Verb Exchange Inc – ‘20-F/A’ for 12/31/02

On:  Friday, 7/2/04, at 7:41pm ET   ·   As of:  7/6/04   ·   For:  12/31/02   ·   Accession #:  1028269-4-64   ·   File #:  0-30683

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Amendment to Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F/A      Form 20-F, Amendment No. 1 - 12/31/2002               56    270K 
 2: EX-10.5     Effectnet Agreements                                  23     73K 

20-F/A   —   Form 20-F, Amendment No. 1 – 12/31/2002
Document Table of Contents

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

   FORM 20-F/A

(Mark One)                                                                      

      REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE ECURITIES
-----  EXCHANGE ACT OF 1934.                                                    

OR

 X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
-----  ACT OF 1934, FOR THE FISCAL YEAR ENDED December 31, 2002.                

OR

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

Commission file number  000-30683                                               

 Verb Exchange Inc. (formerly Ayotte Music Inc.)
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

--------------------------------------------------------------------------------
 (Translation of Registrant's name into English)

Canada (Federal), under the Canada Business Corporations Act
--------------------------------------------------------------------------------
 (Jurisdiction of incorporation or organization)

c/o Suite 1600, 609 Granville Street, Vancouver, BC, Canada, V7Y 1C3
--------------------------------------------------------------------------------
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act. 

Title of each class          Name of each exchange on which registered

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

Securities registered or to be registered pursuant to Section 12(g) of the Act. 

(Title of Class)

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

Securities for which there is a reporting obligation pursuant to Section 15(d)  
of the Act.                                                                     

--------------------------------------------------------------------------------
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of    
capital or common stock as of the close of the period covered by the annual     
report:                                                                         
                                10,383,955 common shares as at December 31, 2002
                                ------------------------------------------------

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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports)  X  YES ___ NO; and (2) has been subject to such 
filing requirements for the past 90 days. X YES ___ NO.                         

Indicate which financial statement item the registrant elects to follow:        
                                                X   ITEM 17         ITEM 18.
                                     -----           -----

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VERB EXCHANGE INC.
(FORMERLY AYOTTE MUSIC INC.)

 TABLE OF CONTENTS

                                                                        Page No.
PART I

Item 1.  Identity of Directors, Senior Management and Advisors.................4

Item 2.  Offer Statistics and Expected Timetable...............................4

Item 3.  Key Information.......................................................4

Item 4.  Information on the Company............................................8

Item 5.  Operating and Financial Review and Prospects.........................15

Item 6.  Directors, Senior Management and Employees...........................19

Item 7.  Major Shareholders and Related Party Transactions....................24

Item 8.  Financial Information................................................24

Item 9.  The Offer and Listing ...............................................24

Item 10.  Additional Information. ............................................25

Item 11.  Quantitative and Qualitative Disclosures About Market Risk .........30

Item 12.  Description of Securities Other Than Equity Securities .............30

 PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies ....................30

Item 14.  Material Modifications to the Rights of                               
          Security Holders and Use of Proceeds................................30

Item 15.  Controls and Procedures.............................................30

Item 16.  Audit Matters.......................................................30

PART III

Item 17.  Financial Statements................................................31

Item 18.  Financial Statements................................................31

Item 19.  Exhibits............................................................31

Signatures....................................................................32

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PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.                 

Not required.                                                         

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.                               

Not required.                                                         

ITEM 3.  KEY INFORMATION.                                                       

A. SELECTED FINANCIAL DATA.                                           

    On November 11, 2002, the Company completed a reverse takeover (the "RTO")
of a private company, Verb Exchange Inc. ("Verb"). For accounting purposes, the 
historical financial statements of the Company reflect the financial position,  
results of operations and cash flows of Verb prior to the RTO, and are          
consolidated with those of the Company subsequent to the RTO. On this basis, the
table below provides selected financial information about the Company covering  
the past three fiscal years ended December 31 (Verb was incorporated on January 
14, 2000). This information, and all other financial information in this report,
is stated in Canadian dollars unless otherwise noted. For further information   
about the fiscal years ended December 31, 2000 to 2002, please refer to the     
Company's comparative financial statements attached which include consolidated  
balance sheets as at December 31, 2002 and 2001 and consolidated statements of  
operations and deficit and cash flows for each of the years in the three-year   
period ended December 31, 2002 together with the auditors' report thereon.      

    Note that the financial information is presented on the basis of generally
accepted accounting principles in Canada. There are no material differences from
applying these principles compared to applying United States generally accepted 
accounting principles. Please see the auditors' report.                         

Selected Consolidated Financial and Operating Data

                                                        [Enlarge/Download Table]

                                                                Year Ended December 31     
OPERATING DATA                                           2002          2001         2000   
                                                     --------------------------------------

                                                                                           
Sales, net of excise duties and taxes                $    88,840   $    62,491  $    32,626
Loss for the year                                      4,462,840     6,220,995    1,167,477
Loss per common share, basic*                               0.86          1.63         0.38
Weighted average number of common stock outstanding    5,168,088     3,818,610    3,099,800

BALANCE SHEET DATA                                                                         

Current assets                                            208,018      177,226          n/a
Technology (net of accumulated depreciation)            2,291,266    3,348,773          n/a
Total assets                                            2,717,979    3,794,563          n/a
Current liabilities                                     1,677,065    1,534,244          n/a

Net assets                                              1,031,043    2,229,417          n/a
Share capital                                           8,032,910    5,192,284          n/a
Shareholders' equity                                    1,031,043    2,229,417          n/a
Dividends per common share                                    -0-          -0-          -0-
Dividends per preferred share                                 -0-          -0-          -0-

* See Note 3(j) to the Financial Statements for information on the    
calculation of this data. Fully diluted data is not presented above, as the     
effect of including the potential shares is insignificant.                      

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EXCHANGE RATES                                                

   Verb Exchange Inc. (together with its subsidiaries, will also be referred
to as "Verb", "Company", "we", "our" or "us") publishes its financial statements
in Canadian dollars. In this Annual Report, references to "dollars", "$" or     
"Cdn$" are to Canadian dollars, unless otherwise specified, reference to "US$"  
refer to United States dollars. For your convenience, this Annual Report        
contains translations of certain Canadian dollar amounts into United States     
dollars at specified rates. These translations should not be read as            
representations that the Canadian dollar amounts actually represent such United 
States dollar amounts or could be converted into United States dollars at the   
rate indicated. Unless otherwise stated, the translations of Canadian dollars   
("Cdn$") into United States dollars ("US$") have been made at Cdn$1.4995 to     
US$1.00, the Bank of Canada's closing exchange rate on December 31, 2002. The   
Bank of Canada closing exchange rate on June 20, 2003 was Cdn$1.3596 per        
US$1.00.                                                                        

     This table describes certain average exchange rates based on the average of
the Bank of Canada closing rates on the last day of each month ending in the    
period shown. The high and low rates represent the high and low Bank of Canada  
exchange rates observed in the period shown. These rates are shown as Canadian  
dollars per US$1.00. On June 20, 2003, the inverse of the Bank of Canada closing
exchange rate was Cdn$1.00 per US$0.7355.                                       

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------
        FROM                         TO                  AVERAGE        HIGH             LOW     
-------------------------------------------------------------------------------------------------
                                                                                                 
January 1, 2000               December 31, 2000           1.4852                                 
January 1, 2001               December 31, 2001           1.5514                                 
January 1, 2002               December 31, 2002           1.5688                                 
December 1, 2002              December 31, 2002                         1.5801          1.5457   
January 1, 2003               January 31, 2003                          1.5777          1.5176   
February 1, 2003              February 28, 2003                         1.5329          1.4832   
March 1, 2003                 March 31, 2003                            1.4950          1.4605   
April 1, 2003                 April 30, 2003                            1.4924          1.4316   
May 1, 2003                   May 31, 2003                              1.4263          1.3438   
June 1, 2003                  June 20, 2003                             1.3787          1.3323   
-------------------------------------------------------------------------------------------------

B. CAPITALIZATION AND INDEBTEDNESS.                                   

Not required.                                                         

C. REASONS FOR THE OFFER AND USE OF PROCEEDS.                         

Not required.                                                         

D. RISK FACTORS AND FORWARD LOOKING STATEMENTS.                       

   There are significant risks associated with buying our shares. You should
carefully consider the risks of investing as you evaluate our business by       
reading all of the information in this document.                                

 In this document, we are showing you a picture which is part historical
(events which have happened) and part predictive (events which we believe will  
happen). Except for the historical information, all of the information in this  
document make up "forward looking" statements. Specifically, all statements     
(other than statements of historical fact) regarding our financial position,    
business strategy and plans and objectives are forward-looking statements. These
forward-looking statements are based on the beliefs of management, as well as   
assumptions made by and information currently available to management. These    
statements involve known and unknown risks, including the risks resulting from  
economic and market conditions, accurately forecasting operating and capital    
expenditures and capital needs, successful anticipation of competition which may
not yet be fully developed, and other business conditions. Our use of the words 
"anticipate", "believe",                                                        

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"estimate", "expect", "may", "will", "continue" and "intend", and similar words 
or phrases, are intended to identify forward-looking statements (also known as  
"cautionary statements"). These statements reflect our current views with       
respect to future events. They are subject to the realization in fact of        
assumptions, but what we now think will happen may be turn out to be inaccurate 
or incomplete. We cannot assure you that our expectations will prove to be      
correct. Actual operating results and financial performance may prove to be very
different from what we now predict or anticipate. The "risk factors" below      
specifically address some of the factors that may influence future operating    
results and financial performance.                                              

RISK FACTORS.                                                 

Early Stage of Development. Although Verb's products are ready for    
commercialization, Verb's business is still considered to be in the development 
stage. As such, Verb is subject to the difficulties, risks and uncertainties    
frequently encountered by companies in the development stage.                   

 MARKET ACCEPTANCE AND UNCERTAIN REVENUES. In the development of any new
product or service, market acceptance is always a large obstacle to overcome. As
a result, it will take significant time, resources and effort to infiltrate and 
educate target markets. In addition, the overall size and growth rate of the    
market, as well as the price customers are willing to pay for the Company's     
product offerings, is uncertain.                                                

   There can be no assurances that Verb will be able to penetrate its target
markets, or be able to attain a level of revenues or acceptable margins, or     
maintain any such revenues, margins or market share in the face of competition, 
sufficient to maintain operations. If there is a failure of market acceptance,  
or if the market for Verb's services develop more slowly than expected, becomes 
saturated with competition or is otherwise economically inefficient, the        
business and prospects of Verb will be adversely affected.                      

NEED TO INCREASE EXPENDITURES. At the current time, Verb will need to 
increase expenditures on marketing and sales, and on technical resources and    
infrastructure development. In the event that Verb has insufficient financial   
resources to make such expenditures, the business and prospects of Verb will be 
adversely affected.                                                             

 Despite the foregoing, there can be no assurances that any increases in
marketing and sales efforts will result in increased revenues, a larger overall 
market or greater market share. Likewise, there can be no assurances that any   
research and development programs or initiatives will result in viable          
enhancements to current products or in new products.                            

  EXPECTED LOSSES AND NEED FOR WORKING CAPITAL. With ongoing and generally
increasing expenses, Verb will likely incur operating losses and negative cash  
flows for the foreseeable future. As a result, Verb will require significant    
additional working capital to finance growth and current operations, either in  
the form of revenues and/or external financing.                                 

   As stated above, there can be no assurances that Verb will attain a level
of revenues or acceptable margins sufficient to maintain operations. In         
addition, there can be no assurances that any external financing, lines of      
credit or other sources of funds will be available if and when needed on terms  
acceptable to Verb, if at all. If Verb is unable to generate working capital to 
finance growth or current operations, it may not be able to take advantage of   
business opportunities, respond to technological developments or competitive    
pressures, or even maintain operations.                                         

  TECHNICAL CHANGE AND COMPETITION. The field of unified communications is
rapidly evolving as new technologies are developed and introduced. Viable       
competition exists for Verb, often from larger corporations with greater        
technical, marketing, financial and other resources.                            

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The competitiveness of Verb's products depends, in large part, on the 
ability of Verb to demonstrate performance, cost-effectiveness and other        
benefits of its products and technology over that of the competition. There can 
be no assurances that Verb will be able to establish or maintain a technical    
lead over its competition or be able to integrate new system enhancements and   
technologies to keep pace with industry changes or customer demands on a timely 
basis.                                                                          

    In the event that competitors develop a more suitable or desirable product
or service for the delivering of unified communications than that of Verb, the  
business and prospects of Verb will be adversely affected. Furthermore, there   
can be no assurances that new competitors will not, should Verb be successful,  
subsequently enter the market.                                                  

   INTELLECTUAL PROPERTY. Verb attempts to protect its intellectual property
through trademark laws and as trade secrets, and through contractual provisions 
and confidentiality procedures. There can be, however, no assurances that any   
present or future intellectual property protection will be effective, each being
subject to challenge as unenforceable or outright circumvention. In addition,   
there can be no assurances that others will not claim that Verb has infringed   
upon the intellectual property rights of such others.                           

In the event of any litigation, the costs of Verb filing suit against 
others to protect its intellectual property and to defend itself against any    
claims that it has infringed the intellectual property rights of others could be
substantial, in terms of both management time and monetary resources, which     
would have a material adverse effect on Verb's business.                        

DISRUPTION OF BUSINESS. Verb's ability to attract and retain customers
depends on the performance, reliability and availability of its services. Any   
disruption in Verb's services to its customers, whether due to internal,        
external or technical factors, will likely result in customer dissatisfaction   
and loss of credibility, with a resulting adverse effect on Verb's business and 
prospects.                                                                      

   RELIANCE ON WEBLEY SYSTEMS INC. Currently, Verb provides certain services
to its subscribers on an outsourced solution basis, by licensing components of  
Webley Systems Inc.'s unified communications platform and adding its own        
proprietary elements. In the event that Webley cannot or ceases to provide such 
services to Verb, Verb's ability to provide services to its subscribers would be
adversely affected, if not impossible, until such time as the problem is        
corrected or a suitable alternative unified communications platform is found.   

