CDN200,000 plus a $500 per month auto allowance. Salary andauto allowance will be paid on a semi-monthly basis. A review ofthe salary will be done annually at the sole discretion of theCompany.Hours of Work: We generally recognize "normal" business hours of 40hours per week, a minimum of 8 hours per day, Monday to Fridayinclusive. You can expect, however, that while we have designated"normal" office hours, this position will entail the need to workadditional hours from time to time to meet the objectives of theposition and overtime will not be paid.Option Plan: You will be provided with _350,000__ optionswith a strike price of $.90 US, on a three-year vesting basis. Thefull details are provided by “Mobility International, Inc.Amended and Restated 1999 Stock Option Plan”and by“MOBILITY INTERNATIONAL, INC. EMPLOYEE NON-QUALIFIED STOCKOPTION AGREEMENT PURSUANT TO THE 1999 STOCK OPTION PLAN”Benefits: Participation in the company Benefits plan beginsSeptember 1st, 2001. VMI pays 50% of the monthly premiums. For fulldetails of the benefits plan, please see the Benefits By DesignBenefits Booklet dated November 1,2000.Vacation: You will be entitled to three weeks of paid vacation peryear earned on the basis of 1.25 days per month, to be taken at atime or times acceptable to the Company, acting reasonably, havingregard for its operational requirements.Termination: If your employment is terminated for reasons otherthan cause, you will receive notice or pay in lieu of notice forthe "Notice Period" as defined by the Employment Standards Act.Proprietary Rights: As a condition of your employment you agree tobe bound by and execute the form of Proprietary Rights/ NonSolicitation Agreement set out as Schedule A.Governing law and jurisdiction: This agreement shall be governed byand construed in accordance with the law of The Province of BritishColumbia and the laws of Canada therein.If you are in agreement with the terms of this offer, please signand date one copy and return it to me.Yours very trulyVoice Mobility Inc./s/ James HuttonJay HuttonPresidentI accept employment on the terms and conditions outlined in thisletter.December 5, 2001./s/ Randy Buchamer_____________________________Employee signaturePROPRIETARY RIGHTS /NON-SOLICITATION AGREEMENT I, ___Randy Buchamer____,recognize that Voice Mobility Inc. (the "Company") is engaged in acontinuous program of software research and development and themarketing of software products and computer training programs, andthat the Company also provides technical support, consultation andtraining services. I also recognize the importance of protectingthe Company's trade secrets, confidential information, partner andcustomer relationships and other proprietary information andrelated rights acquired through the Company's expenditure of time,effort and money.Therefore, because I wishto be employed by the Company in a capacity in which I will receiveand/or contribute to the Company's Confidential Information, and inconsideration of the salary or wages I will receive from theCompany and for my employment by the Company, I agree to be boundby the following terms and conditions:1. Non-Disclosure of Confidential InformationAt all times during and subsequent to the termination of myemployment with the Company, I shall keep in strictest confidenceand trust all confidential information.  I shall take all necessaryprecautions against unauthorized disclosure of the confidentialinformation, and I shall not directly or indirectly disclose, allowaccess to, transmit or transfer the confidential information to athird party, nor shall I copy or reproduce the ConfidentialInformation except as may be reasonably required for me to performmy duties for the Company. 2. At all times during and subsequent to the termination of myemployment with the Company, I shall not use the confidentialinformation in any manner except as reasonably required for me toperform my duties for the Company. 3. Upon the request of the Company, and in any event upon thetermination of my employment with the Company, I shall immediatelyreturn to the Company all materials, including all copies inwhatever form, containing confidential information which are in mypossession or under my control. 5.  I acknowledge and agree that I shall not acquire any right,title or interest in or to the confidential information.  6. I hereby assign and transfer to the Company, and agree that theCompany shall be the exclusive owner of, all of my right, title andinterest to each development throughout the world, including alltrade secrets, patent rights, copyrights and all other intellectualproperty rights therein.  I further agree to cooperate fully at alltimes during and subsequent to my employment with respect tosigning further documents and doing such acts and other thingsreasonably requested by the Company to confirm such transfer ofownership of rights, including intellectual property rights,effective at or after the time the development is created and toobtain patents or copyrights or the like covering the developments.I agree that the obligations in this clause (b) shall continuebeyond the termination of my employment with the Company withrespect to Developments created during my employment with theCompany. 7. I agree to take all necessary precautions to protect the computersystems and software of the Company and of the suppliers andclients of the Company. 8. I agree that while I am employed by the Company, and for 12months immediately following the termination of my employment withthe Company, I shall not, directly or indirectly, contact orsolicit any clients of the Company for the purpose of selling orsupplying to these clients or the Company any products or serviceswhich are competitive with the products or services sold orsupplied by the Company at the time of my termination.  The term"Client of the Company" in the preceding sentence means anybusiness or organization that:(a) was a client of the Company at the time of the termination ofmy employment with the Company; or(b) became a client of the Company within six months after thetermination of my employment with the Company if I was involvedwith the marketing effort in respect of such client prior to thetermination of my employment with the Company. 9. I agree that while I am employed by the Company, and for 12months after the termination of my employment with the Company, Ishall not directly or indirectly hire any employees of orconsultants or contractors to the Company nor shall I solicit orinduce or attempt to induce any persons who were employees of orconsultants to the Company at the time of such termination orduring the 90 days immediately preceding such termination, toterminate their employment or consulting agreement with theCompany, without the prior consent of the Company. 10. I acknowledge and agree that damages may not be an adequateremedy to compensate the Company for any breach of my obligationscontained in this Agreement, and accordingly I agree that inaddition to any and all other remedies available, the Company shallbe entitled to obtain relief by way of a temporary or permanentinjunction to enforce the obligations contained in thisAgreement. I HAVE READ THIS AGREEMENT. I UNDERSTAND IT, HAVE HAD THEOPPORTUNITY TO OBTAIN INDEPENDENT LEGAL ADVISE IN RESPECT OF IT,AND I AGREE TO ITS TERMS. I acknowledge having received a fullyexecuted copy of this Agreement.Signed, sealed anddeliveredin the presence of:/s/ James Hutton___________________________________ Witness/s/ Randy Buchamer___________________________________Employee SignatureJames Hutton___________________________________ (Name of Witness - printed)Randy Buchamer__________________________________ (Name of Employee (printed)December 5, 2001___________________________________DateOn Behalf Of:VOICE MOBILITY INC./s/ James HuttonJames Hutton, President___________________________________Name (Title)December 4, 2001___________________________________DateEXHIBIT 10.41*******LivingLAB* AgreementBetweenVMI and Innovatia****Introduction and Scopeof the Agreement**The purpose of thisdocument (Agreement) is to present the opportunity for VMI(“Mobility Incorporated”) to participate in a*LivingLAB* relationship with Innovatia Inc. (“Innovatia”)While the Agreement is with Innovatia, a wholly owned subsidiary ofAliant Inc., the *LivingLAB* represents the assets of AliantTelecom Inc. ("Aliant"). Where reference is made to Aliantresources, and engagement thereof, it is deemed to be under theauspices of this agreement and the direction and management ofInnovatia. The intent of this Agreement between VMI and Innovatiawith respect to the *LivingLAB* is to work together to jointlyinnovate and accelerate the launch of new VMI products as well asthe sale of existing products in the global market.Specifically, thisAgreement is targeted at VMI development of Unified Communicationsproduct and services. VMI has adopted a strategic position as alegacy replacement company that positions Telco's for UnifiedCommunications by replacing legacy product and showing positive ROIin the process. The projects outlined will test this VMI strategyand transition Aliant customers from our Legacy platforms to theVMI platform. The project descriptions are contained in AppendixA.This project is a jointdevelopment project and shall include the following activities:i. Sign off and mutualagreement of deliverables and time schedules by both parties; ii. Provision of projectmanagers by both parties whose responsibility it will be to createthe project plan; and iii. Provision of seniormanagers from both parties whose responsibility it will be to planand manage the relationship.The *LivingLAB* is defined as a package of 5 assets comprisingan innovation environment. Combined these assets represent theservices outlined in this Agreement.******A.OBLIGATIONS OF INNOVATIA****ALL OBLIGATIONS OF INNOVATIA INCLUDED IN THE AGREEMENT SHALL BESUBJECT TO THE APPROVAL OF THE BOARD OF DIRECTORS OF ALIANT INC.,OR SUCH COMMITTEE IT GRANTS THE AUTHORITY TOO. IF SAID APPROVAL ISNOT GRANTED, THIS AGREEMENT SHALL BE DEEMED NULL AND VOID.****1. License ofAliant Intellectual Property**(a) Aliant is a convergentcarrier, with an integrated network and system perspective and ownsor has licensed certain intellectual property (including softwarein source or executable form, confidential information, tradesecrets, business methods or processes or patentable matter, forexample) used in the *LivingLAB* environment ("AliantIntellectual Property"). To the extent there is any such AliantIntellectual Property used by VMI, Aliant licenses, on anon-exclusive, fully-paid, non-transferable basis, such AliantIntellectual Property to VMI for use by VMI during the*LivingLAB* test to last for the duration of the test, to aidin the development and verification of current VMI Products.Without limiting theforegoing, unless Aliant or Innovatia agree in writing, VMI willnot:-  disassemble, reverseengineer or decompile the Intellectual Property;    derivative works from the Intellectual Property; the Intellectual Property;
-  sublicense or transfer the Intellectual Property;    or merge any part of the Intellectual Property with any otherIntellectual Property; the Intellectual Property to any third party;
-  any Intellectual Property to upgrade any product not involvedin the VMI  LivingLAB  test;    to discover any trade secrets related to the IntellectualProperty; or obscure or alter any notice of copyright, trademark or otherproprietary right marking affixed or included in the IntellectualProperty.