There can be no assurances that, if required, a suitable alternative  
unified communications platform will be available. Even should such a platform  
be identified, the inherent delay in switching subscribers to the alternative   
platform will likely result in customer dissatisfaction and loss of credibility,
which would have an immediate and adverse effect on Verb's business and         
prospects.                                                                      

     STRATEGIC PARTNERS. Verb's marketing strategy relies heavily on its ability
to secure and nurture strategic alliances and third party agency relationships  
to generate exposure, market and sell its products and services. In such event, 
Verb may not have direct control over the timing and methods used to market its 
products and services, resulting in potentially slower adoption, less revenues, 
and a greater risk of competitive interference.                                 

  DEPENDENCE ON KEY PERSONNEL. The success of Verb is in part dependent on
the services of certain key management and technical personnel, including       
Nathanael Lineham and Calvin Wang. The expertise of these and other high-level  
individuals will be an important factor contributing to Verb's potential for    
growth and future success. The loss of one or more of these individuals could   
have an adverse effect on Verb's business and prospects.                        

The future success of Verb also depends on its continuing ability to  
attract, retain and motivate highly skilled employees. The inability of Verb to 
do so in respect of its present and future employees would also have an adverse 
effect on Verb's business and prospects.                                        

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      IF WE HAVE TO RAISE DEBT FINANCING OR SELL SECURITIES IN THE FUTURE,
YOUR RIGHTS AND THE VALUE OF YOUR INVESTMENT IN THE COMMON STOCK COULD BE       
REDUCED. If we issue debt securities, the lenders would have a claim to our     
assets that would be superior to the stockholder rights. Interest on the debt   
would increase costs and negatively impact operating results. If we issue more  
common stock or any preferred stock, your percentage ownership will decrease and
your stock may experience additional dilution, and the holders of preferred     
stock (called preference securities in Canada) may have rights, preferences and 
privileges which are superior to (more favorable) the rights of holders of the  
common stock. It is likely the Company will sell securities in the future. The  
terms of such future transactions presently are not determinable.               

 IF THE MARKET FOR OUR COMMON STOCK IS ILLIQUID IN THE FUTURE, YOU COULD
ENCOUNTER DIFFICULTY IF YOU TRY TO SELL YOUR STOCK. Our common stock is         
currently trading on the TSX Venture Exchange (the "TSX-V") but an active       
trading market may not be sustained. If there is no active trading market for   
our common stock, you may not be able to resell your shares at any price, if at 
all. It is possible that the trading market for the common stock in the future  
will be "thin" or "illiquid," which could result in increased volatility in     
trading prices. These future prices cannot be predicted, and will be determined 
by the market. The prices may be influenced by investors' perceptions of us and 
general economic conditions. Until our financial performance indicates          
substantial success in executing our business model, it is unlikely that        
significant coverage by stock market analysts will be extended to us. Without   
such coverage, institutional investors are not likely to buy our stock. Until   
such time, if ever, as such coverage by analysts and wider market interest      
develops, the market may have a limited capacity to absorb significant amounts  
of trading volumes. You should read the next risk factor in connection with this
discussion. Presently our stock is not listed for trading in the United States. 

YOUR LEGAL RECOURSE AS A UNITED STATES INVESTOR COULD BE LIMITED. Our 
company is incorporated under the laws of the federal jurisdiction of Canada.   
Our assets are located in Canada. Our directors and officers and certain of the 
experts named in this prospectus are residents of Canada, and all or a          
substantial portion of their assets are located outside the United States. As a 
result, if any of our shareholders were to bring a lawsuit against our officers,
directors or experts in the United States it may be difficult for them to effect
service of legal process in the United States on those people who are not       
residents of the United States based upon civil liability under the Securities  
Act of 1933 or the Securities Exchange Act of 1934. In addition, we have been   
advised that a judgment of a United States court based solely upon civil        
liability under these laws would probably be enforceable in Canada if the U.S.  
court in which the judgment were obtained had a basis for jurisdiction in the   
matter. We also have been advised that there is substantial doubt whether an    
action could be brought successfully in Canada in the first instance on the     
basis of liability predicated solely upon the United States' laws.              

ITEM 4.  INFORMATION ON THE COMPANY.                                            

A.  HISTORY AND DEVELOPMENT OF THE COMPANY.                           

    Our legal name is "Verb Exchange Inc.". The Company was formed on February
27, 1998, as a result of the amalgamation of Ayotte Music Inc. and ISI Ventures 
Inc. under the Business Corporations Act (Alberta). On May 16, 2000, the Company
continued (changed its legal domicile) federally under the Canada Business      
Corporations Act. Our registered office in Canada is located at Suite 1600 - 609
Granville Street, Vancouver, BC, Canada, V7Y 1C3. Our principal business address
is Suite 908 - 1055 Dunsmuir Street, Vancouver, BC, Canada, V7X 1L2, tel: (604) 
685-8363, fax: (604) 685-8366. We do not have an agent in the United States.    

DISPOSITION OF CORE BUSINESS.                                 

   On November 30, 2001, Verb's predecessor, Ayotte Music Inc., entered into
an agreement to sell its core business of manufacturing and delivering drums to 
Shetland Enterprises Ltd. The negotiated purchase price was $400,000, subject to
final adjustment, of which $200,000 was paid in cash on closing with the        
remainder in the form of vendor take-back financing to be repaid in 36 equal    
payments commencing in February, 2003, with interest calculated at 7% per annum.
As a result of the purchase price allocation arising                            

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from the RTO, this receivable is shown on the books at an amount equal to       
$120,093.20. As at the date hereof, Shetland has not made any of its required   
installment payments, although in discussions with the Company they have        
indicated that all payments in arrears will be made in the near future.         

ACQUISITION OF VERB.                                          

     On November 12, 2002, Ayotte completed the RTO and acquired the business of
Verb. The structure of the RTO consisted of Ayotte consolidating its common     
shares on a five old for one new common share basis, resulting in 3,288,800     
post-consolidation common shares and warrants to acquire an aggregate of 247,000
post-consolidation common shares being outstanding prior to giving effect to the
RTO. Ayotte then acquired all of the outstanding common shares and convertible  
securities of Verb in exchange for 4,320,925 post-consolidation common shares   
issued from treasury and warrants to acquire an aggregate of 1,255,000          
post-consolidation common shares of Ayotte.                                     

   In connection with concurrent financings, commissions, finder's fees, and
other matters in respect of the RTO transactions, an additional 2,774,230       
post-consolidation common shares, warrants to acquire an aggregate of 1,873,430 
post-consolidation common shares of Ayotte and 990,138 special warrants         
(post-consolidation), each such special warrant being convertible into a unit   
comprised of one post-consolidation common share and one warrant to acquire a   
further post-consolidation common share of Ayotte.                              

Subsequent to completion of this transaction, the amalgamated company 
adopted the name Verb Exchange Inc.                                             

ACQUISITION OF CAPITAL POOL COMPANIES.                        

 On June 24, 2003, the Company completed a business combination with two
capital pool companies listed on the TSX-V. A capital pool company (a "CPC") is 
a company that is created for the purpose of conducting an initial public       
offering and exchange listing pursuant to the TSX-V's CPC program, and          
thereafter using the funds to search for and evaluate potential acquisitions    
which, if approved by the TSX-V and acquired, will result in the CPC becoming   
fully listed on the TSX-V (referred to as a "Qualifying Transaction").          

   Pursuant to this transaction, the Company effectively acquired each CPC's
cash in treasury by exchanging its common shares for all the outstanding common 
shares of each CPC, on the basis of one common share for each $0.20 of the CPC's
cash after applying a 10% premium. The Company will also issue warrants for the 
outstanding options of each CPC, based upon a formula derived from the exchange 
ratio for the common shares. Upon making the requisite adjustments to the share 
exchange calculation for permitted and non-permitted expenditures during the    
course of the transaction, the Company issued an aggregate of 2,573,573 common  
shares and 250,821 warrants to both CPC's to acquire approximately $465,000 in  
cash.                                                                           

CAPITAL EXPENDITURES.                                         

In the previous three fiscal years, Verb has invested approximately   
$4,459,440 in capital expenditures, primarily with respect to the acquisition of
$4,252,511 in technology and equipment from Cadium Systems (now a wholly-owned  
subsidiary of Verb) in 2001 in exchange for common shares and common share      
purchase warrants. Currently, the Company has no plans to incur any expenditures
on or divest itself of, any significant amounts of capital equipment.           

TAKEOVER OFFERS BY THIRD PARTIES.                             

Other than the RTO and the business combination with the two CPC's    
discussed above, there have been no public or private takeover offers or efforts
by third parties in respect of the Company's shares, or by the Company in       
respect of other companies' shares, in fiscal 2000 to 2002.                     

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B.  BUSINESS OVERVIEW.                                                

        Verb is in the business of developing and delivering solutions for the
communication and messaging needs of businesses and professionals. In           
particular, Verb concentrates on enhancing access and management of various     
communications formats (Voice, Fax, Email) so that organizations and individuals
can communicate more effectively and realize increased productivity. Verb's     
products ("Verb Products") are designed to allow users to interact with their   
phone messages and other information that can be received or delivered via      
existing telecommunication devices. Users are offered not only a unified inbox, 
but a platform whereby they can actively manage and control both incoming and   
outgoing messages and information. Some of the features that the Verb Products  
are designed to provide include allowing remote users to both: (i) fully manage 
their incoming phone messaging system; and (ii) broadcast outgoing messages to  
multiple recipients in a single process. There are two distinct messaging       
platforms: tagline(TM), a full-featured unified communications platform that    
utilizes speech recognition and text to speech capabilities, and                
MyMessenger(TM), a java based Interactive Voice broadcast delivery system.      

 Verb's products and services increase productivity and reduce costs for
subscribers by eliminating repetitive labour intensive actions and the need for 
redundant devices. Verb's products are differentiated by being web enabled and  
device agnostic. The subscriber has the choice on how to manage and access the  
platform. Subscribers are not required to have a specific piece of hardware or  
download software to utilize the services. Verb's products and services are     
offered to subscribers on a hosted basis or ASP (Application Service Provider   
model) for a monthly subscription fee. The subscriber chooses from a variety of 
plans that provide access to the platform in bundles of minutes. The            
subscription is automatically renewed each month unless the subscriber chooses  
to cancel the service. At that point the subscriber has no further obligation.  
This outsourced subscription model does not encumber an organization or         
individual with up front capital expenditures or consume internal resources to  
realize the benefits of the technologies.                                       

    Currently there are four distinct services based on the two platforms that
comprise the Verb Product suite: myMessenger(TM), Echo, tagline(TM) and the     
Exchange Console. Each component of the Verb Products (myMessenger(TM), Echo,   
tagline(TM) and Exchange Console) has been configured to be 'stand-alone' in the
marketplace or to be bundled together for multiple applications within an       
organization.                                                                   

PRINCIPAL PRODUCTS AND SERVICES                               

myMessenger(TM)                                               

  myMessenger(TM) is an interactive voice broadcast system, proprietary to
Verb. myMessenger(TM) can broadcast to both "on platform" recipients (other     
myMessenger(TM) subscribers) or "off platform" recipients (anyone with a live   
telephone number). With one toll-free call to the myMessenger(TM) service, the  
user can record a personal voice message and have it delivered to all the       
contacts in their existing database anywhere in North America for a nominal per 
message charge if they are off-platform, or without cost whatsoever if they are 
on-platform. The recipient of the message can respond to the voice mail with a  
voice reply back to the myMessenger(TM) mailbox or with a simple yes/no answer -
all through the telephone keypad. myMessenger(TM) can determine whether a live  
person or an answering machine answers the phone. Depending on how the system is
configured by the user, it will either reattempt the number(s) until it connects
with a live person or leave a message on the voice mail. myMessenger(TM) will   
also send notification when someone has responded to a message or when a        
broadcast is complete. The system offers both an interactive voice response and 
web interface to allow users to access information by phone or through the web. 
The service is completely web-enabled meaning the user can listen to, record    
voice messages and receive email reports detailing the results of the broadcasts
all through the web at www.myMessenger.com.                                     

Echo                                                          

The Echo service is comparable to the myMessenger(TM) service in      
functionality, but is designed for large scale message distribution with        
corporate accounts and also has direct connect call center capabilities (it is  
not, however, web-enabled).                                                     

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tagline(TM)                                                   

The tagline(TM) service gives users control over their communications.
tagline(TM)functions as a virtual personal assistant to screen, handle and      
direct calls, faxes and emails. The user decides when and how they receive calls
through the tagline(TM) filtering and screening capabilities. The system allows 
the user to identify callers by contact name or phone number. The user          
determines the security levels, so all messages and incoming calls are secure.  
tagline(TM) features include:                                                   

    -   one convenient number to give to important contacts, allowing the user
 to be reached with toll free convenience from anywhere in North
America.                                                      

  -   all communications (voice, fax, emails, etc.) can be managed through
any device (telephone, computer, wireless PDA, etc.).         

     -   simple voice commands tell the system what to do - this allows users to
communicate in a 'hands free - eyes free' environment.        

   -   send a voice message by saying the message once and broadcasting to a
group (up to 2000) of your contacts.                          

   -   integrates with your PIM (personal information manager - your contact
database).                                                    

    -   allows users to make a conference call (up to 32 people) or conference
   on the fly, adding contacts by speaking the name, or managing the
conference on the web.                                        

     -   allows users to have reminders proactively sent to them by email, phone
or wireless PDA.                                              

   -   allows users to have notifications of important message arrivals sent
to their phone, pager, wireless PDA, or computer.             

  Verb licenses core unified communications components for the tagline(TM)
service from Webley Systems Inc. The licensed portion of the platform is a      
combination of open standard protocols for processing the various message       
formats overlaid by a speech recognition engine; these elements are integrated  
with handling and synchronization features that are proprietary to Webley       
Systems Inc. All the platform applications are completely software and hardware 
vendor independent. The platform has received a "Carrier Grade" certification   
from Pacific Bell.                                                              

 To these core licensed components, Verb integrates proprietary elements
that it owns such as off platform interactive broadcast capabilities and IP     
based monitoring, content delivery, and instant messaging. Verb also develops   
and integrates other applications to tagline(TM) for specific market channels.  
See "Risk Factors - Reliance on Webley Systems Inc." below for a discussion of  
Verb's reliance on that portion of the technology that is licensed from Webley  
Systems Inc.                                                                    

Exchange Console                                              

 Exchange Console is a web based content delivery, instant messaging and
monitoring application, developed by and proprietary to Verb. Exchange Console  
becomes the subscriber's command center. Its integration with Internet-related  
tasks gives the user access to common tasks such as web searches and email.     
Furthermore, the interactive nature of the application allows "dynamic content" 
(in the form of banner ads and scrolling news headlines) to be fed to the user. 

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  By incorporating standard toolbar functionality, Exchange Console can be
easily moved around, docked and minimized on the user's desktop. An extensible  
markup language ("XML") framework provides a convenient interface to communicate
with external servers and data sources. Through this interface, interaction with
servers offers real-time information retrieval and instant messaging            
capabilities.                                                                   

 From Exchange Console, the subscriber can easily manage all tagline(TM)
functions while continuing to work in other programs. Exchange Console can be   
customized in appearance and can streamline relevant content to specific user   
groups. Exchange Console is a unique feature option for the GUI (Graphical User 
Interface) and an important component of the private label branding solution    
Verb offers to resellers. When branding the interface for a specific group, Verb
is able to offer Exchange Console as a means for a subscribing organization to  
extend their web and brand presence to their client's desktops. Verb will charge
specific user groups by the download for the use of Exchange Console. Exchange  
Console also interfaces with tagline(TM) and Echo to provide quick access to    
certain features such as notification of pending messages without having to log 
into the GUI.                                                                   

TECHNOLOGY OVERVIEW - STAGE OF DEVELOPMENT                    

   The myMessenger(TM) and Echo service has been beta tested and the service
is commercially available. The tagline(TM) service has been market tested and is
also commercially available. Exchange Console has been beta tested and the      
product is ready for commercial launch.                                         

  The Verb platform is the only unified communications platform to undergo
testing and to receive certification from a Bell Company. Pacific Bell performed
stringent load testing and service integration testing on the platform for over 
one year. The platform was certified "Carrier Grade", meaning the system is very
reliable and robust. The open architecture of the platform allows for easy      
customization and integration of third party applications.                      

PRODUCT DISTRIBUTION                                          

    Verb currently provides its services through a 24 hour/7 days a week sales
center and via the online tagline(TM) and myMessenger(TM) websites. Once a user 
signs up for the services, they receive an e-mail and hardcopy fulfillment      
package 3-5 business days after initial registration.                           

  tagline(TM) and myMessenger(TM) are purchased by individuals, groups, or
enterprise organizations on a monthly subscription basis. The subscription      
packages are based on usage and priced to reflect the amount of usage included, 
similar to a cellular phone plan. Customer usage that exceeds the included      
amount is billed additionally at a per minute rate depending on the package they
have purchased. The packages are priced to provide incentives for the subscriber
to increase the package size. The subscriptions are sold monthly or on annual   
contract depending on the needs of the customer.                                

Exchange Console is sold as a value added service to subscribers that 
utilize myMessenger(TM) or tagline(TM) services or as an individual product.    
These subscribers would pay an additional monthly fee for the functionality     
added by these services depending on the features required by the customer.     
These two services are also sold as individual products on the same per user    
monthly subscription basis.                                                     

Echo is an event-based service and pricing depends on the volume of   
messages required by the customer for that event. The customer is assessed a per
message charge plus additional charges for customization. Contracts are arranged
on a per event basis, by total message volume, or over a period of time i.e. six
months.                                                                         

  Verb also intends to license its product technologies to other providers
for resale to their own internal and/or external end users. Such a provider     
would be charged an upfront fee plus a monthly maintenance and upgrade fee, or a
per user fee model similar to the subscriber model depending on the nature of   
the arrangement.                                                                

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MARKETS                                                       

    Due to the use of and reliance on communications services by virtually all
business organizations and business professionals, and their demand for greater 
utility from their communication devices, the market for the unified            
communications solutions that Verb expects to be able to provide can potentially
encompass business organizations and business professionals worldwide.          

  The target markets which Verb expects to focus on, however, are business
organizations and business professionals within North America. It is not        
expected that Verb will further limit its focus to specified industries or      
classes of business professionals, as it is expected that the Verb products will
offer utility to potentially any business organization or business professional 
in need of a unified communications solution regardless of his/her industry     
segment or classification. See "Marketing Plans and Strategies" below.          

     Despite the fact that telecommunications services are utilized by virtually
every individual, Verb does not expect to target the broad based consumer       
market. At the present time, it does not appear as if the general non-commercial
phone user is ready for, or in need of, unified communications. Until such time 
that the non-commercial phone user can be educated with respect to the benefits 
of Unified Communications and an actual need is developed, it is not            
economically feasible for Verb to target the non-commercial phone user.         

  To date, market acceptance of Verb's products and services is unknown as
they have only recently reached the commercialization stage. Refer to "Risk     
Factors - Market Acceptance and Uncertain Revenues".                            

MARKETING STRATEGIES                                          

Verb services are marketed and sold through an exclusive network of   
independently owned Verb Exchange Certified Agencies. These agencies pay a      
one-time fee to Verb for the right to market the services. The number of        
agencies available for sale in a geographic area is strictly limited; this      
threshold is a function of population. Each area has a Master Agent who has paid
a consideration to Verb. The Master Agent in turn acquires independent agents   
for the area and receives compensation in the form of commission from the agency
registration fee and an override on area sales. Once the threshold has been     
reached for that geographic area no more agencies will be certified. The        
individual Agencies receive an ongoing revenue stream in the form of residual   
payments as long as the subscriber maintains the service and the agency         
maintains the minimum number of new monthly activations.                        

 The vertical channels in which the services are marketed consist of the
small office/home office market, medium and large enterprises and vertical      
markets such as real estate, insurance, financial brokers and healthcare        
industry workers and other sales and service driven markets.                    

   The service provider market consists of technology and telecommunications
companies. Examples of these providers include long distance providers, next    
generation telephone companies, network infrastructure providers and hardware   
and software providers. All of these markets are continually expanding their own
core offering through outsourcing to other 'non-core-competency' value added    
services. They provide an indirect channel to potentially very large            
pre-qualified subscriber bases.                                                 

Initial marketing efforts have been concentrated on forming strategic 
partnerships to open up new avenues of distribution and new channels for revenue
streams. All of the aforementioned marketing initiatives have commenced to date.

ALLIANCE SUMMARY                                              

To date, Verb has established the following strategic partnerships:   

  -   VERATIUM SOFTWARE INC.: Verb has formed a strategic partnership with
         Veratium. Veratium specializes in developing wireless software products
      that increase the productivity of the mobile workforce. Verb will be
    incorporating Veratium's Motivus(TM) software into the tagline(TM)
       service. Motivus(TM) software provides users access to their resident
computer from remote locations. The user                      

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       can "surf" to their Windows Desktop files, folders and inbox from any
     mobile device (Palm OS(R), RIM(TM) OS, Pocket PCs, Smart Phones) or
    from a web browser. The Motivus(TM) software will be packaged with
    tagline(TM) as a component of the Graphical User Interface for web
   access and as an integral part of the tagline(TM)/wireless device
      hardware bundling program. This program will be offered to specific,
  vertical channels where secure, mobile communications are vital.

     -   INTACTA TECHNOLOGIES INC.: By including the INTACTA.CODE(TM) encoder as
       part of the tagline(TM) service offering, Verb adds a unique security
component to its services.                                    

   In addition to the foregoing, Verb enlisted the services of the Vancouver
firm WOW to assist in its extensive re-branding process. Verb utilized an       
intensive series of workshops, studies and focus groups to identify market      
trends and other industry branding successes to determine how to best position  
Verb's products and services.                                                   

COMPETITION                                                   

    The provider market is essentially divided into three categories: Hardware
providers, Software/Wholesale providers and Application Service providers.      

    -   HARDWARE PROVIDERS. These companies provide the physical hardware that
         delivers the service. Their primary markets are carriers or substantial
        enterprises. These types of deployments run into hundreds of thousands
of dollars and require significant internal resources from the
         purchaser in order to maintain the service. Examples of these companies
        would be Avaya, Centrinity, and Voice Mobility. The inherent challenge
         for hardware providers is reluctance on the part of many enterprises to
       make large capital expenditures during times of economic uncertainty,
and the inability of small to medium size enterprises to make 
significant infrastructure investments.                       

   -   SOFTWARE/WHOLESALE PROVIDERS. These companies provide the software or
        in some cases the service, on a wholesale basis to Carriers or smaller
        providers to be resold under a different brand name. Examples would be
    Appiant Technologies, Centrinity, Voice Mobility, and Active Voice
       (owned by Cisco). These companies have some of the same challenges as
       the hardware providers in requiring the end user to purchase hardware
      and pay license fees to utilize the technologies. In those instances
        where carriers CLEC's (Competitive Local Exchange Carriers) and ILEC's
      (Incumbent Local Exchange Carriers) resell the service, the provider
      has lost control of the primary revenue stream - the subscriber. The
       Carriers have many other services to market and to date have shown no
  aptitude or propensity to market a new technology until there is
critical mass established in the marketplace.                 

 -   APPLICATION SERVICE PROVIDERS. These are companies that deliver the
        service to the end subscriber. Industry competition is expected from a
     number of companies offering "Unified Messaging Services". Although
      many competitors have addressed the need for a unified "inbox", most
        are not taking the added step of offering unified communications (i.e.
         the management and control of incoming and outgoing messages). Examples
      of competitive service provider companies include J2 Global, UReach,
        GoSolo, Officescape and Unified Arts. Management of Verb believes that
       Verb has distinguished itself from the competition by specializing in
        unified communications, and most notably the creation of a proprietary
       "set up wizard" to assist the user in configuring their service. Verb
        has invested considerably in the creation of tools to train and advise
     the subscriber on how to get the most value from the service and to
      date we remain the only company to provide these tools. In all cases
 tagline(TM) has more features and capabilities than competitive
         products. Verb continues to implement other key differentiators such as
      unique pricing, 24x7x365 live customer support, and integration with
   instant messaging and presence management tools like the Exchange
      Console to keep tagline(TM) as the definitive unified communications
brand.                                                        

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FUTURE DEVELOPMENTS                                           

Due to the nature of the Verb products, they are continuously being   
developed in order to ensure that the products meet the demands of the users for
new or enhanced features. As such, notwithstanding the fact that any particular 
Verb product is currently at the commercialization stage, the development of    
Verb products is an ongoing process as Verb continues to develop its products   
and services in order to be able to provide additional features and utility to  
its users.                                                                      

    Obsolescence is not expected to be a key factor in Verb's operation within
the unified communications industry, as once implemented into a phone system,   
Verb's products are designed to be continually upgradeable to provide new       
features and utility. Verb's products are designed to be an outsourced solution 
making them highly scalable and upgradeable with no initial installation fees.  
Obsolescence may become a more important factor if Verb is unable to continually
ensure that its products meet the demands of the users for new or enhanced      
features that are not anticipated by or unable to be fulfilled by Verb. Refer to
"Risk Factors - Technological Change and Competition" below.                    

C.  ORGANIZATIONAL STRUCTURE.                                         

----------------------------
Verb Exchange Inc.
(Canada)
----------------------------

--------------------------------------------------------  
100%                                        100%
--------------------------                 -------------------------- 
 Verb Exchange                             Verb Exchange Corp.
(Management) Inc.                                 (Nevada)      
(British Columbia)                                              
--------------------------                 -------------------------- 
100%                                            
--------------------------                                            
Cadium Systems Inc.                                           
(British Columbia)                                            
---------------------------                                           

D.  PROPERTY, PLANT AND EQUIPMENT.                                    

The Company currently leases its office facilities, which comprises   
approximately 12,139 square feet, located at Suite 908 - 1055 Dunsmuir. Apart   
from office furniture and equipment, the Company's tangible fixed assets consist
of computer equipment, software and its web engine.                             

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.                          

    The Company's financial statements are stated in Canadian dollars and have
been prepared in accordance with Canadian Generally Accepted Accounting         
Principles ("Canadian GAAP"). In some respects financial statements prepared    
under Canadian GAAP may differ materially from financial statements prepared    
under United States Generally Accepted Accounting Principles ("US GAAP"). As of 
December 31, 2002 there were no material differences in result between the two  
GAAP presentations.                                                             

    The Government of Canada permits a floating exchange rate to determine the
value of the Canadian dollar against the United States dollar. We anticipate    
that a portion of sales will be made outside Canada, principally in the United  
States. If currency exchange rates fluctuate substantially, our cash flows from 
operations could be impacted negatively or positively, depending on direction.  

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A. OPERATING RESULTS.                                         

                FISCAL YEAR ENDED DECEMBER 31, 2002, COMPARED TO FISCAL 2001

        Revenues increased by approximately 42% to $88,840 in 2002 compared to
$62,491 in 2001. The revenue in 2001 related to calling card sales of the       
Company's wholesale long distance services business it discontinued that same   
year. During 2002, Verb completed the development of its unified communications 
solutions and began deployment of tagline(TM) and myMessenger(TM) into the      
marketplace.                                                                    

   Salaries in 2002 of $1,018,011 appear to have declined by over $2 million
(or approximately 68%) from $3,194,276 in 2001. However, during fiscal 2001, a  
number of Verb shares were issued to certain employees, officers and directors  
for nominal consideration, as an inducement to employment or fulfillment of     
previous obligations to these individuals. Accounting rules under Canadian GAAP 
necessitated that these shares be valued and charged to the financial statements
as employment expense. From a cash perspective, $691,493 of the $3,194,276 for  
2001 was actual salaries and wages, exclusive of the shares issued.             