(b) All AliantIntellectual Property and any support services are provided“is” Neither Aliant nor Innovatia make other warrantiesof any kind, whether express, implied, statutory or otherwise.Notwithstanding, Aliant and Innovatia do warrant that the AliantIntellectual Property provided to VMI hereunder does not, or willnot, infringe the intellectual property rights or other rights ofany third party, including without limitation copyright, trademark,trade secret and patent or other rights. Aliant and Innovatiaexpressly exclude any warranties of merchantability or fitness fora particular purpose. Aliant and Innovatia expressly exclude anywarranties or representations with respect to the adequacy,accuracy or utility of any information obtained by VMI under thisAgreement.
**2. ProfessionalServices and Project Management**
(a) Innovatia will provide technical resources to VMI. The technicalresources at Aliant are experienced in testing, implementing andintegrating new product offerings. These resources will be assignedto VMI *LivingLAB* projects to aid in the development andverification cycles. The *LivingLAB* will bring together amulti functional team representing a cross section of divisions ofthe company to bring the expertise and knowledge developed in theareas that VMI is developing products. They will give insight intothe ever-changing requirements of a service provider.
(b) Innovatia will alsoprovide project management resources to support the technicalresources in the following manner:
-  Innovatia will makeavailable sufficient Aliant resources to carry out VMI LivingLAB  activities as outlined above;    Innovatia will makeavailable an Account Manager to ensure the relationship between VMIand the *LivingLAB* is strong and mutually beneficial. TheAccount Manager is responsible for ensuring a strong commitment todeliver the services outlined above. The Account Manager willensure that VMI gets the highest level of customer service. Innovatia will makeavailable a Project Manager to manage all VMI 
LivingLAB
projects. The Project Manager will ensure that projects are carriedout in a timely manner. They will ensure that the mandate given tothem for the project by VMI is carried out and the outcomes arerelevant. They will act as VMI single point of contact forprojects.
(d) The Innovatiaprovided Account Manager and the Project Manager will togetherprovide:
-  at a minimum, bi-monthlyupdates on all VMI  LivingLAB  projects, these updates willprovide sufficient detail to allow VMI to steer the course of theproject.    a full report at the endof all projects. This report typically is made available both as abound copy and in an electronic format like a CD Rom. The report isconsidered the Intellectual Property of VMI and will not bedisclosed to any third parties by Aliant or Innovatia. The reportmay be used internally by Aliant, Innovatia or other wholly ownedsubsidiaries of Aliant Inc. except in cases where the subjectmatter is deemed by VMI too sensitive to be distributed beyond theimmediate project team and provided that Innovatia has received VMIprior written consent to the disclosure of the report beyond theimmediate project team. a quarterly summary onall activities (projects, visits, and other pertinent information)undertaken by the 
LivingLAB
 on behalf of VMI.
(e) Product Management at Innovatia will share their serviceprovider’s business vision. For example, business caseanalysis, pricing strategies, functional evolution of the product,advertising models, deployment strategies, competitive strategies,regulatory strategies, operational considerations and marketlearnings. The experience gained at Innovatia in delivering theindividual solutions will be used to build the business case forVMI integrated solution.**3. Sales and Marketing**(a) Innovatia has a trustedand privileged relationship with their customers. The*LivingLAB* research group will facilitate innovation byleveraging this customer relationship. Subject to privacy and otherlegal and regulatory requirements, VMI will have access to allconsumer research undertaken by Aliant. The research group willundertake additional VMI directed consumer research. If the use ofan outside research company is necessary VMI will pre-approve andpay for the project. Innovatia will obtain VMI prior writtenapproval of the use of the outside research company who will sign aNon-disclosure Agreement acceptable to VMI. Should the research beof mutual interest, Innovatia and VMI will negotiate a cost-sharingmodel assessed on a project-by-project basis.
(b) Innovatia will use the*LivingLAB* innovations environment to assist in the marketingand sales of VMI Products.
(c) Subject to s. 5 (e)(i), Innovatia will arrange and supervise customer and prospectivecustomer visits, within reason and availability, to the*LivingLAB* where such parties can see first-handAliant’s implementation of VMI products(d) Subject to s. 5 (e) (i), Innovatia will detail the testing anddevelopment work done by VMI in the *LivingLAB* to potentialcustomers. Innovatia will provide sufficient detail about theproducts to validate the solutions developed by VMI.
(e) Subject to s. 5 (e)(i), Innovatia agrees to give VMI customers and prospects accessduring these visits to key Innovatia resources that can detail theapplication of VMI products. The resources will also share elementsof Aliant’s Intellectual Property in the form of thestrategic plans for new and existing Aliant services. The resourcescalled upon to present during the visits are at Innovatia’sdiscretion and may vary.
 The visits detailedabove may include a tour of the Aliant Labs, including the
VideoActive
 Development Centre, a state of the artdemonstration facility.