 Professional and consulting fees rose by $675,311 to $1,186,407 in 2002
from $511,096 in 2001. The increase was mainly due to the professional fees     
incurred in relation to the transaction with Ayotte. Of that amount, $291,432   
represented legal fees incurred by the Company to complete the reverse takeover.

    General and administrative fees more than doubled from $353,594 in 2001 to
$744,173 in 2002. This was largely due to the $216,203 in marketing costs       
pending the Company's reverse takeover transaction as well as the deployment of 
its products in the marketplace.                                                

    The directors fees charged in 2001 were also due to accounting rules under
GAAP necessitating that shares issued for nominal consideration, as an          
inducement to enter into employment or in fulfillment of previous obligations to
these individuals, be valued and charged to the financial statements. No shares 
were issued or fees paid in 2002.                                               

Loss for the year for 2002 decreased $1.76 million to $4,462,840 as   
compared to a reported loss of $6,220,995 in 2001. The decrease in the loss for 
the year is directly related the recognition of shares issued for nominal       
consideration valued and charged as employment expense in 2001.                 

     The Company's operating activities used cash of $2,308,816 in 2002 compared
to $1,188,936 in 2001. This is mostly comprised of the loss for the year of     
$4,462,840, an increase in accounts payable of $812,496 and add backs of        
amortization and stock-based compensation from the Cadium acquisition of        
$1,121,070 and $250,024 respectively.                                           

   Cash provided by financing activities increased by $828,103 to $2,087,572
in 2002 from $1,259,469 in 2001 mostly due to the cash received on loan from    
Ayotte Music Inc. as part of the reverse takeover transaction.                  

FISCAL YEAR ENDED DECEMBER 31, 2001, COMPARED TO FISCAL 2000

  Revenues for the year ended December 31, 2001 approximated $62,491. This
represents an increase of $29,865 over gross revenues for the fiscal period     
ending December 31, 2000. In fiscal 2001, the Company discontinued its calling  
card business, which had a low gross margin, as a precursor move to the         
deployment of its unified communication services.                               

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Amortization rose by $921,109 to $926,279 in 2001 from $5,170 in 2000 
mainly due to the depreciation of technology acquired when, on February 19,     
2001, the Company acquired all of the issued and outstanding common and         
preferred shares of Cadium Systems Inc. Cadium was involved in the development  
of a java-based messaging system. The technology platform was allocated a value 
of $4,230,029 and is being depreciated on a straight line basis over 5 years.   

     Salaries and wages rose from $127,921 in 2000 to $3,194,276 in 2001. During
2001, a number of Verb shares were issued to certain employees, officers and    
directors for nominal consideration, as an inducement to employment or          
fulfillment of previous obligations to these individuals. Accounting rules under
Canadian GAAP necessitated that these shares be valued and charged to the       
financial statements as employment expense. From a cash perspective, $691,493 of
the $3,194,276 for 2001 was actual salaries and wages, exclusive of the shares  
issued. The increase in salaries and wages in 2001 was due to the addition of 12
employees in Research and Development, Sales and Marketing and General and      
Administration as the company focused on the development and deployment of its  
unified communication product and services.                                     

    Professional and consulting fees rose by $356,443 from $154,653 in 2000 to
$511,096 on 2001. The increase was mainly due to an increase of $48,655 in      
professional fees from $41,703 in 2000 to $90,359 in 2001, and the addition of  
consultants during 2001 in order to support the development and deployment of   
unified communications products and services.                                   

  General and administrative fees went from $47,349 in 2000 to $353,594 in
2001. This was largely due to marketing and branding costs of $165,393 in 2001  
(2000 - nil) required in order to focus on the primary business of the Company, 
being the sales of unified communications products and services. Rent expense in
2001 was $69,079 compared to $18,082 in 2000 as a result of the move to the     
Company's current offices, and the staff increased by 12 employees in 2001.     
Office expenses went from $28,649 in 2000 to $92,305 in 2001 attributable to    
increases in leasing, print/photocopy and postage/courier costs mostly due to   
the increase in staff and additional cost generated by the new focus on sales of
unified communications product and services.                                    

     Director fees charged in 2001 were $457,320 and representing the fair value
of 300,000 shares issued in lieu of directors' fees. Under Canadian GAAP shares 
issued for nominal consideration as an inducement to enter into employment or in
fulfillment of previous obligations to these individuals must be recorded at    
their fair value. No shares were issued or fees paid in 2000.                   

B.  LIQUIDITY AND CAPITAL RESOURCES                                   

  Historically, the Company has financed its operations mainly through the
sale of equity securities and also through short term debt, lease financing,    
related party debt, including officer, shareholder and employee loans, and cash 
flow from its operating activities, including customer deposits and supplier    
credit. As at December 31, 2002, the Company had a working capital deficit of   
$1,469,047 compared to $1,357,018 in 2001.                                      

     The Company's ability to generate cash and cash equivalents largely depends
on the growth of Verb's revenues and the ability to raise external capital as   
and when needed. The Company continues to grow its revenues. In addition, the   
Company currently has two financing initiatives, discussed below.               

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   At present, the Company has a significant working capital deficiency. The
Company will need to generate additional cash reserves in the near future to    
address this deficiency and to provide additional funding to continue the       
rollout and expansion of its business. Management believes that the two         
financing initiatives discussed below, together with expected revenues, should  
provide adequate liquidity for the short term. In addition, the Company will    
continue to rely on suppliers for operational financing in the form of the      
extension of trade credit.                                                      

  Present financing initiatives include the issuance of additional equity,
with a $300,000 financing that just completed (see Subsequent Events in the     
financial statements) and the acquisition of two capital pool companies as      
disclosed above under Item 4A - "Acquisition of Capital Pool Companies". As     
well, the Company will continue to rely on lines of credit currently extended by
third parties.                                                                  

Management believes that the primary indicator of liquidity on the    
Company's balance sheet will be its cash balance. For the most part, accounts   
receivable are expected to remain low as services are billed directly to        
subscribers' credit cards, which also reduces the incidence of bad debt. For the
remainder of calendar 2003, the Company expects to incur expenses of up to      
$400,000 per month, depending on its level of activity. Given current sales and 
revenue projections and the associated expenditures, the cash on hand should be 
sufficient to sustain operations for the next twelve months. After such time,   
the Company expects that it will need to raise additional financing through     
equity or longer term debt issues to expand its operations.                     

   The Company does not expect to incur any significant capital expenditures
in the near future.                                                             

C.  RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.              

    Verb currently has registered trademarks in Canada for myMessenger(TM) and
myMessenger.com(TM), and has applied for Verb Exchange(TM) and tagline(TM). Verb
has also filed applications in the US to register a trademark for Verb          
Exchange(TM) and tagline(TM).                                                   

     Verb intends to rely on copyright and trade secret laws in order to protect
the proprietary elements of their software and products. Where Verb has not     
already done so, it intends to enter into non-disclosure and non-competition    
agreements with all of its employees and management personnel who have access to
the proprietary elements of Verb's software and products, customer lists and    
other confidential information.                                                 

In the past three fiscal years, the Company has invested $4,362,537 in
research and development and intellectual property matters, being $27,094 in    
fiscal 2000, $2,735,550 in fiscal 2001 and $1,599,893 in fiscal 2002. These     
costs are classified in the consolidated financial statements according to their
nature and for 2002 consist primarily of amortization ($1,057,507), general and 
administrative ($202,626) and salaries and wages ($291,852).                    

D.  TREND INFORMATION.                                                

     Management is not aware of any trend, commitment, event or uncertainty that
is expected to have a material effect on its business, financial condition or   
results of operations.                                                          

E.  OFF-BALANCE SHEET ARRANGEMENTS                                    

Not applicable.                                                       

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F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS                     

                                                        [Enlarge/Download Table]

                                                                   Payments Due By Period                      
CONTRACTUAL OBLIGATIONS                          Total       <1 Year      1-3 Years    3-5 Years    5+ Years   
                                              -----------------------------------------------------------------
                                                                                                               
Long-Term Debt Obligations                          nil           nil          nil          nil          nil   
Capital (Finance) Lease Obligations              50,823        33,516       17,307          nil          nil   
Operating Lease Obligations                     531,344       264,994      266,350          nil          nil   
Purchase Obligations                                nil           nil          nil          nil          nil   
Other Long-Term Liabilities reflected on the        nil           nil          nil          nil          nil   
     Company's balance sheet under                                                                             
     Canadian GAAP                                                                                             
Total                                           582,167       298,510      283,657          nil          nil   

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.                            

A.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.                       

The following table sets forth the name, positions held and principal 
occupation of each of our directors, senior management and employees upon whose 
work the Company is dependent:                                                  

NAME AND POSITIONS HELD             EXPERIENCE AND PRINCIPAL BUSINESS ACTIVITIES

Nathanael Lineham                   President and CEO of the Company since the  
President, CEO and Director         RTO in November 2002 and a founder and the  
                           President and CEO of Verb since its
                                  inception in January 2000. Mr. Lineham has
                                  been active in the communications industry
                               for over 10 years. President of Lineham
                             Enterprises, a private communications
                                    consulting firm, since January 1990; founded
                            First Pacific Communications and was
                            President from 1990 to 1992; founded
                                 Metrotel Communications and was President
                              from 1992 to 1994. Director of Niogold
                               Mining Corp. and Fortuna Ventures Ltd.,
                                    public companies, since January and March of
           1998, respectively.

David Ebert                         CFO of the Company since the RTO and CFO of 
Chief Financial Officer             Verb since July 2000. Mr. Ebert has over 11 
                                    years experience in corporate and commercial
                                 banking working for the Canadian Imperial
                                   Bank of Commerce from June 1989 to February
                                    1997 and, prior to joining Verb, as a Senior
                                  Account Manager at the Bank of Nova Scotia
                        from February 1997 to June 2000.

Jeff Durno                          Partner and Lawyer with Anfield Sujir       
Corporate Secretary                 Kennedy & Durno, Barristers and Solicitors. 
and Director                        Mr. Durno has served as a Director and/or   
                               Corporate Secretary for numerous public
                                  companies, including ST Systems Corp. from
                                    August 1994 to present, NovaDx International
                            Inc. from August 1995 to present, DC
                                   Diagnosticare Inc. July 1996 to April 2002,
                          Sasha Ventures Ltd. (now eShippers
                             Management Ltd.) from October 1998 to
                                  October 2000 and from May 2001 to present,
                                 VendTek Systems Inc. from October 1999 to
                             June 2003, and American Wild Woodland
                               Ginseng Corp. from January 2000 to June
2001.   

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Noel Bambrough                      CEO of Dictation Services Group Inc. since  
Director                            November 2002;  President and CEO of Intacta
                                   Technologies Inc., a US company involved in
                               the business of developing products and
                                   applications that enable secure transfer of
                              digitally based information across the
                                    Internet, from April 1999 to September 2002;
                                 President of NRB Telecommunications, Inc.
                                    from September 1998 to April 1999; Executive
                                    Vice-President of Triax Communications, Inc.
                          from April 1995 to September 1998.

N. Ross Wilmot                      Currently a Director and/or Officer of      
Director                            several public companies, including         
                                    (i) President and a Director of ASP Ventures
                                   Corp., Orko Gold Corp., Orex Ventures Inc.,
                              Quantum Power Corporation, and Sudamet
                                  Resources Ltd.; (ii) CFO or Vice-President
                                  Finance and a Director of CTF Technologies
                                  Inc. Briyante Software Corp., ComCam Inc.,
                        Neuer Kapital Corp., and Intacta
                                   Technologies Inc.; (iii) CFO of Multivision
                                 Communications Corp. and (iv) Director of
                   Breckenridge Resources Ltd.

Michael Iverson (1)                 Businessman; President of Triple K Ventures,
Director                            a private consulting and investment company,
                               since 1978. Mr. Iverson has served as a
                                 Director and/or Officer of several public
                                companies, including Sasha Ventures Ltd.
                               from June 1994 to October 2000, Niogold
                                Mining Corp. since January 1998, Fortuna
                           Ventures Ltd. since March 1998, and
                                 Consolidated Newen Enterprises Inc. since
  June 2001.

Pierre Lapointe (1)                 President and CEO of Gestion MacLap         
Consultant and Director             Management Inc., a private consulting       
                               company, since 1990; General Manager of
                                 Cantel Service Centre, Cantel (now Rogers
                         AT&T Wireless) from 1986 to 1988;
                                    Vice-President and General Manager of retail
                                    division of Lenbrook Industries from 1988 to
                        1991; President and CEO of Merit
                       Technologies from 1993 to 1995.

Scott Ackerman                      President and CEO (since January 2000) and  
Director                            a Director (since January 1995) of American 
                                   Wild Woodland Ginseng Corp.; President, CEO
                                  and a Director of Millennium Ventures Ltd.

Paul Witzel                         Business Consultant; President of the Paul  
Director                            Witzel Corporation, a private consulting    
                                  company, since 1982. Mr. Witzel has served
                                  as a Director of various public companies,
                                 including Global Light Telecommunications
                                 Inc. since June 2002, and Lattice Capital
                              Corp. from May 2000 to the date of the
                                   completion of its business combination with
          Verb in June 2003.

Calvin Wang                         Mr. Wang brings extensive technical         
Chief Technical Officer             expertise and experience in the             
of Verb Exchange                    telecommunications and telephony markets to 
(Management) Inc.                   Verb. Prior to joining Verb, he was a       
                            co-founder of Cadium Systems Inc., a
                                   software company responsible for developing
                        new communications platforms and
                                  specializing in voice communications, with
                                Mr. Warkentin. At Cadium, Mr. Wang was a
                                    principal architect and helped establish the
                                  company as one of the Top 25 Up and Coming
                                   Canadian Technology Companies (2000 Branham
                                    Group survey). He has also held positions at
                                   several technology companies, including IBM
                                  and MPR Teltech. Mr. Wang holds an honours
                                  degree in mathematics and computer science
                                  from the University of Waterloo, completed
in 1995.