-  The  VideoActive  Development Centre may be used todemonstrate VMI Products. The facility hosts over 300 tours a yearmany of which represent potential customers for VMI.     (f) Innovatia will provide sales leads to VMI as they are identifiedand proactively involve VMI in other partner’s customervisits to the *LivingLAB*.**4. Operations Administration and Maintenance ("OAM")**(a) VMI will have access to Aliant OAM standards and processes priorto and during the development and verification cycles of theirproducts. Elements of OAM include all the elements necessary to runsuccessful services including: maintenance, provisioning, billing,for example.**5. Quality Assurance process**(a) Innovatia will use the *LivingLAB* to aid in productdevelopment and verification. The lab environments are notsimulated; they duplicate the production environment. This uniqueenvironment will allow VMI to test new products in a real worldenvironment ensuring they are delivering a high quality product.    (b) Innovatia has developed a testing methodology that canbe used by VMI to test their products. Such methodology isincorporated in the *LivingLAB* and represents an integratedapproach to testing where all elements of a service areincorporated. One of the advantages is that VMI will have aseparate and distinct group of resources evaluating their product.Being removed from the development of the product allows for animpartial assessment.    **6. Innovatia and Aliant Warranties**(a) Innovatia and Aliant will perform their services underthis Agreement in a diligent manner, in accordance with generallyaccepted professional and industry standards. (b) Innovatia and Aliant warrant that the performance of theirobligations under this Agreement will not contravene any agreementsthey may have with third parties.    ****  **B. OBLIGATIONS OF VMI**    **7.****Payments**(a) VMI will pay Innovatia in cash aroyalty of 10% on the gross revenue of VMI between Jan 1st 2002 and ending Dec 31st 2003. VMI will pay theroyalty payment in cash within 30 days after the end of eachcalendar quarter. The royalty will be on gross revenue received forsale of the VMI products globally within that quarter. If thecontract is terminated as per paragraph (O) the royalty paymentswill continue for 6 months after the termination date.(b) VMI shall reimburse Innovatia for any and all expensesincurred by Innovatia relative to VMI customer visits to the*LivingLAB,* not paid for by the customers themselves forvisits initiated by VMI. VMI Customer visits will be agreed tobetween the parties from time to time, in writing and prior to thevisits. This Agreement will cover 4 free visits by VMI customersover the period of this Agreement.  **8. Professional Services and Project Management(a) VMI shall assign 1 senior manager to the VMI *LivingLAB*relationship. They will be responsible for the following areas ofthe business relationship:**    -  Managing thestrategic direction of the relationship    project opportunities in a quarterly status meeting (via conference call) with theInnovatia Account Manager to review new opportunities and discussappropriate action items.
-  in quarterly strategy reviews. These reviews will set the agendafor the upcoming quarter, address new opportunities and serve as aninterface between VMI and the  LivingLAB  management team.These meetings will have a broad scope and include the GeneralManager of the  LivingLAB  as well as any other seniorresources from both companies as necessary.     (b) VMI shallalso assign 1 senior manager to the VMI Product project. They willbe responsible for all aspects of the relationship between VMI and Living Lab  as it pertains to the VMI Product projectincluding, but not limited to:     -  The overallmanagement and control of the project and attributeddeliverables,    Review and signoff of Innovatia invoices pertaining to *Living Lab*activities, and prioritization of activities and projects performed by
Living Lab
, as they pertain to the VMI Product project,
-  and management of the Product Requirements Document and theProject Plan,    in a quarterly status meeting (via conference call) with theInnovatia Account Manager to review new opportunities and discussappropriate action items. in quarterly strategy reviews. These reviews will set the agendafor the upcoming quarter, address new opportunities and serve as aninterface between VMI and the 
LivingLAB
 management team.These meetings will have a broad scope and include the GeneralManager of the 
LivingLAB
 as well as any other seniorresources from both companies as necessary.
****
(c) VMI shallprovide, at no cost to Aliant or Innovatia, and at VMI discretion,any products necessary to carry out VMI *LivingLAB*projects.
(d) LicenseGrant: Certain of the items of the VMI Product may contain or beaccompanied by software (“Software”) and except as otherwiseexpressly provided in this Agreement, all references to the VMIProduct will include the accompanying Software. Innovatia isgranted a non-exclusive, non-transferable, temporary license to usethe Software for the duration of the projects specified in theStatement of Work. All rights not specifically granted to Innovatiaare reserved for VMI.
****
**Withoutlimiting the foregoing, Innovatia will not:**
disassemble,reverse engineer or decompile the Software ;derivative works from the Software ;
- the Software (except that Innovatia may make one copy forarchival purposes);   sublicense or transfer the Software;or merge any part of the Software with any other software;
- the Software to any third party;   any Software to upgrade any product not manufactured or sold byVMI;to discover any trade secrets related to the Software or theVMI Product ; or
- obscure or alter any notice of copyright, trademark or otherproprietary right marking affixed or included in the VMIProduct.      ****  (e) The VMIProducts and any support services are provided “is” VMImakes no other warranties of any kind, whether express, implied,statutory or otherwise. Notwithstanding, VMI does warrant that theVMI Product provided to Innovatia and Aliant hereunder does not, orwill not, infringe the intellectual property rights or other rightsof any third party, including without limitation copyright,trademark, trade secret and patent or other rights. VMI expresslyexcludes any warranties of merchantability or fitness for aparticular purpose. VMI expressly excludes any warranties orrepresentations with respect to the adequacy, accuracy or utilityof any information obtained by Innovatia or Aliant under thisAgreement.  ****C.MISCELLANEOUS****    (a) Ownership - VMI has exclusiveright, title and interest to the VMI Product. Innovatia will not(a) acquire any interest in the VMI Product, (b) misrepresent thetrue ownership of the VMI Product to any party or (c) in any wayencumber or use any portion the VMI Product as collateral for anydebt. VMI has exclusive right, title and interest to all of thefindings including but not limited to reports of difficulty, allrequired reports and any recommendations.  ****  (b) Limitation of Liability -EXCEPT AS REQUIRED PURSUANT TO THE EXPRESS PROVISIONS OF SECTION C.(d) and (g) OF THIS AGREEMENT,IN NO EVENT SHALL EITHER PARTY (ORTHEIR DIRECTORS, OFFICERS, EMPLOYEES, DISTRIBUTORS, SUPPLIERS,AGENTS, REPRESENTATIVES OR SUBLICENSEES) BE LIABLE TO EACH OTHER ORTO ANY THIRD PARTY WITH RESPECT TO ANY SUBJECT MATTER OF THISAGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHERLEGAL OR EQUITABLE THEORY, FOR ANY LOSS OF PROFITS, LOSS OFBUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIALDAMAGES, OF ANY KIND, EVEN IF EITHER HAS BEEN ADVISED OF THEPOSSIBILITY OF SUCH DAMAGES (AND NOTWITHSTANDING ANY FAILURE OFESSENTIAL PURPOSE OF LIMITED REMEDY).    Total liability of either party forall claims of any kind for any loss or damage will not exceed thevalue of the VMI Product being tested which gave rise to the claim.Neither party will be liable for any losses or damages arising fromany failure of the VMI Products or Intellectual Property during theprojects. No action or proceeding against either party may becommenced more than one year after the event-giving rise to theclaim.  ****  (c) Press releases - Theparties will mutually agree on and engage in joint public relationsactivities. However, no communications shall be released to thepress, nor shall any test results, advertisements, publicity orpromotional material be issued, with regard to this Agreementwithout mutual consent.(d) Confidential Information    Although both parties shall have careand control of the project undertaken under this AgreementInnovatia reserves its rights to screen any projects undertaken bythird parties at the 
LivingLAB
 to ensure there is noconflict of interest or breach of confidentiality with other
LivingLAB
 third party projects
.
 Should there be anyconflict or potential of conflict appropriate steps will be takento isolate the VMI Product project from other third partyprojects.