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Jeff Warkentin                      Mr. Warkentin joined Verb with extensive    
Vice President Operations           telecommunications experience and has taken 
of Verb Exchange                    part in delivering innovative new products  
(Management) Inc.                   and solutions for companies like Telus,     
                                 working for MPR Teltech from 1992-1997 in
                               various positions ranging from Software
                            Development to Project Management to
                                Business Development, and consulting for
                              Bell Canada and Stentor from 1997-2000
                                 conducting service evaluations, redesigns
                              and implementations, including various
                                   aspects of technology. Immediately prior to
                                    Verb, he co-founded Cadium Systems Inc. with
                              Mr. Wang, and as the President and CEO
                                  helped establish the company as one of the
                                Top 25 Up and Coming Canadian Technology
                                 Companies (2000 Branham Group Survey) and
                              won the Investor's Choice award at the
                               Canadian IT Financing Forum in November
                                  2000. Mr. Warkentin is a graduate of Simon
                                   Fraser University with a degree in Computer
Science.

Keith Andrews                       Prior to joining Verb, Mr. Andrews ran his  
Vice President                      own consulting firm for 10 years providing  
Sales and Business                  services, strategies and contract           
Development of Verb Exchange        negotiating skills to major corporations.   
(Management) Inc.                   He has worked with AT&T, Spectra Group, IMG,
                                and the Keg Restaurants. Mr. Andrews has
                            been responsible for sponsorship and
                                  alliance negotiations involving firms such
                                as Molson Breweries, Labatts, Nike, Coca
                                Cola, Pepsi, JBL, BOSE, and major sports
              affinity associations.

Kerry Munro                         Mr. Munro has over 13 years of experience in
Vice President Marketing            the telecommunications, unified communica-  
of Verb Exchange                    tions and software arenas.  His most recent 
(Management) Inc.                   role was VP Marketing for 01 Communique, a  
                              provider of unified communications and
                           wireless remote access products and
                               services, where he maintained worldwide
                      marketing, product and channel
                            responsibility for all 01 Communique
                               business activities. Prior to that, Mr.
                                Munro served as Director of Wireless and
                           Long Distance Marketing and Product
                                 Development for AT&T Canada, and prior to
                          that served as VP Marketing at ACC
                                    Telenterprises and was part of the team that
                            turned ACC into the only competitive
                                   telecommunications organization in Canadian
                                    telecom history to achieve profitability. He
                                   also maintained positions of responsibility
                                  within the engineering, finance, sales and
                           marketing functions at Bell Canada,
                                  culminating in a marketing role overseeing
                                  Bell's Business Internet and Data products
                             and programs. Mr. Munro holds a BA in
                                  Commerce and Economics from the University
                                   of Toronto, completed in 1989 and an MBA in
                                    Marketing and Finance from Queens University
          completed in 1996.

    (1) Mr. Iverson did not stand for re-election to the Board of Directors at
the Company's annual general meeting held on June 25, 2003. Mr. Lapointe was    
added to the slate of proposed directors for election at the annual general     
meeting.                                                                        

 (2) As a result of the business combination with two CPC's as discussed
under "Acquisition of Capital Pool Companies" in Item 4.A., the Company added a 
nominee from each CPC, being Messrs. Ackerman and Witzel, to its slate of       
proposed directors for election at its annual general meeting held on June 25,  
2003.                                                                           

B.  COMPENSATION.                                                     

The following table sets forth the compensation paid, benefits in kind
granted to the Company's directors and members of its administrative,           
supervisory or management bodies in the past financial year:                    

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NAME                    COMPENSATION            BENEFITS            OPTIONS (1) 

Nathanael Lineham          $65,500                nil                 300,000   
David Ebert                $60,558                nil                 160,000   
Jeff Durno                   nil                  nil                 150,000   
Noel Bambrough               nil                  nil                  75,000   
N. Ross Wilmot               nil                  nil                  75,000   
Michael Iverson              nil                  nil                  75,000   
Pierre Lapointe              nil                  nil                 120,000   
Scott Ackerman               n/a                  nil                  75,000   
Paul Witzel                  n/a                  nil                  75,000   
Calvin Wang                $53,933                nil                 100,000   
Jeff Warkentin             $54,211                nil                 100,000   
Keith Andrews              $55,000                nil                 140,000   
Kerry Munro                $92,000                nil                 140,000   

(1) once vested, each option is exercisable into one common share of the Company
at an exercise price of $0.50 until November 12, 2007. Options generally vest   
over a period of 18 months. At December 31, 2002, of the 1,175,000 options      
awarded to the individuals listed above, only 65,278 had vested. On July 7, the 
Company re-priced all outstanding options to $0.35 per share, and granted an    
additional 1,088,000 options exercisable at $0.35 per share until July 7, 2008, 
of which 410,000 were granted to and are included in the figures for the persons
above.                                                                          

C.  BOARD PRACTICES.                                                  

 Each director holds office until the next annual general meeting of the
Company unless his office is earlier vacated in accordance with the Articles of 
the Company or the Canada Business Corporations Act.                            

   During the most recently completed fiscal year, there are no arrangements
(standard or otherwise) under which directors of the Company were compensated by
the Company or its subsidiaries for services rendered in their capacity as      
directors, nor were any amounts paid to the directors for committee             
participation or special assignments, other than the granting of stock options. 
There were no arrangements under which the directors would receive compensation 
or benefits in the event of the termination of that office.                     

    During the most recently completed fiscal year, the following directors of
the Company were compensated in the manner noted for services rendered to Verb  
as consultants or experts:                                                      

     -   Anfield Sujir Kennedy & Durno ("ASK&D"), a law firm in which Jeff Durno
        is a partner, serves as the Company's (and prior to the RTO, served as
        Verb's) corporate counsel and has been compensated for providing legal
        services to Verb. As disclosed in Note 16 to the financial statements,
     Verb accrued $291,432 for legal services received from ASK&D during
       2002 (2001 - $90,358). At December 31, 2002 the Company owed $246,785
      to ASK&D for unpaid professional fees which are included in accounts
payable and accrued liabilities.                              

Our audit committee consists of Messrs. Lineham, Durno and Wilmot. The
audit committee has the responsibility of reviewing financial statements,       
exercising general oversight of the integrity and reliability of the accounting 
and financial reporting practices, and monitoring the effectiveness of our      
internal control systems. The audit committee also recommends a selection of the
auditing firm and exercises general oversight of the activities of the          
independent auditors, principal financial and accounting officers and employees,
and related matters.                                                            

The Board has set up a human resources committee comprised of Messrs. 
Bambrough (chair), Ackerman and Witzel, and plans to set up a corporate         
governance committee in the near future.                                        

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D.  EMPLOYEES.                                                        

    Verb currently employees 22 people, eight in sales and marketing, eight in
operations and six in product development. As revenues grow, the company plans  
to add employees primarily in sales and marketing and operations in order to    
handle additional subscriber volumes.                                           

E.  SHARE OWNERSHIP.                                                  

     Our directors own or control the indicated shares of common stock as at the
date hereof; percentages are based on 15,357,666 common shares outstanding when 
this report is filed. For options held, see Sub-item B. entitled "Compensation" 
above.                                                                          

NAME                         NO. OF SHARES          PERCENTAGE                  

Nathanael Lineham               768,883               5.01%                     
David Ebert                     160,184               1.04%                     
Jeff Durno                      284,210               1.85%                     
Noel Bambrough (1)                nil                  n/a                      
N. Ross Wilmot (1)                nil                  n/a                      
Michael Iverson                   nil                  n/a                      
Pierre Lapointe (2)              10,000               0.07%                     
Scott Ackerman                  163,036               1.06%                     
Paul Witzel                     181,574               1.18%                     
Jeff Warkentin                  165,534               1.08%                     
Keith Andrews                    96,110               0.63%                     
Kerry Munro                     108,610               0.70%                     
Calvin Wang                     145,193               0.95%                     

(1) Messrs. Bambrough and Wilmot each hold private options to acquire 
60,000 common shares granted to them by a current shareholder of the Company,   
Ayotte Music (VCC) Ltd.                                                         

   (2) The terms of Mr. Lapointe's consulting arrangement with Verb have not
yet been finalized; it is expected that part of his compensation will be payable
in common shares of the Company.                                                

STOCK OPTION PLAN                                             

   The Company maintains a Stock Option Plan pursuant to which stock options
to acquire unissued common shares of the Company may be granted to directors,   
officers, employees and consultants of the Company. As at the date hereof,      
options have been granted with respect to 1,578,000 of the 2,250,000 common     
shares that have been reserved for issuance pursuant to options under the Plan. 
Pursuant to the policies of the TSX-V, there are restrictions on the number of  
options that can be granted to any particular individual depending on his       
relationship with the Company. Furthermore, options must not be granted at the  
lesser of $0.10 and the "Discounted Market Price" for the Company's common      
shares as defined by the policies of the TSX-V and have, so long as the Company 
is listed as a Tier 2 company on the TSX-V, an expiration date exceeding five   
years from the date of grant.                                                   

  At the Company's annual general meeting held June 25, 2003, a resolution
was passed to increase the number of common shares reserved for issuance        
pursuant to options under the Plan, to 3,089,500 common shares. The Company is  
currently in the process of filing the revised Option Plan with the Exchange.   

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ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                     

A.  MAJOR SHAREHOLDERS.                                               

   To our knowledge, other than the directors, officers and key employees as
may be disclosed above, no person beneficially owns, directly or indirectly, or 
exercises control or direction over, common shares carrying more than 5% of the 
voting rights attached to the 15,357,666 common shares of the Company           
outstanding as at the date hereof.                                              

 The Company has approximately 138 shareholders of record. The number of
shareholders holding securities beneficially through street name nominees, as   
reflected in the record position of CDS & Co. and other intermediaries, is not  
known to us. None of the major shareholders, if any, have different voting      
rights.                                                                         

 To the best of our knowledge, approximately 94% of the Company's common
shares are owned by residents of Canada. The number of shareholders holding     
securities beneficially through street name nominees, as reflected in the record
position of CDS & Co. and other intermediaries, who may be residents of other   
countries, is not known to us.                                                  

    To the best of our knowledge, as of the date of this annual report, we are
not directly or indirectly owned or controlled by another corporation or by any 
foreign government, or by any other natural or legal person, nor are there any  
arrangements which may result in a change of control of the Company.            

B.  RELATED PARTY TRANSACTIONS.                                       

  During the year, the Company incurred $291,432 in professional fees to a
law firm in which a director of the Company is a partner. At December 31, 2001, 
the Company had outstanding payables of $246,785 for unpaid professional fees   
which are included in accounts payable and accrued liabilities.                 

     Also during the year, the Company paid $69,500 to a company controlled by a
director of the Company for management fees. At December 31, 2002, the Company  
had outstanding payables of $13,245 that are included in accounts payable and   
accrued liabilities.                                                            

Amounts due to other related parties included in accounts payable and 
accrued liabilities aggregate $114,833 for monies advanced by various directors 
and officers with no stated terms of repayment. These amounts are non-interest  
bearing.                                                                        

One of the CPC's in the proposed business combination discussed under 
"Acquisition of Capital Pool Companies" in Item 4.A. has a director in common   
with the Company. This director also beneficially owns or controls approximately
13% of the CPC's common shares.                                                 

C.  INTEREST OF EXPERTS AND COUNSEL.                                  

Not required.                                                 

ITEM 8.  FINANCIAL INFORMATION.                                                 

See the financial statements filed with this report (Item 17).        

ITEM 9.  THE OFFER AND LISTING.                                                 

A.  OFFER AND LISTING DETAILS.                                        

  The Company's common shares are listed and posted for trading on the TSX
Venture Exchange (previously defined as the "TSX-V") under the symbol "VBX". The
Company's common shares are not listed on any other securities exchange. All    
common shares are registered shares.                                            

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  The Company, as presently constituted with the business of Verb acquired
pursuant to the RTO, has only been listed on the TSX-V since November 12, 2002. 
The following table sets forth the high and low closing prices on the TSX-V for 
the periods indicated.                                                          

                   Period                   High Sales Price     Low Sales Price
      --------------------------------------------------------------------------

By Financial Quarters                                               
    Nov 12, 2002 to Dec 31, 2002            $0.45                $0.20
    Jan 01, 2003 to Mar 30, 2003            $0.28                $0.14
    Apr 01, 2003 to June 27, 2003           $0.33                $0.17
By Calendar Months                                                  
    January 2003                            $0.24                $0.14
    February 2003                           $0.28                $0.17
    March 2003                              $0.27                $0.16
    April 2003                              $0.28                $0.17
    May 2003                                $0.33                $0.22
    June 1 to June 27, 2003                 $0.33                $0.27

   On June 27, 2003, the closing price of the common shares on the TSX-V was
$0.$0.32.                                                                       

B.  PLAN OF DISTRIBUTION.                                             

Not required.                                                         

C.  MARKETS.                                                          

See Sub-item A. entitled "Offer and Listing Details" above.           

D.  SELLING SHAREHOLDERS.                                             

Not required.                                                         

E.  DILUTION.                                                         

Not required.                                                         

F.  EXPENSES OF THE ISSUE.                                            

Not required.                                                         

ITEM 10.  ADDITIONAL INFORMATION.                                               

A.  SHARE CAPITAL.                                                    

Not required.                                                         

B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.                           

     The Company is registered under the Canada Business Corporations Act, under
entry number 3763684. Pursuant to Article 5 of the Company's Articles of        
Continuance, it is not restricted from carrying on any type of business.        

    With respect to directors, under the by-laws, a director who is a party to
a material contract or proposed material contract with us, or is a director or  
officer of or has a material interest in any person who is a party to a material
contract or proposed material contract with us, must disclose to us in writing  
the nature and extent of such interest. An interested director can vote on only 
a limited number of such matters (securing a loan from the director to the      
Company, his remuneration, indemnity or insurance, or a contract with an        

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affiliate) provided the interest is disclosed. Otherwise, even with disclosure  
of the interest, such a director cannot vote on a material contract or proposed 
material contract. A contract approved by the board of directors is not voidable
because one or more directors has a conflict of interest, if the conflict is    
disclosed and the interested director(s) do not vote on the matter. Subject to  
the conflict of interest provisions summarized above, there is no restriction in
the by-laws on the power of the board of directors to have the Company borrow   
money, issue debt obligations, or secure debt or other obligations of the       
Company. The by-laws contain no provision for the retirement or non-retirement  
of directors under an age limit requirement. A director is not required to hold 
any shares of the Company in order to be a director.                            

     The Articles of the Company provide for the issuance of an unlimited number
of shares of common stock, without par value. All holders of common stock have  
equal voting rights, equal rights to dividends when and if declared, and equal  
rights to share in assets upon liquidation of the corporation. The common shares
are not subject to any redemption or sinking fund provisions. The Articles of   
the Company also provide for the issuance of an unlimited number of shares of   
preferred stock, issuable in series, with such voting, dividend, liquidation    
preference or conversion rights as the board of directors may establish from    
time to time. At the present time, there no preferred shares are issued and     
outstanding. Directors serve from year to year, there being no provision for a  
staggered board; cumulative voting for directors is not allowed. Between annual 
general meetings, the existing board can appoint one or more additional         
directors to serve until the next annual general meeting, but the number of     
additional directors shall not at any time exceed one-third of the number of    
directors who held office at the expiration of the last annual meeting. All     
issued and outstanding shares are fully paid and non-assessable securities.     

   In order to change the rights of the holders of common stock, the passing
of a special resolution by such shareholders is required, being the affirmative 
vote of not less than 2/3 of the votes cast in person or by proxy at a duly     
called meeting of shareholders.                                                 

    An annual meeting of shareholders must be called by the board of directors
not later than 15 months after the last annual meeting. The board at any time   
may call a special meeting of shareholders. Notice of any meeting must be sent  
not less than 21 and not more than 50 days before the meeting, to every         
shareholder entitled to vote at the meeting. All shareholders entitled to vote  
are entitled to be present at a shareholders meeting. A quorum is the presence  
in person or by proxy of the holders of at least 5% of the issued and           
outstanding shares of common stock.                                             

   Except under the Investment Canada Act, there are no limitations specific
to the rights of non-Canadians to hold or vote our shares under the laws of     
Canada or our charter documents. The Investment Canada Act ("ICA") requires a   
non-Canadian making an investment which would result in the acquisition of      
control of a Canadian business, the gross value of the assets of which exceed   
certain threshold levels or the business activity of which is related to        
Canada's cultural heritage or national identity, to either notify, or file an   
application for review with, Investment Canada, the federal agency created by   
the ICA. The notification procedure involves a brief statement of information   
about the investment on a prescribed form which is required to be filed with    
Investment Canada by the investor at any time up to 30 days after implementation
of the investment. It is intended that investments requiring only notification  
will proceed without intervention by government unless the investment is in a   
specific type of business related to the scope of the ICA. If an investment is  
reviewable under the ICA, an application for review in the prescribed form      
normally is required to be filed with Investment Canada before the investment is
made and it cannot be implemented until completion of review and Investment     
Canada has determined that the investment is likely to be of net benefit to     
Canada. If the agency is not so satisfied, the investment cannot be implemented 
if not made, or if made, it must be unwound.                                    

C.  MATERIAL CONTRACTS.                                               

Except as otherwise disclosed in this annual report and our financial 
statements and notes included elsewhere in this annual report, we have no other 
material contracts outside the ordinary course of business.                     

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D.  EXCHANGE CONTROLS.                                                

There are no laws, decrees or regulations in Canada relating to       
restrictions on the export or import of capital, or affecting the remittance of 
interest, dividends or other payments to non-resident holders of our shares of  
common stock.                                                                   

E.  TAXATION.                                                         

CANADA.                                                       

We believe the following general summary fairly describes all of the  
substantive Canadian federal income tax consequences which apply to a           
shareholder who resides in the United States, is not a resident of Canada, and  
who does not use or hold (and is not deemed to use or hold) shares in connection
with carrying on a business in Canada (a "non-resident shareholder").           
Nonetheless, we recommend that anyone who considers buying our shares obtain    
independent tax advice, as tax implications may affect people differently.      

    The summary is based on current provisions of the Income Tax Act (Canada),
referred to as the "ITA" and regulations thereunder, and current administrative 
and assessing policies of Revenue Canada, Taxation. This description is not     
exhaustive and does not consider possible changes in law or regulations, or     
provincial or foreign tax matters.                                              

  DIVIDENDS. Dividends paid on our shares to a non-resident holder will be
subject to withholding tax. The Canada-US Income Tax Convention (1980) as       
amended by the March 17, 1985 treaty protocol, provides that the usual 25%      
withholding tax rate is reduced to 15% on dividends paid on shares of a         
corporation resident in Canada (like us) to residents of the United States, and 
also provides for a further reduction of this rate to 5% where the beneficial   
owner of the dividends is a United States resident corporation owning 10% or    
more of the voting shares of the dividend paying corporation. However, given our
current level of business we don't expect paying dividends in the near future.  

     CAPITAL GAINS. A non-resident of Canada is not subject to tax under the ITA
for a capital gain realized on disposition of shares of a public corporation    
unless the shares represent "taxable Canadian property" to the holder. Our      
shares are listed on the TSX Venture Exchange and therefore will be taxable     
Canadian property to a non-resident holder if, at any time during the five years
before disposition, the non-resident holder, either alone or together with      
affiliates of the Company, owned 25% or more of the issued shares. However,     
under the 1985 treaty protocol, a non-resident holder who is a United States    
resident and for whom shares represent taxable Canadian property, no Canadian   
taxes will be due on a capital gain unless the value of the shares derives from 
realty or natural resources in Canada.                                          

UNITED STATES.                                                

   We believe the following fairly summarizes all material provisions of the
United States Internal Revenue Code with respect to information reporting and   
backup withholding requirements. However, it is noted that United States income 
tax laws and regulations applicable to investments in foreign entities are      
complex. A United States resident should not rely unduly on the summary, and    
always should consult a personal tax advisor in these respects.                 

 DIVIDENDS. Dividends generally are subject to the information reporting
requirements of the Internal Revenue Code (the "Code"). Dividends may be subject
to backup withholding at the rate of 31% unless the holder provides a taxpayer  
identification number on a properly completed Form W-9 or otherwise establishes 
an exemption. The amount of backup withholding does not constitute an additional
tax and will be allowed as a credit against the United States investor's federal
income tax liability.                                                           

  FILING OF INFORMATION RETURNS. Under a number of circumstances, a United
States investor acquiring shares of the company may be required to file an      
information return at the Internal Revenue Center where they are required to    
file their tax returns with a copy to the Internal Revenue Service Center,      

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Philadelphia, PA 19255. In particular, any United States investor who become the
owner, directly or indirectly, of 10% or more of the shares of the company will 
be required to file such a return. Other filing requirements may apply, and     
United States investors should consult their own tax advisors concerning these  
requirements.                                                                   

Certain United States income tax legislation contains rules governing 
passive foreign investment companies ("PFICs"), which can have significant tax  
effects on U.S. shareholders of foreign corporations. These rules do not apply  
to non-U.S. shareholders. Section 1296 of the Code defines a PFIC as a          
corporation that is not formed in the United States and, for any taxable year,  
either (i) 75% or more of its gross income is "passive income", which includes  
interest, dividends and certain rents and royalties or (ii) the average         
percentage, by fair market value or, if the company is a controlled foreign     
corporation or makes an election, by adjusted tax basis, of its assets that     
produce or are held for the production of "passive income", is 50% or more.     

     A U.S. shareholder who holds stock in a foreign corporation during any year
in which such corporation qualifies as a PFIC is subject to U.S. Federal income 
taxation under one of two alternative tax regimes at the election of each such  
U.S. Shareholder. The following is a discussion of such two alternative tax     
regimes applied to such U.S. shareholders of the company.                       

    A U.S. shareholder who elects in a timely manner to treat the company as a
Qualified Electing Fund ("QEF"), as defined in the Code (an "Electing U.S.      
Shareholder"), will be subject, under Section 1293 of the Code, to current      
federal income tax for any taxable year in which the company qualifies as a PFIC
on his pro-rata share of the company's (i) "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), which will be taxed as
long-term capital gain to the Electing U.S. Shareholder and (ii) "ordinary      
earnings" (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income to the Electing U.S. Shareholder, in each case, for 
the shareholder's taxable year in which (or with which) the company's taxable   
year ends, regardless of whether such amounts are actually distributed.         

     The effective QEF election also allows the Electing U.S. Shareholder to (i)
generally treat any gain realized on the disposition of his common shares (or   
deemed to be realized on the pledge of his common shares) as capital, (ii) treat
his share of the company's net capital gain, if any, as long-term capital gain  
instead of ordinary income, and (iii) either avoid interest charges resulting   
from PFIC status altogether, or make an annual election, subject to certain     
limitations, to defer payment of current taxes on his share of the company's    
annual realized net capital gain and ordinary earnings subject, however to an   
interest charge on the deferred taxes. If the Electing U.S. Shareholder is not a
corporation, such an interest charge would be treated generally as "personal    
interest" that can be deducted only when it is paid or accrued. The procedures a
U.S. shareholder must comply with in making an effective QEF election will      
depend on whether the year of the election is the first year in the U.S.        
shareholders' holding period in which the company is a PFIC. If the U.S.        
shareholder makes a QEF election in such first year, i.e. a timely QEF election,
the U.S. shareholder may make the QEF election by simply filing the appropriate 
documentation at the time the U.S. shareholder files its tax return for such    
first year. If, however, the company qualified as a PFIC in a prior year during 
such shareholder's holding period, then in addition to filing documents, the    
U.S. shareholder must elect to recognize (i) (under the rules of Section 1291   
discussed below) any gain that he would otherwise recognize if the U.S.         
shareholder sold his stock on the application date or (ii) if the company is a  
controlled foreign corporation, and such shareholder so elects, his/her         
allocable portion of the company's post-1986 earnings and profits.              

     When a timely QEF election is made, if the company no longer qualifies as a
PFIC in a subsequent year, normal code rules will apply. It is unclear whether a
new QEF election is necessary if the company thereafter re-qualifies as a PFIC. 
U.S. shareholders should seriously consider making a new QEF election under     
those circumstances.                                                            

  If a U.S. shareholder does not make a timely QEF election in the year in
which it holds (or is deemed to have held) the shares in question and the       
company is a PFIC, then special taxation rules under Section 1291 of the Code   
will apply to (i) gains realized on disposition (or deemed to be realized by    
reason of a pledge) of his/her common shares and (ii) certain "excess           
distributions", as specially defined, by the company.                           

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

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

Under Section 1291(f) of the code, the Department of the Treasury has 
issued proposed regulations that would treat as taxable certain transfers of    
PFIC stock by Non-electing U.S. Shareholders that are generally not otherwise   
taxed, such as gifts, exchanges pursuant to corporate reorganizations, and      
transfers at death.                                                             

     Because the company's shares are "marketable" under section 1296(e), if the
company is a PFIC with respect to a U.S. investor, the U.S. investor may elect  
to mark the stock to market each year. In general, a PFIC shareholder who elects
under Section 1296 to mark the marketable stock of a PFIC includes in income    
each year an amount equal to the excess, if any, of the fair market value of the
PFIC stock as of the close of the taxable year over the shareholder's adjusted  
basis in such stock. A shareholder is also generally allowed a deduction for the
excess, if any of the adjusted basis of the PFIC stock over the fair market     
value as of the close of the taxable year. Deductions under this rule, however, 
are allowable only to the extent of any net mark to market gains with respect to
the stock included be the shareholder for prior taxable years, while the        
interest charge regime under the PFIC rules generally does not apply to         
distributions from the dispositions of stock of a PFIC where the U.S. investor  
has elected to mark the stock to market, coordination rules for limited         
application will apply in the case of a U.S. investor that marks to market PFIC 
stock later than the beginning of the shareholder's holding period for the PFIC 
stock.                                                                          

Certain special generally adverse rules will apply with respect to the
common shares while the company is a PFIC whether or not it is treated as a QEF.
For example under Section 1297(b)(6) of the code, a U.S. holder who uses PFIC   
stock as security for a long (including a margin loan) will, except as may be   
provided in regulations, be treated as having made a taxable disposition of such
stock.                                                                          

The Company presently is not, and for fiscal 2002 does not expect to  
qualify for status as a PFIC. If the Company should in subsequent years in fact 
qualify for PFIC status, U.S. investors should take into account the foregoing  
tax aspects concerning PFIC matters.                                            

F.  DIVIDENDS AND PAYING AGENTS.                                      

Not required.                                                         

G.  STATEMENTS BY EXPERTS.                                            

Not required.                                                         

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H.  DOCUMENTS ON DISPLAY.                                             

    Information not included in this report but incorporated by reference from
our prior filings can be inspected on the Securities and Exchange Commission's  
internet site (www.sec.gov) at the EDGAR location.                              

I.  SUBSIDIARY INFORMATION.                                           

See the notes to the financial statements.                            

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.           

Not required.                                                         

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.               

Not required.                                                         

 PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.                      

Not Applicable.                                                       

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

     Not applicable (we are subject to section 12(g) through filing of Form 20-F
registration, effective in 2000).                                               

ITEM 15.  CONTROLS AND PROCEDURES                                               

   Our President and Chief Executive Officer and our Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures (as  
defined in Rules 13a-14(c) and 15d-14(c) of the United States Securities        
Exchange Act of 1934, as amended) within 90 days of the filing date of this     
annual report. Based on the evaluation, under the supervision and with the      
participation of our management, they have concluded that these disclosure      
controls are effective.                                                         

     There were no significant changes in our internal controls or other factors
that could significantly affect these disclosure controls and procedures, nor   
were there any significant deficiencies or material weaknesses in our internal  
controls subsequent to the date our President and Chief Executive Officer and   
our Chief Financial Officer completed their evaluation. As a result, no         
corrective actions were required or undertaken.                                 