****
For the purpose of this Agreement,“Information” means all oral, written or machine-readabledata and information that is not generally known to competitors ofeither party and is proprietary and/or confidential to either partyand its affiliates, which includes, but is not limited to, businessand marketing plans, financial information, current and futureservices and products, sales and customer information (includingpersonal information of customers and potential customers,consisting of any information relating to an identifiableindividual), research and development, general business operations,and trade secrets. Confidential Information shall not includeinformation of either party and/or its affiliates that:
is or becomes part of the publicdomain through no wrongful act of the other party;
is disclosed with the written consentand authorization of the party whose confidential information itis;
is independently developed by theother party;
is received without obligation ofconfidence from a third party for whom there was no reason tobelieve was not lawfully in possession of such information, free ofany obligation of confidence; or is lawfully required to bedisclosed by a court of competent jurisdiction, provided that,before making such disclosure, the disclosing party shall promptlyprovide the party who owns the Confidential Information writtennotice of the requirement to disclose, and shall reasonablycooperate with the party who owns the Confidential Information inits actions to secure the confidential treatment of theConfidential Information.
Both parties at all times shall:
treat the Confidential Information asstrictly confidential, and shall not disclose or permit thedisclosure of the Confidential Information to any person,corporation or organization whatsoever without first obtainingwritten permission from the other party;
take all reasonable precautionsagainst the Confidential Information being used or acquired by anyunauthorized person or persons, which precautions shall entail thesame degree of care as they use in preserving the confidentialityof its own confidential information;
promptly return to the other partyupon request, or provide confirmation of destruction of, all copiesof the Confidential Information, all Confidential Informationcontained in any retrieval system or database, and any and alltangible material relating to the Confidential Information,including, but not limited to, all copies, notes, computer disks,tapes and compact disks, whether such material was made or compiledby them or furnished by the other party; and
not copy, reproduce in any form, orstore in a retrieval system or database, the ConfidentialInformation without the prior written consent of the DisclosingParty, except for such copies and storage as may be reasonablyrequired internally by the Disclosing Party for the purpose of thisAgreement.
In the event of a breach, or athreatened breach, of any of the provisions of this section c, bothparties acknowledges and agrees that the harm suffered by the otherparty would not be compensated by monetary damages alone and,accordingly, the other party, in addition to other available legalor equitable remedies, shall be entitled to an injunction againstsuch breach or threatened breach.
(e) Intellectual Property -Innovatia/Aliant agrees that it has no intellectual property rightsin or to any VMI developments or the VMI Product created prior toor during the term of this Agreement by VMI. VMI agrees that it hasno intellectual property rights in and or to Innovatia/Aliantdevelopments or Intellectual Property created prior to or duringthe term of this Agreement by Innovatia/Aliant. The partiesacknowledge that no activity likely to give rise to the jointcreation of intellectual property will be engaged in unless anduntil the parties enter into an agreement setting forth the rightsand obligations of the parties with respect to such intellectualproperty.
(f) Rights to resell -Innovatia/Aliant shall have full rights to sell its services,applications and intellectual property to any of its and VMIcustomers without any finder fees or sales fees being charged byVMI. VMI shall have full rights to sell its services, applicationsand intellectual property to any of its andInnovatia/Aliant’s customers without any finder fees or salesfees being charged by Innovatia/Aliant.
(g) Indemnity - Both Partiesagree to defend, indemnify and save harmless the other Party fromany and all claims and liabilities made by third parties for actualor alleged infringement of any Canadian or United States of Americapatent, copyright or other property rights based on any software,program, service and/or other materials furnished by that Partypursuant to the terms of this Agreement, provided that the partyseeking the indemnification (the “Party”(i) notifies theother promptly of the receipt of any claim for which it will seekindemnification, (ii) gives the other party exclusive authority tosettle the claim (iii) assists the other party and provides allrelevant information in its possession and (iv) has not, nor hasanyone acting on its behalf compromised the defence of such suit inany way. This article states the entire obligation of the partiesfor patent, trade secret or copyright infringement.
VMI obligations under this Section C (g) will not apply to (i) anyinfringement or violation of Intellectual Property Rights caused bymodification of the VMI Product, or any component thereof by anyperson or entity other than VMI, its employees or agents acting onVMI behalf or at its direction, in connection with this Agreementor (ii) any infringement caused directly by any such person's orentity’s use and maintenance of the VMI Product, or anycomponent thereof other than in accordance with the purposescontemplated by this Agreement, except as expressly authorized inwriting by VMI. VMI’s obligations under this Section C (g)will not extend to alleged infringements or violations that arisebecause the VMI Product, the Software, or any component thereofprovided by VMI are used in combination with other products orsoftware furnished by third parties, if such combination is whatcaused the infringement, and where any such combination was notinstalled, recommended or approved, expressly in writing byVMI.
Aliant and Innovatia 's obligations under this Section C (g) willnot apply to (i) any infringement or violation of IntellectualProperty Rights caused by modification of the Aliant and InnovatiaIntellectual Property, or any component thereof by any person orentity other than Aliant and Innovatia , their employees or agentsacting on Aliant and Innovatia 's behalf or at their direction, inconnection with this Agreement or (ii) any infringement causeddirectly by any such person's or entity’s use and maintenanceof the Aliant and Innovatia Intellectual Property, or any componentthereof other than in accordance with the purposes contemplated bythis Agreement, except as expressly authorized in writing by Aliantand Innovatia . Aliant and Innovatia’s obligations under thisSection C (g) will not extend to alleged infringements orviolations that arise because the Aliant and Innovatia IntellectualProperty, or any component thereof provided by Aliant and Innovatiaare used in combination with other products or software furnishedby third parties, if such combination is what caused theinfringement, and where any such combination was not installed,recommended or approved, expressly in writing by Aliant andInnovatia .
(h) Waiver - No term orcondition may be waived by either party without the express writtenconsent of the other, and forbearance or indulgence by a party inany regard whatsoever shall not constitute the party’swaiver. No consent or waiver shall be effective unless made inwriting by an authorized officer of the party.(i) Severance - Should any provision of this Agreement beunenforceable at law, it shall be considered separate and severablefrom the remaining provisions of this Agreement, which shallcontinue in force and shall be binding as though the said provisionhad not been included.(j) Interpretation – In this Agreement, words importingthe singular include the plural and vice versa, and words importinggender include all genders and firms or corporations whereapplicable.
(k) Assignment - ThisAgreement shall not be assigned, in whole or in part, without theexpress written consent of both Parties. This Agreement shall bebinding upon and shall enure to the benefit of the parties heretoand their respective successors and permitted assigns.
(l) Governing Law - ThisAgreement shall be interpreted and governed by the laws of theProvince of Nova Scotia and the laws of Canada applicabletherein.
(m) Headings - The headingsinserted in this Agreement are for convenience of reference onlyand, in no way, define, limit or enlarge the scope or meaning ofany of the terms and conditions contained in this Agreement.
(n) Entire Agreement - This Agreement and any documentsincorporated by reference, shall constitute the entire Agreementbetween the parties with respect to subject matter hereof, andshall replace all prior written or verbal promises andrepresentations. This Agreement and everything contained thereinshall enure to the benefit of and be binding upon each of theparties hereto and their respective successors and permittedassigns.(o) Termination – Either party may terminate thisAgreement on Sixty (60) business days notice, without cause. In theevent of a breach of section 8 (e), either party may terminate thisAgreement immediately. In the event of a material breach of sectionC (d), the non-breaching party may terminate this Agreementimmediately. In the event of a material breach of this Agreement orSection C (d), the non-breaching party may terminate this Agreementwithout further notice provided that it (i) has given the breachingparty written notice of the breach, (ii) the written notice clearlydescribes the nature of the breach and (iii) the breaching partyhas failed to cure the breach within ten (10) days of thenotice.