ITEM 16.  AUDIT MATTERS.                                                        

AUDIT FEES                                                    

     The aggregate fees billed in the last fiscal year for professional services
rendered by the principal accountant for the audit of the Company's annual      
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements was $28,000, net
of goods and services tax of 7%.                                                

TAX FEES                                                      

     The aggregate fees billed in the last fiscal year for professional services
rendered by the principal accountant for tax compliance, tax advice and tax     
planning was $Nil.                                                              

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ALL OTHER FEES                                                

     The aggregate fees billed in the last fiscal year for products and services
provided by the principal accountant, other than services reported above, was   
$Nil.                                                                           

PART III

ITEM 17.  FINANCIAL STATEMENTS.                                                 

See the financial statements of the Company for the three fiscal years
ended December 31, 2000 to 2002, the notes thereto, and the auditors' reports   
thereon, which are included in this annual report. As set forth in the notes,   
all of the financial information is presented in accordance with Canadian GAAP; 
however, as stated in the notes, there are no material differences between      
Canadian GAAP and United States GAAP as applied to our financial statements.    

ITEM 18.  FINANCIAL STATEMENTS.                                                 

Not applicable.                                                       

ITEM 19.  EXHIBITS                                                              

Exhibit No.   Description of Exhibit                                  

3.(i)    Articles of Incorporation (including continuance   
                   to federal jurisdiction of Canada)                          *

          3.(ii)   By-laws                                                     *

          4.1      Stock Option Plan dated August 30, 1996                     *

4.2      Form of Stock Option Agreement                     
                   dated October 18, 1999                                      *

10.1     Investor relations agreement with                  
                   Marketing Strategies Inc.                                   *

          10.2     Arrangement Agreement with Verb Exchange Inc.              **

10.3     Arrangement Agreement with                         
Millennium Ventures Ltd.                  
                   and Lattice Capital Corporation                          ****

10.4     Credit Facility Agreement with                     
Millennium Ventures Ltd.                  
                   and Lattice Capital Corporation                          ****

10.5     Unified Communications General                     
Services Agreement between                
Effectnet LLC (now Webley Systems Inc.    
and telQuest Technologies Inc.            
(now Verb Exchange Inc.) and Amendments   
1 and 2 to the Agreement                  
 (Certain portions of this exhibit have been
  omitted, based on a request for confidential
information, and the omitted information  
                   has been filed with the Commission.)                      ***

          99.1     Form of stock certificate                                   *

99.2     Certifications Pursuant to                         
Section 1350 of Chapter 63 of             
                  Title 18 of the United States Code                      ****

*    Incorporated by reference from the like-numbered exhibit filed with our    
initial registration on Form 20-F (SEC File No. 0-30683, filed May 22,
2000).                                                                

**   Incorporated by reference from the like-numbered exhibit filed with our    
Annual Report on Form 20-F, (SEC File No. 0-30683, filed August 1,    
2002).                                                                

***  Filed herewith.                                                            

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SIGNATURES

   The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned  
to sign this annual report on its behalf.                                       

                          Verb Exchange Inc.

Date:  July 2, 2004                          /s/  David Ebert                   
                                            ------------------------------------
                             Senior Vice-President
                         Corporate Affairs

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 CERTIFICATION

I, Nathanael Lineham, certify that:                                   

1.   I have reviewed this annual report on Form 20-F of Verb Exchange Inc.;     

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

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

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

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

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and                    

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

5.   We have disclosed, based on our most recent evaluation, to the registrant's
auditors and board of directors:                                                

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

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

6.   We have indicated in this annual report whether or not there were          
significant changes in internal controls or in other factors that could         
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant         
deficiencies and material weaknesses.                                           

DATED this 14th day of July, 2003.                                              

                                  /s/  Nathanael Lineham
                                            ------------------------------------
                          NATHANAEL LINEHAM,
                               Chief Executive Officer

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 CERTIFICATION

I, David Ebert, certify that:                                         

1.   I have reviewed this annual report on Form 20-F of Verb Exchange Inc.;     

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

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

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

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

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and                    

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

5.   We have disclosed, based on our most recent evaluation, to the registrant's
auditors and board of directors:                                                

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

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

6.   We have indicated in this annual report whether or not there were          
significant changes in internal controls or in other factors that could         
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant         
deficiencies and material weaknesses.                                           

DATED this 14th day of July, 2003.                                              

                              /s/  David Ebert
                                             -----------------------------------
                      DAVID EBERT,
                                 Chief Financial Officer

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Consolidated Financial Statements   
(Expressed in Canadian dollars)     

VERB EXCHANGE INC.                  

        Years ended December 31, 2002, 2001 and 2000

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KMPG                                                                            
         KPMG  LLP                                    Telephone (604) 691-3000
         Chartered Accountants                        Telefax   (604) 691-3031
Box 10426, 777 Dunsmuir Street               www.kpmg.ca    
Vancouver BC V7Y 1K3                                        
Canada                                                      

AUDITORS' REPORT                                                                

To the Board of Directors                                                       
Verb Exchange Inc.                                                              

We have audited the consolidated balance sheets of Verb Exchange Inc. as at     
December 31, 2002 and 2001 and the consolidated statements of operations and    
deficit and cash flows for each of the years in the three-year period ended     
December 31, 2002. These financial statements are the responsibility of the     
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audits.                                       

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

In our opinion, these consolidated financial statements present fairly, in all  
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the   
years in the three-year period ended December 31, 2002 in accordance with       
Canadian generally accepted accounting principles.                              

/s/  KMPG LLP                                                                   

Chartered Accountants                                                           

Vancouver, Canada                                                               

April 23, 2003                                                                  

KPMG LLP, a Canadian owned limited liability partnership established
under the laws of Ontario, is the Canadian member firm of KPMG
International, a Swiss nonoperating association.

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VERB EXCHANGE INC.                                                              
Consolidated Balance Sheets                                                     
(Expressed in Canadian dollars)                                                 

December 31, 2002 and 2001                                                      

                                                        [Enlarge/Download Table]


--------------------------------------------------------------------------------------------------- 
                                                                          2002                2001  
--------------------------------------------------------------------------------------------------- 

Assets                                                                                              

Current assets:                                                                                     
                                                                                                    
     Cash and cash equivalents                                  $            -       $     144,925  
     Amounts receivable                                                108,814               5,772  
     Goods and services tax receivable                                  45,934              16,529  
     Prepaid expenses                                                   53,270              10,000  
     ---------------------------------------------------------------------------------------------  
                                                                       208,018             177,226  

Technology, net of accumulated amortization of $1,938,763                                           
   (2001 - $881,256) (note 4)                                        2,291,266           3,348,773  

Fixed assets (note 5)                                                  177,723             227,592  

Other assets                                                            40,972              40,972  
--------------------------------------------------------------------------------------------------- 

                                                                $    2,717,979       $   3,794,563  
--------------------------------------------------------------------------------------------------- 

Liabilities and Shareholders' Equity                                                                

Current liabilities:                                                                                
     Bank overdraft                                             $       36,387       $           -  
     Accounts payable and accrued liabilities (note 16)              1,210,458             372,167  
     Demand loan (note 6)                                               20,079              50,693  
     Due to Pensbreigh Holdings Inc. (note 7)                                -             100,000  
     Due to Ayotte Music Inc.                                                -             600,000  
     Due to Zwiss A.V.V. (note 8)                                      200,000             398,200  
     Advances payable (note 17(a))                                     112,897                   -  
     Deferred lease inducement                                          31,215                   -  
     Deferred revenue                                                   34,332                   -  
     Current portion of capital lease obligation                        31,697              13,184  
     -----------------------------------------------------------------------------------------------
                                                                     1,677,065           1,534,244  

Capital lease obligation (note 9)                                        9,871              30,902  

Shareholders' equity:                                                                               
     Share capital (note 10)                                         8,032,910           5,192,284  
     Warrants (note 10)                                              4,539,352           4,539,352  
     Contributed surplus                                               412,866             239,050  
     Deferred compensation                                                   -            (250,024) 
     Deficit                                                       (11,954,085)         (7,491,245) 
     ---------------------------------------------------------------------------------------------- 
                                                                     1,031,043           2,229,417  
--------------------------------------------------------------------------------------------------- 

                                                                $    2,717,979       $   3,794,563  
--------------------------------------------------------------------------------------------------- 

Going concern (note 2)                                                          
Subsequent events (notes 10(c) and 17)                                          

See accompanying notes to consolidated financial statements.                    

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VERB EXCHANGE INC.                                                              
Consolidated Statements of Operations and Deficit                               
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

                                                        [Enlarge/Download Table]


----------------------------------------------------------------------------------------------------       
                                                           2002              2001               2000       
----------------------------------------------------------------------------------------------------       

                                                                                                           
Revenue                                           $      88,840      $     62,491       $     32,626       

Expenses:                                                                                                  
     Amortization                                     1,121,070           926,279              5,170       
     Billing                                             31,817            26,719                  -       
     Communications                                     156,486            95,952             38,940       
     Director's fees:                                                                                      
         Other                                                -                 -                  -       
         Stock-based compensation                             -           457,320                  -       
     Financing costs                                     41,234           146,972            460,412       
     Foreign exchange loss (gain)                        (3,395)          (90,190)            28,500       
     General and administrative                         744,173           353,594             47,349       
     Interest                                            62,912            75,134             35,431       
     Management fees                                     69,500            73,500             58,000       
     Professional and consulting fees                 1,186,407           511,096            154,653       
     Salaries and wages:                                                                                   
         Other                                          767,987           691,493            127,921       
         Stock-based compensation                       250,024         2,502,783                  -       
     Travel                                             153,080            38,142            106,214       
     Write-down of investment                                 -                 -             92,176       
     ----------------------------------------------------------------------------------------------------  
                                                      4,581,295         5,808,794          1,154,766       
---------------------------------------------------------------------------------------------------------  

Loss before undernoted and                                                                                 
   discontinued operations                           (4,492,455)       (5,746,303)        (1,122,140)      

Gain on reduction in debt (note 8)                       29,615                 -                  -       
---------------------------------------------------------------------------------------------------------  

Loss from continuing operations                      (4,462,840)       (5,746,303)        (1,122,140)      

Discontinued operations:                                                                                   
     Loss from operations of discontinued                                                                  
       segment to December 13, 2001 (note 13)                 -           627,762             45,337       
     Gain on disposal                                         -          (153,070)                 -       
     ----------------------------------------------------------------------------------------------------  
                                                              -           474,692             45,337       
---------------------------------------------------------------------------------------------------------  

Loss for the year                                    (4,462,840)       (6,220,995)        (1,167,477)      

Deficit, beginning of year                           (7,491,245)       (1,270,250)                 -       

Interest and accretion on Company's option                                                                 
   to settle debentures in common shares                      -                 -            102,773       
---------------------------------------------------------------------------------------------------------  

Deficit, end of year                              $ (11,954,085)     $ (7,491,245)      $ (1,270,250)      
---------------------------------------------------------------------------------------------------------  

Loss per share:                                                                                            
     Basic and diluted                            $        0.86      $       1.63       $       0.38       

Weighted average number of common stock               5,168,088         3,818,610          3,099,800       

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

See accompanying notes to consolidated financial statements.                    

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VERB EXCHANGE INC.                                                              
Consolidated Statements of Cash Flows                                           
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

                                                        [Enlarge/Download Table]


---------------------------------------------------------------------------------------------------------
                                                                2002              2001               2000
---------------------------------------------------------------------------------------------------------

Cash provided by (used in):                                                                              

Operations:                                                                                              
                                                                                                         
     Loss for the year                                 $ (4,462,840)     $ (6,220,995)      $ (1,167,477)
     Items not involving cash:                                                                           
         Amortization                                     1,121,070           926,279              5,170 
         Stock-based compensation                           250,024         2,960,103                  - 
         Gain on reduction of debt                          (29,615)                -                  - 
         Non-cash financing costs                                 -           146,972            460,412 
         Non-controlling interest                                 -            (7,230)           (15,122)
         Gain on disposal of discontinued operations              -          (153,070)                 - 
         Write-down of investment                                 -                 -             92,176 
         Other                                                5,231            (3,472)                 - 
     Changes in non-cash operating working capital:                                                      
         Accounts receivable                                  1,946            56,945            (62,717)
         Goods and Services tax receivable                  (29,405)           (7,366)            (9,163)
         Prepaid expenses                                   (43,270)            8,369            (18,369)
         Other asset                                              -                 -            (37,500)
         Accounts payable and accrued liabilities           812,496         1,104,529             97,952 
         Deferred lease inducement                           31,215                 -                  - 
         Deferred income                                     34,332                 -                  - 
     ----------------------------------------------------------------------------------------------------
                                                         (2,308,816)       (1,188,936)          (654,638)

Investments:                                                                                             
     Purchase of fixed assets                                     -          (114,716)           (92,213)
     Proceeds on sale of fixed assets                         2,517                 -                  - 
     Ayotte cash acquired (note 12)                          37,415                 -                  - 
     Non-controlling interest                                     -                 -             22,493 
     AT&T Corp. deposit                                           -                 -           (750,000)
     Purchase of investment                                       -                 -            (92,176)
     ----------------------------------------------------------------------------------------------------
                                                             39,932          (114,716)          (911,896)

Financing:                                                                                               
     Demand loan                                            (30,614)                -                  - 
     Advances payable                                       112,897                 -                  - 
     Sale of common shares                                  896,210           915,558            527,541 
     Loan from Zwiss A.V.V.                                       -          (351,800)           750,000 
     Issuance of convertible debentures                           -                 -            478,101 
     Cash received from (payment to) Pensbreigh                                                          
       Holdings Inc.                                       (100,000)          100,000                  - 
     Cash received on loan from Ayotte Music Inc.         1,227,808           600,000                  - 
     Repayment of capital lease obligations                 (18,729)           (4,289)                 - 
     ----------------------------------------------------------------------------------------------------
                                                          2,087,572         1,259,469          1,755,642 
---------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents           (181,312)          (44,183)           189,108 

Cash and cash equivalents, beginning of year                144,925           189,108                  - 
---------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                 $    (36,387)     $    144,925       $    189,108 
---------------------------------------------------------------------------------------------------------

Cash and cash equivalents is defined as cash and cash equivalents less bank     
overdraft.                                                                      

                                                                               3

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VERB EXCHANGE INC.                                                              
Consolidated Statements of Cash Flows, Continued                                
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

                                                        [Enlarge/Download Table]


----------------------------------------------------------------------------------------------------
                                                              2002             2001             2000
----------------------------------------------------------------------------------------------------

Supplementary information:                                                                          
                                                                                                    
     Interest paid                                     $     6,925      $    75,134       $   35,431
     Income tax paid                                             -                -                -
     Non-cash operating and financing activities:                                                   
         Shares issued for acquisition of                                                           
           Cadium Systems Inc.                                   -        1,906,992                -
         Warrants issued for acquisition of                                                         
           Cadium Systems Inc.                                   -        4,047,237                -
         Shares issued on reverse takeover               1,944,416                -                -
         Fixed assets acquired under capital lease          16,211                -                -
         Warrants issued for financing services                  -                -          460,412
         Warrants issued for finders' fees                       -                -           31,703

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

See accompanying notes to consolidated financial statements.                    