Upon termination Innovatia will (a)return the VMI Product to VMI in the same condition as it wasreceived but for reasonable wear and tear, (b) permit VMI entranceto the Test location, if applicable, in order for VMI to remove theVMI Product; and (c) deliver any outstanding project reports.
Upon termination VMI will disconnect and remove the VMI Product andwill not, in any event, be responsible for any damage or alterationcaused to any project location by the original installation orsubsequent removal of the VMI Product. Upon Termination, VMI willbe responsible for the Fees, and all costs incurred by Innovatiathat are to be reimbursed by VMI, as referenced in section 7.
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(p) Notices - All notices underthis Agreement will be in writing and may be sent by electroniccopy or facsimile provided that a hard copy is also mailed to theattention of the legal department of the applicable party at theaddresses listed below. Any such notice will be effective: on thefirst business day after delivery, if sent by electronic means orby facsimile; seven days from the date of mailing if sent by mail;or on the next business day, if sent by courier.
**If to VMI:**Voice Mobility Inc.Suite 180-13777 Commerce parkwayRichmond, B.C.CanadaV6V 2X3Attention: James Hewett, CFOFax: 604.233.4826**If to Innovatia:Innovatia Inc.**One Brunswick Square,P.O. Box 6081Saint John, NB, CanadaE2L 4R5Attention: Norm Jacquard
Fax: 902 4843500(q) Force majeure - Neither Party is responsible for afailure to fulfill its obligations under this Agreement or fordelay in doing so if such failure or delay is due to circumstancesbeyond its control including but not limited to acts of God, actsof government, war, riots, strikes, accidents in transportation .The parties agree to immediately provide notice of any suchcircumstances and undertake to restore the status quo as soon as isfeasible(r) Interpretation - No provision of this Agreement will beinterpreted against any party merely because that party or itslegal representative drafted the provision.
(s) Relationship – The relationship between the partiesis that of independent contractors and does not create any right orauthority to act on behalf of the other party
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(t) Counterparts****This Agreement may be executed in any number ofcounterparts, each of which will be deemed an original, but all ofwhich together will constitute one and the same instrument. Eachparty will receive a duplicate original of the counterpart copy orcopies executed by it. A signed facsimile or telefaxed copy of thisAgreement or any agreement, document or instrument contemplatedhereby shall be effectual and valid proof of execution anddelivery. Notwithstanding the foregoing, the parties will eachdeliver original execution copies of the Agreement to one anotheras soon as practicable following execution thereof.
****NOTE: THIS AGREEMENT IS MADE SUBJECT TO ALIANT REQUIRED BOARDAPPROVAL.****
This Agreement shall commence onJanuary 1, 2002 and will be reviewed annually to set the scope andsize of the Agreement for the upcoming year.
**Signed as a *LivingLAB* Agreement dated the day of February,2002.**VOICE MOBILITY INC.**By: /s/ James HewettTitle: Chief Financial Officer**INNOVATIA INC.**By: /s/Norm JacquardTitle: Business Leader, Unified CommunicationsEXHIBIT 10.42**Addendum to LivingLAB Agreement**Thisaddendum provides wording which directly replaces and supercedesSection B. (“of VMI”) subsection (a.) of the Living LabAgreement between Voice Mobility Inc. and Innovatia Inc., datedFebruary 27th, 2001.**B. OBLIGATIONS OF VMI**In consideration ofthe services provided by Innovatia relative to LivingLAB, both withregard to activities outlined in this document and other activitiesto be defined, VMI will pay to Innovatia fees based directly on thevalue of the work performed by Innovatia, ("the Fees"). The initialterm of this agreement will be three years beginning Feb 1st 2001,however this term may be extended by mutual consent. The value ofthis Agreement in Year 1 will be US$1.74 Million, and will besettled in the form of a promissory note (to be attached asAppendix A to this Addendum), in a form to be agreed to byInnovatia, no later than Dec 14th, 2001 (Terms attached as AppendixB to this Addendum)
Thescope of services, and payments therefore, for Years 2 and 3 of theAgreement will be negotiated and established by January 31, 2002.It is understood by both parties that the guiding principles forthis negotiation will include:
All projects defined by LivingLAB and VMI will be pursuantto a specific scope of work and agreed value for same;
Any future payments by VMIto Innovatia for work performed by LivingLAB will take the form ofequity or a royalty stream, which will not exceed 10% of VMI grossrevenue in any given year notwithstanding, VMI will be responsibleto pay anything they agree to in scope of work under (i);
Services will be provided to VMI by Innovatia will be at the“customer rate applicable”
- If a revised LivingLAB agreement is not negotiated and signed byboth Innovatia and VMI by Jan 31, 2002, all LivingLAB activitiesand associated work relative to those activities that Aliant isperforming on behalf of LivingLAB will terminate.   VMI and Innovatia agree and acknowledge that should the January2002 negotiations for new terms of the LivingLAB arrangementbetween the parties, as described in the Addendum, not result in acontinuing LivingLAB Agreement by February 15, 2002, this noteshall become immediately due, and payable in cash or shares at VMI‘s option on or before July1, 2002, until such time as theparties negotiate revised payment terms in good faith.At the end of each 12-month period beginning Feb1st, 2001, VMI and Innovatia assigned account and senior managerswill review progress on projects and invoiced amounts. Changes toexisting projects and payment schedule may be made by mutualconsent.VOICE MOBILITY INC.INNOVATIA INC.Per:/s/ James HewettPer:/s/Norm JacquardAuthorized SignatoryAuthorized SignatoryAppendix A Promissory Note**SCHEDULE APROMISSORY NOTE**All words andphrases with initial capital letters used but not defined hereinhave the meanings given to them in the Living Lab Agreement (the“Agreement” between Voice Mobility Inc. (“VMI”) and InnovatiaInc. (“Innovatia”) dated February 27, 2001, as amended by Addendum 2dated December 14, 2001 (“Addendum”)**FOR VALUE RECEIVED**, subject to all the terms herein andpursuant to the Agreement and Addendum 2, VMI hereby promises topay to Innovatia at its head office an aggregate amount, in cash orin common shares of Voice Mobility International, Inc. ("VMII"),Cdn$2,720,142 (the “Amount”) as follows:1. VMI andInnovatia agree and acknowledge that should the January 2002negotiations for new terms of the LivingLAB arrangement between theparties, as described in the Addendum, not result in a continuingLivingLAB Agreement by February 15, 2002, this note shall becomeimmediately due, and payable in cash or shares at VMI ‘soption on or before July1, 2002, until such time as the partiesnegotiate revised payment terms in good faith.2. On or beforethe first business day of each period of three calendar months(each of such periods being referred to herein as a “Quarter”) VMIwill, commencing on July2002 and for the 10 consecutive Quartersthereafter, either (at VMI's sole option) pay in cash or deliver toInnovatia shares of VMII (the "VMII Shares") that are subject to a4 month hold period in BC and Ontario, a one year hold period inthe US, and such other hold periods as may apply at law (andlegended accordingly), or a combination therefore, having an EquityValue equal to the lesser of:Cdn$226,678;or
- of the net aggregate amount of invoices issued by VMI to AliantTelecom for all products (the "Revenues") in respect of theparticular Quarter.     In the eventthat the Revenues for a Quarter exceed Cdn.$226,678, VMI will carryforward the difference between the Revenues and Cdn.$226,678 andinclude that amount in the calculation of Revenues for thefollowing Quarter.
Payment forthe period between Jan 1, 2002 and June 30, 2002 will be payable inthe third quarter beginning July 1, 2002. The determination of theamount owed will be the lesser of $453,356 or 40% of the netaggregate amount of invoices issued by VMI to Aliant Telecom forall products (the "Revenues") in respect in the period between Jan1, 2002 and June 30, 2002 .
3. Subject toVMI first obtaining the approval from the Toronto Stock Exchange(the “TSE”) to do so, on or before December 28, 2001, VMI willdeliver to Innovatia 500,000 common shares of VMII (the “VMIIShares") with such Initial VMII Shares being subject to a 4 monthhold period in BC and Ontario, a one year hold period in the US,and such other hold periods as may apply at law (and legendedaccordingly).
4. The PrincipalAmount will bear simple interest at the rate of 1% above the PrimeRate as published by the HSBC Bank Canada on the last working dayof the month. The Principal Amount will be reduced from time totime by the amount of all payments of cash or delivery of VMIIShares valued at the Equity Value thereof as of the time suchEquity Value is determined.5. part of the Principal Amount or interest accrued thereon not paidafter the last payment provided for in paragraph 1 hereof will bepaid by VMI in successive Quarters thereafter, in amounts notexceeding the minimum amount referred to in paragraph 1, by theissuance of common shares of VMII in an amount equal to the unpaidamount divided by Cdn$1.56.6. acknowledges that, other than with respect to the Initial VMIIShares, before VMI can deliver VMII Shares as provided for hereinVMII is required by securities law and the TSE to obtain theapproval by formal resolution of the majority of its minorityshareholders (which will exclude Innovatia and any of itsassociates from voting as shareholders of VMII) at a meeting ofshareholders of VMII and that this will not occur prior to VMII'snext annual meeting. Further, the issuance of any VMII Shares issubject to the prior approval of the TSE. In the event suchshareholder and TSE approval is not obtained, this Promissory Notewill be payable only in cash.7. will be entitled at any time and from time to time to prepay thewhole or any portion of the then remaining Principal Amount andinterest accrued thereon without penalty by one or payments in cashor deliveries of VMII Shares valued at its Equity Value.8. secure its obligations hereunder, VMI hereby grants to Innovatiaa security interest in all amounts due from time to time to VMIfrom Aliant provided that as long as VMI is not in default of anyof its obligations under this note Innovatia will have no claim orright to such amounts.9. the purposes of this note, “Value”means the value ofany VMII Shares delivered to Innovatia hereunder determined: (a) asto 500,000 of the VMII Shares at: (i) the lesser of the marketprice of the common shares of VMII on the TSE; and (ii) Cdn$0.75per VMII Share; and (b) the balance of the VMII Shares on the basisof the weighted average trading price for VMII's common shares onthe TSE over the 10 trading days immediately prior to the date onwhich such VMII Shares are to be issued, or on such other basis asmay be prescribed by the TSE for transactions of this type.10. note shall be governed by the laws of the Province of BritishColumbia and the federal laws of Canada applicable therein.
**IN WITNESSWHEREPOF** VMI has executed this note by its duly authorizedofficers as of December 28, 2001.
**VOICE MOBILITY INC.****INNOVATIA INC.Per:/s/James HewettPer:/s/Norm JacquardAuthorized SignatoryAuthorized SignatoryEXHIBIT 10.43**Employee EMPLOYMENTCONTRACT****This Agreement** made and effective April 1, 2000**Between:**VOICE MOBILITY INC.With offices at:180 - 13777 Commerce CourtRichmond, BC V6V 2X3(the“**Company**”)**And:******James Hutton6442 – 180th StreetSurrey, BCV3S 7K2(hereafterreferred to as the “**Executive**”)******Whereas:****A.**TheCompany is in the business of communications including the researchand development of new technology, and the production, marketingand sales of equipment, software and services related thereto;**B.**The Executive possesses certain qualifications which maybe of benefit to the Company;**C.**The Company is desirous of employing the Executive, whois desirous of working for the Company in the development of itsbusiness and its related interests;**Now Therefore,** in consideration of the premises and of themutual covenants, conditions and terms herein, the parties heretoagree as follows:**1.0 Definitions**1.01 In this Agreement, the following words and phrases have thefollowing meanings:“Opportunities”means all potential businessopportunities of any kind whatsoever in connection with thebusiness of the Company including any acquisitions, sales, businessarrangements, consulting engagements, contracts or retainers andother transactions or opportunities for new markets, products orservices which have been disclosed to or investigated, studied orconsidered by the Company or by others on behalf of the Company orwhich come to the attention of the Executive as a result of hisengagement with the Company.
- “Information”means information pertaining to theCompany’s customers and clients, client base and marketsincluding without limitation:        anyinformation the Company has regarding the business of its currentand prospective clients;
- names, addresses and telephone numbers of the current andprospective clients of the Company;       the names,addresses and telephone numbers of any employees of clients of theCompany with whom the Executive has been or will be in contact inthe course of his engagement with the Company; and
theCompany’s contracts with its clients including details as topricing and supply.
“Information”means information known to or usedby the Company in connection with the business of the Companyincluding but not limited to:
anyinnovative and proprietary means of testing and related productsthat have been developed by or for the Company including anysoftware for the application thereof; and
 Documents,Financial Information, Marketing Information, IntellectualProperty, Business Opportunities or Research and Development, butnot including any of the foregoing which was known to the Executiveprior to engagement by the Company or which is or becomes a matterof Public Knowledge.
 anyimprovements, formula, design, prototype, compilation ofinformation, data, program, code, method, technique or process,information relating to any product, device, equipment or machine,information pertaining to the Company.
 “Documents”means any documents, compiled or uncompiledcomputer programs (in electronic or other form), specifications,plans, drawings, prototypes, models, manuals, materials, sketches,schematics, compilations of information, analyses, experiments,data, formulae or other information pertaining or relating to theClient Information or the Confidential Information including copiesor reproductions (in any form) of the foregoing.
- “Information”means any information pertaining to theCompany’s fees, costs, sales, income, profit, profitability,pricing, salaries and wages.      “Property”means any and all any trade secrets,Documents, techniques, processes, information relating to anyproduct, service, device, equipment or machine, inventions,designs, ideas, works, creations, developments, methods of doingbusiness, processes, techniques, prototypes, patent or patentapplications, tradeor tradeapplications, industrial design orcopyright of the Company and includes any modifications orimprovements thereto.
- “Information”means information related to theCompany’s marketing programs, plans, strategies and proposedfuture products, services, advertising and promotions.    “Knowledge”means information that is generally known toactuaries or is otherwise easily accessible through lawful,non-confidential sources.“and Development”means information pertaining to anyresearch, development, investigation, study, analysis, experimentor test carried on or proposed to be carried on at any time by theCompany in connection with the business of the Company.
**2.0 Employment**2.01 The Company agrees to hire the Executive who agrees toperform services for the Company or any of its affiliates, upon theterms set forth herein.**3.0 Term**3.01 This agreement shall be from the April 1, 2000 until December31, 2002, but may be terminated in accordance with the termsherein.**4.0 Types of Services**4.01 The nature and types of services to be provided to theCompany by the Executive are set forth in Schedule“A”hereto. It is understood and agreed that the duties andresponsibilities so defined are not exhaustive and may be alteredfrom time to time by the Company; So long as any such changes arereasonable, both with respect to any changing circumstances of theCompany and its business and the personal background, training andcircumstances of the Executive, the Executive shall not refuse anysuch changed employment request by the Company.**5.0 Location**5.01 ****Services provided by the Executive shall beprimarily performed at the offices of the Company located inRichmond, it being understood that some travel may be required ofthe Executive from time to time as determined by the Company. TheCompany also reserves the right to transfer the Executive to adifferent location, upon reasonable notice to the Executive.**6.0 Hours**6.01 Except as otherwise specified herein, the Executive shallbe expected to work those periods and times normally constitutingopen or operating times for the Company and its business, howeverthe Executive will be expected to work such additional time ortimes as may be appropriate with respect to the businessrequirements and commitments at the time, without claim forovertime or additional remuneration.6.02 The Executive shall be a liberty to devote reasonable time forserving, as appropriate, on the Boards of Directors of othercorporations, from engaging in charitable and public serviceactivities, and from managing his personal investments, providedsuch activities do not materially interfere with the performance ofhis duties and responsibilities under this Agreement and do notconstitute a conflict of interest with respect to his employmentherein.**7.0 Remuneration**7.01 ****The Company shall provide remuneration to theExecutive in the kind, amounts and at such time or times as moreparticularly set out in Schedule “A”hereto.**8.0 Holidays**8.01 In addition to statutory holidays, the Executive isentitled to the number of weeks ordinary, non-cumulative vacationin each calendar year of employment as is more particularly set outin Schedule “A” hereto. This vacation time accrues after 12months of employment and is subject to the reasonable control ofthe Company with respect to scheduling, having consideration forboth other employees of the Company and the commitments of theCompany from time to time in relation to its business.8.02 In the event that the Executive leaves the Company, for anyreason whatsoever, after having taken unearned vacation, it isagreed that the Company may deduct that unearned portion from anyfinal pay owing to the Executive.**9.0 Company’s Commitments**9.01 Company agrees to pay the remuneration stipulated in accordancewith the terms of this agreement.9.02 Company shall make and remit all required statutory deductionsin relation to the salary of the Executive.9.03 Company shall reimburse the Executive for all reasonabletraveling and expenses related thereto incurred by the Executivewhile engaged in services for the Company at other than thecustomary site at which the Executive works.**10.0 Executive’s Commitments:**10.01 The Executive agrees to provide the services required bythe Company from time to time, in a competent and timelymanner.10.02 The Executive shall devote such time as is required for suchservices.10.03 In consideration of receiving a car allowance, as set out inSchedule A, the Executive shall provide his own vehicle, withappropriate insurance, for all local and reasonable travelrequirements.10.04 The Executive shall at all times herein conduct himself incompetent and courteous manner and will endeavor to foster andmaintain good relations with other Company staff, suppliers,contractors, and customers of the Company.**11.0 Non-Disclosure**11.01 The Executive recognize that, in the course of and as aresult of this agreement, he shall or may directly or indirectlyobtain Confidential Information and, as a result, the Executiveagrees to respect and adhere to the covenants contained in sections11.02 to 11.03 hereof.11.02 The Executive covenants that at all times during the term ofthis Agreement and at all times following the termination of thisagreement with the Company for any reason, he shall:
hold inconfidence and keep confidential all Confidential Information;
- directly or indirectly use any Confidential Information except inthe course of performing the obligations of this agreement; and    directly or indirectly disclose any Confidential Information toany person or entity, except in the course of performing theobligations of this agreement with the Company with the knowledgeand consent of the Company and in the Company's interests.11.03 TheExecutive hereby acknowledges that irreparable damage may result tothe Company, its business or property in the event of the breach ofany of the covenants and assurances herein agreed to by theExecutive and that the present agreement was made by the Companyand continues primarily upon the Executive’s covenants andassurances herein, and the Executive hereby covenants that in theevent of such breach or danger thereof, the Company shall beentitled, in addition to any other remedies and damages available,to an interlocutory or permanent injunction whereby the Executiveshall be ordered to respect the covenants and assurances containedin this Agreement.**12.0 Executive Disclosure**12.01 The Executive agrees to promptly disclose to the Companyor its nominee complete information in respect to all BusinessOpportunities, ideas, discoveries, inventions, improvements,developments, designs, and technical data, whether patentable ornot (all of which are herein referred to as the "Improvements"),which are conceived, made, produced or developed by the Executivealone or with others, resulting as a consequence of theExecutive’s employment or other association with the Companyand relating to the subject matter of the Confidential Information.The Executive shall at the Company's request promptly assign hisrights in the Improvements to the Company.**13.0 Copying Confidential Information**13.01 The Executive will not make copies of any specifications,plans, drawings, prototypes, models, documents, computer programs,manuals, materials or other information appertaining or relating tothe Confidential Information.**14.0 Return of Documents**14.01 Upon termination of the Executive’s engagement withthe Employer for any reason whatsoever, the Executive shallpromptly deliver to the Employer all Documents and confirm to theEmployer that he retains no Documents or any copies orreproductions thereof.**15.0 Ownership Of Intellectual Property**15.01 Any and all Intellectual Property made or created by theExecutive during the course of the Executive' s employment by theCompany, whether at the Company's place of business or otherwise,shall be and remain the exclusive property of the Company and theExecutive shall have no right, title or interest therein eventhough the Executive may have created or contributed to thecreation of any of the Intellectual Property; and the Company shallhave the sole and exclusive right, title and interest in and to theIntellectual Property, which right shall continue notwithstandingthe termination of employment of the Executive.15.02 The Executive shall maintain at all times adequate and currentrecords relating to the creation and development of anyImprovements, which records shall be and shall remain the propertyof the Company.**16.0 Assignment**16.01 The Executive hereby assigns to the Company any and allright, title and interest that the Executive may have in and to theIntellectual Property and in any patent, copyright, industrialdesign, trade mark and any other similar right pertaining to theIntellectual Property which the Executive may have by virtue ofhaving created, made, conceived or contributed to any suchIntellectual Property, either solely or with others, in whole or inpart, in the course of employment and while concerned with orinvolved in the business carried on by the Company. The Executivefurther agrees to maintain at all times adequate and currentrecords relating to the creation and development of theIntellectual Property, which records shall be and shall remain theproperty of the Company.**17.0 Intellectual Property Protection**17.01 The Company alone shall have the right to apply forprosecute and obtain patents and copyright, industrial design andtrade mark registrations and any other registrations or grants orrights analogous thereto in any and all countries throughout theworld in respect of Intellectual Property made or created by theExecutive during the course of the Executive's employment by theCompany and the Executive agrees to execute on demand, whetherduring or subsequent to Executive's employment, any applicationstransfers, assignments and other documents as the Company mayconsider necessary or desirable from time to time for the purposeof obtaining, maintaining or vesting in or assigning to the Companyabsolute title to any such patents, copyright, industrial design ortrade mark registrations and the Intellectual Property or for thepurpose of applying for, prosecuting, obtaining or protecting anysuch patents, copyright, industrial design or trade markregistrations in any and all countries of the world and theExecutive further agrees to cooperate and assist in ever waypossible in the prosecution and protection of any such applicationsand the rights granted in respect thereof.**18.0 Non**18.01 The Executive shall not during the period of thisAgreement and for a period of 6 from the date of the termination ofthis Agreement and/or the Executive’s employment with theCompany, (whichever occurs first) if the Company terminates theAgreement without cause and for a period of 12 months from the dateof the termination of this Agreement and/or the Executive’semployment with the Company, (whichever occurs first) if terminatedfor cause, or by the Executive (without prior written consent ofthe Company, which may be reasonably withheld), either individuallyor in partnership, or in conjunction with any person or persons,firm, association, syndicate, company or corporation as principal,agent, director, officer, Executive, consultant, investor, or inany other manner whatsoever, carry on or be engaged in or beconcerned with or interested in, or advise, lend money to,guarantee the debts or obligations of or permit his/her name or anypart thereof to be used or employed by the Company’scompetitors in the unified messaging business as at the date oftermination, in any geographical location where the Executive wasemployed during the course of his/her employment with theCompany18.02 The Executive further covenants and agrees that he will notdisclose, at any time, any Business Opportunities. 18.03 The Executive hereby acknowledges that irreparable damage mayresult to the Company, its business or property in the event of thebreach of any of the covenants and assurances herein agreed to bythe Executive and that this agreement was made by the Company andcontinues primarily upon the Executive’s covenants andassurances herein, and the Executive hereby covenants that in theevent of such breach or danger thereof, the Company shall beentitled, in addition to any other remedies and damages available,to an interlocutory or permanent injunction whereby the Executiveshall be ordered to respect the covenants and assurances containedin this Agreement.18.04 The covenants of the Executive contained in section 18.01shall survive the termination of this Agreement for any reasonincluding for reason of any breach hereof.**19.0 Nonsolicitation**19.01 The Executive shall not, without the prior written consentof the Company, at any time for a period of 12following the date oftermination of this Agreement and the Executive’s employmentfor whatever reason with or without cause, either on his/her ownbehalf or on behalf of any other person competing or endeavoring tocompete with the Company, directly or indirectly, solicit, endeavorto solicit or gain the custom of, canvass or interfere with anyperson who:was acustomer or a representative of a customer of the Company as of thedate of such termination;
- a customer of the Company at any time within the oneperiodimmediately preceding the date of such termination;    an employee of the Company at any time within the one-year periodimmediately preceding the date of such termination;pursued as a prospective customer by or on behalf of ‘theCompany at any time within 12 months prior to the date of suchtermination in respect of whom the Company had not decided to ceaseall such pursuit; or use his/her personal knowledge or influenceover any such customer to or for his/her own benefit or that ofanother person competing with or endeavoring to compete with theCompany.
19.02 Subclauses (a), (b) and (c) are each separate anddistinct covenants severable one from the other and if any suchcovenant is determined to be void or unenforceable by any court ofcompetent jurisdiction, this shall not affect the validity of anyother such covenant.**20.0 Reasonableness of Restrictions**20.01 The Executive hereby acknowledges and agrees that theprovisions of and all restrictions contained in sections 18.01 to18.04 and 19.01 of this Agreement are reasonable in scope,geographical area and time and are necessary for the protection ofthe Company's legitimate interests and proprietary rights and arean essential condition to and a fundamental term of this Agreementwithout which The Company would not have entered into thisAgreement. The Executive furthermore acknowledges and representsthat he have reviewed the provisions hereof with their counsel andthat they understand them and are satisfied the provisions hereofare both necessary and reasonable. The Executive hereby furthermoreacknowledges that complying with the provisions of sections 18.01to 18.03 and 19.01 hereof will not unduly or unreasonably prejudicethe Executive, and that the current arrangements being made betweenthe Company and the Executive and the other covenants of thisagreement constitute adequate and sufficient consideration toenable them to comply with the provisions thereof.**21.0 Notice to Next Company**21.01 The Executive agrees that prior to commencing anyengagement with any other company following termination of theengagement of the Executive with the Company he shall disclose tosuch other company the terms of this Agreement.**22.0 Termination**22.01 This agreement shall be deemed to terminate on the deathof the Executive, the expiry of the Term or, at the option of theCompany, in the event of the Executive’s absence or inabilityto render the services required hereunder due to disability,illness, incapacity or otherwise, (but excluding vacation time) foran aggregate of 45 days during any 12 month period during the termherein.22.02 The Company may terminate this agreement at any time forcause, including but not limited to any breach of any of the termscontained herein, upon written notice specifying same to theExecutive.22.04 In the event of termination, for any reason whatsoever, theExecutive shall return to the Company all assets of the Companywhich may be in the possession of the Executive, whether on or offthe normal site of work.22.05 In the event of termination, any benefits to or on behalf ofthe Executive which have been pre-paid by the Company shall beadjusted as of the effective date of such termination andreimbursed to the Company by the Executive. The Company shall beentitled to off-set and deduct any such amounts from anycompensation remaining to be paid to the Executive.
22.06 In theevent of termination for any reason except for termination of theExecutive’s employment by the Company for cause, performancefor the purposes of any bonus calculation or options based uponperformance, will be appraised for the partial year and theExecutive will receive a pro-rata entitlement.
**23.0 EntireContract** 23.01 There are no representations, warranties, conditions,terms or collateral contracts or agreements affecting theemployment contemplated in this agreement except as set outherein.**24.0 Amendment:**24.01 Except for increases in remuneration or extension ofemployment benefits, the terms of this agreement shall remain inforce until terminated and shall only be amended by agreement inwriting signed by both parties.24.02 Should any provision or provisions in this agreement be heldto be void or unenforceable by any Court of competent jurisdictionbased on any stipulation with respect to area or time herein, thisagreement shall be deemed to be amended with such area and/or timealtered to reflect the area or time deemed acceptable andenforceable by such Court.**25.0 Severance** 25.01 Subject to the aforesaid, should any provision or provisionsin the agreement be held to be void or unenforceable by any Courtof competent jurisdiction, the same shall be severed and shall notaffect the validity of the remainder of this agreement.**26.0 Executive’s Acknowledgment**26.01 The Executive acknowledges that he has fully read thisagreement and the terms herein. The Executive acknowledges hisconcurrence with the same and his opportunity to consult withindependent legal counsel before execution.**27.0****Gender** 27.01 ****Wherever the masculine gender is used herein, thesame shall be construed as being the feminine gender where thecontext so requires.**28.0 Headings**28.01 Headings included in this agreement are for ease ofreference only and shall not be used in any way in theinterpretation of this Agreement.**29.0 Jurisdiction**29.01 This agreement shall be governed by the laws of theProvince of British Columbia.**In Witness Whereof,** the parties have hereto set their handseffective the date first written above.
Signed onbehalf of Voice Mobility Inc.Executive Signature
Per: /s/ Thomas O’Flaherty/s/ James HuttonDate: May 5, 2000Date: May 5, 2000**********SCHEDULE“A” - Particulars of Executive EmploymentContract.****Position:Chief Executive OfficerReports To:Board of DirectorsTypes of Services:****TheExecutive shall serve as the Chief Executive Officer of theCompany, with specific responsibilities for Business Development.He shall also act as the Company visionary, and shall supportinvestor activities.**The Executivewill carry out such further functions as may be directed by theBoard of Directors of the Company.**********Remuneration:a) Salary:-** $150,000.00 (Cdn) per annum, paid bi-monthly**b) Other Benefits:*****(some of which may betaxable)*******Full Medical, Dental and AD&D as provided by the Company toall Executives. The Company reserves the right to alter the benefitplan at any time, in their sole discretion.Car allowance of $500.00 per month.**c) Options**The Companyhas provided will provide the Executive with an option to purchase250,000 shares of Common Stock or Voice Mobility International,Inc., a Nevada corporation, pursuant to the terms and conditions ofthe 1999 Stock Option Plan (the “Plan”more particularly setout in the Option Agreement, attached as Schedule B hereto.It isexpressly agreed that if the if MBO targets are not met in anygiven year, the options designated for that year will not vest andwill cease to be available.**d) Bonus Targets for Year Ending December 31, 2000**A target bonus of up to $100,000.00 may be earned for 2000based on achievement of specified objectives. These objectives areto be agreed upon by April 30, 2000 and assessed by December 31,2000. Details are provided in Schedule C.**Holidays:** three weeks per year.**************************************