                                                                               4

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

1.   NATURE OF OPERATIONS:                                                      

 Verb Exchange Inc. (the "Company" or prior to the transaction with Verb
  described below, "Ayotte") was originally incorporated under the laws of
 the Province of British Columbia on February 11, 1974 and was continued
under the laws of the Province of Alberta and subsequently continued  
  federally under the Canada Business Corporations Act on May 16, 2000. On
    December 31, 2001, the Company operated as Ayotte Music Inc. ("Ayotte") in
   the business of manufacturing drums for the music entertainment industry.

    Verb Exchange Inc. ("Verb") commenced operations on December 1, 1999 as an
     unincorporated business, and was incorporated on January 14, 2000 under the
   Company Act (British Columbia). The Company was a private company engaged
    in the business of marketing telecommunications products and is working on
the development and deployment of unified communications solutions.   

Subsequent to December 31, 2001, the following transactions occurred: 

 (a) On December 3, 2001, Ayotte announced a letter of intent to acquire
      Verb. Pursuant to the terms of an Arrangement Agreement dated May 1,
2002 (the "Agreement"), Ayotte acquired 100% of the issued and
       outstanding securities of Verb in exchange for shares of Ayotte to be
  issued from treasury and warrants. This transaction completed on
November 11, 2002.                                            

    Prior to the effective date of the acquisition, Ayotte completed a
      consolidation of its common shares of 5 to 1 (five pre-consolidation
shares equals one post-consolidation share).                  

 Under the terms of the Agreement, the following share exchanges
occurred:                                                     

       o  Ayotte acquired all of the issued and outstanding common shares of
          Verb in exchange for 4,320,925 post-consolidation common shares of
Ayotte to be issued from treasury.                      

        o  Each holder of a Verb Class A Special Warrant exchanged one Class A
          Special Warrant for one post-consolidation common share of Ayotte;

         o  Each holder of a Verb Class B Special Warrant exchanged five Class B
       Special Warrants for (i) one post-consolidation common share of
        Ayotte, and (ii) one warrant entitling the holder to acquire one
          additional post-consolidation common share of Ayotte at a price of
$0.80 per share, on or before March 27, 2003;           

       All outstanding options and warrants of Verb and Ayotte not described
        above either were exchanged for new options, having terms as described
 in the Agreement, or expired immediately upon completion of the
acquisition.                                                  

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

1.   NATURE OF OPERATIONS (CONTINUED):                                          

(a) Continued:                                                        

        As this acquisition resulted in the former shareholders of Verb owning
      greater than 50% of the Company's common shares, the Acquisition was
        accounted for as a capital transaction as equivalent to an issuance of
   common shares by Verb for the net assets of Ayotte, followed by a
     recapitalization, consistent to accounting principles applicable to
      reverse takeovers. As these principles reflect the identification of
         the net assets of Ayotte as the acquired assets, the acquisition of the
net assets of Ayotte were recorded at their fair value, which 
approximated their carrying value.                            

       Subsequent to completion of this transaction, the amalgamated company
  adopted the name, Verb Exchange Inc. Additional information with
respect to this transaction and Ayotte is provided in note 12.

     (b) On January 14th, 2002, Ayotte announced the finalization and closing of
        its transaction with Shetland Enterprises ("Shetland") for the sale of
      its assets in connection with its core business of manufacturing and
     distribution of drums and related products pursuant to an agreement
        between Ayotte and Shetland dated November 30th, 2001. The transaction
was effective January 1, 2002.                                

2.   GOING CONCERN:                                                             

   These consolidated financial statements of the Company have been prepared
   on the basis of accounting principles applicable to a going concern which
     assume the realization of assets and discharge of liabilities in the normal
course of business. For the year ended December 31, 2002, the Company 
   incurred a loss from continuing operations of $4,462,840 and used cash in
     operating activities of $2,308,816. At December 31, 2002, the Company has a
working capital deficiency of $1,469,047 and an accumulated deficit of
 $11,954,085 that raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue the    
development of its products and its operations is dependent upon the  
   continued support of its shareholders, obtaining additional financing and
    generating revenues sufficient to cover its operating costs in an industry
     characterized by rapid technological change. There is no assurance that the
     Company will be successful in achieving any or all of these objectives over
   the coming year and, accordingly, it is possible that the Company will be
unable to continue as a going concern.                                

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

3.   SIGNIFICANT ACCOUNTING POLICIES:                                           

   The Company prepares its financial statements in accordance with Canadian
     generally accepted accounting principles. There are no material measurement
differences between Canadian and United States generally accepted     
     accounting principles as applied to the Company. The consolidated financial
statements reflect the following significant accounting policies:     

(a) Comparative financial statements:                                 

     In accordance with accounting principles for recapitalizations, the
   consolidated financial statements reflect the financial position,
         results of operations and cash flows of Verb historically, consolidated
   with Ayotte from November 11, 2002, the date of completion of the
transaction.                                                  

(b) Basis of presentation:                                            

     These consolidated financial statements include the accounts of the
       Company and its wholly owned subsidiaries, Verb Exchange (Management)
        Inc. and Cadium Systems Inc., and, to December 13, 2001, its partially
        owned subsidiary Qualtel (note 13). All material intercompany balances
and transactions have been eliminated.                        

(c) Cash and cash equivalents:                                        

        Cash and cash equivalents consist of cash on deposit and highly liquid
     short-term interest bearing deposits with maturities at the date of
purchase of three months or less.                             

(d) Technology:                                                       

       The Company's technology assets are recorded at cost less accumulated
        amortization. Amortization is provided on the straight-line basis over
the estimated useful life of the technology, being four years.

(e) Fixed assets:                                                     

  Fixed assets are recorded at cost less accumulated amortization.
         Property under capital lease is initially recorded at the present value
of minimum lease payments at the inception of the lease.      

     Amortization is provided at the following annual rates and methods:

         -----------------------------------------------------------------------
         Asset                                Basis                         Rate
         -----------------------------------------------------------------------

         Furniture and equipment              declining-balance              20%
         Computer equipment and software      declining-balance              33%
         Web engine                           straight-line              5 years

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

                                                                               7

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                               

(f) Revenue recognition:                                              

        The Company commenced the sale of its unified communications solutions
        in 2002. Revenue from the sale of such products is recognized pursuant
         to the terms of a contractual agreement when delivery has occurred, the
 price is fixed or determinable and collectibility is reasonably
assured.                                                      

       Prior to 2002, the Company's principal source of revenue has been the
      sale of calling cards. The Company sold calling cards on a wholesale
 basis to one customer and used one sole supplier to provide the
         operating system for the calling card service. Calling card revenue was
      recorded net at the time each card was activated provided collection
was reasonably assured.                                       

(g) Foreign currency:                                                 

      Monetary items denominated in a foreign currency are translated into
        Canadian dollars at exchange rates in effect at the balance sheet date
      and non-monetary items are translated at rates of exchange in effect
     when the assets were acquired or obligations incurred. Revenues and
expenses are translated at rates in effect at the time of the 
         transactions. Foreign exchange gains and losses are included in income.

(h) Research and development:                                         

         Research costs are expensed as incurred. Development costs are expensed
 as incurred unless they meet specific criteria for deferral and
    amortization. The Company assesses whether it has met the relevant
        criteria for deferral and amortization at each reporting date. No such
expenditures meet these criteria in the current year.         

(i) Income taxes:                                                     

   The Company uses the asset and liability method of accounting for
       income taxes. Under the asset and liability method, future tax assets
and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying
     amounts of existing assets and liabilities and their respective tax
       bases, and loss carry forwards. Future tax assets and liabilities are
       measured using enacted or substantively enacted tax rates expected to
apply to taxable income in the years in which those temporary 
    differences are expected to be recovered or settled. The effect on
future tax assets and liabilities of a change in tax rates is 
recognized in income in the period that includes the date of  
      substantive enactment. To the extent that it is not more likely than
         not that an asset will be recovered, a valuation allowance is provided.

                                                                               8

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                               

(j) Earnings (loss) per share:                                        

        Basic earnings (loss) per share is computed using the weighted average
     number of common shares outstanding during the periods after giving
   effect to the recapitalization transaction (note 1(a)), excluding
   treasury stock and common stock held in escrow that is subject to
     cancellation if certain criteria are not achieved. Diluted earnings
       (loss) per share is computed by adjusting the weighted average number
     of common shares by the effective net exercise or conversion of all
      dilutive securities. As for all periods presented, the effect of all
        potentially issuable common shares is anti-dilutive, basic and diluted
loss per share are the same.                                  

(k) Stock-based compensation:                                         

        The Company has a stock-based compensation plan, which is described in
    note 10(d). Effective January 1, 2002, the Company adopted the new
   Recommendation of the Canadian Institute of Chartered Accountants
       Handbook Section 3870, Stock-based Compensation and Other Stock-based
 Payments. The Company applies Section 3870 prospectively to all
         stock-based payments to employees and non-employees granted on or after
January 1, 2002.                                              

      The Company accounts for all options granted to employees, including
     directors, under the intrinsic value method, whereby the excess, if
        any, of the quoted market value of the stock at the date of grant over
the exercise price of the option is recorded as stock based   
         compensation expense. As the exercise price of options granted is equal
         to the market value on the measurement date, the Company has determined
        that the application of this accounting policy did not affect reported
results of operations for the year ended December 31, 2002.   

  Options granted to non-employees on or after January 1, 2002 are
     accounted for under the fair value based method. Under this method,
       options granted to non-employees are measured at their fair value and
recognized as the options are earned. Due to the nature of the
       Company's stock option plans, no transition adjustments were required
        to be recognized on adoption of the polices effective January 1, 2002.

(l) Impairment of long-lived assets:                                  

         The Company reviews the carrying amount of long-lived assets, including
        technology and furniture and equipment, for impairment whenever events
       or changes in circumstances indicate that the carrying amount may not
        be recoverable. The determination of any impairment would be made by a
         comparison of the estimated undiscounted future operating cash flows to
         be generated during the remaining useful life of the asset with the net
        carrying value of the asset. A provision would be recorded at the time
  of impairment equal to the excess of the carrying value over the
estimated future cash flows.                                  

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                               

(m) Use of estimates:                                                 

     The preparation of financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make
       estimates and assumptions which affect the reported amounts of assets
         and liabilities and the disclosure of contingent assets and liabilities
       at the date of the financial statements and revenues and expenses for
 the period reported. Significant areas of estimate includes the
     assessment of recoverability of the carrying value of the Company's
      technology assets. Actual results could differ from those estimates.

(n) Comparative figures:                                              

        Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year. 

(o) Credit risk:                                                      

Financial instruments that potentially subject the Company to 
  concentrations of credit risk are primarily accounts receivable.
     Management is of the opinion that any risk of loss is significantly
         reduced due to the financial strength of the Company's major customers.
    The Company performs on-going credit evaluations of its customers'
         financial condition and requires letters of credit, credit insurance or
other guarantees whenever deemed necessary.                   

4.   ACQUISITION:                                                               

On February 19, 2001, Verb acquired all of the issued and outstanding 
   common and preferred shares of Cadium Systems Inc. ("Cadium"). Cadium was
involved in the development of a java-based messaging system. This    
   acquisition has been accounted for at the fair value of the consideration
   issued with Verb identified as the acquirer with effect from February 19,
2001.                                                                 

   As consideration for the acquisition, Verb issued 1,302,200 common shares
  and 3,646,159 share purchase warrants to the former Cadium shareholders.
     Each share purchase warrant entitles the holder to acquire one common share
   of Verb at a price of $0.25 for a period of three years from the closing.
 The fair value of Verb's purchase price has been calculated as follows:

                                                                [Download Table]

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

                                                                                    
Common shares issued                                                  $    1,906,992
Share purchase warrants issued                                             4,047,237
------------------------------------------------------------------------------------
                                                                           5,954,229
Value assigned to shares and warrants issued to former Cadium                       
 shareholders in exchange for future employment services,                           
 all recognized as compensation expense in 2001 and 2002                 (1,825,178)
------------------------------------------------------------------------------------

                                                                      $    4,129,051
------------------------------------------------------------------------------------

                                                                              10

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

4.   ACQUISITION (CONTINUED):                                                   

The purchase price allocation has been assigned to the specific       
identifiable assets acquired and liabilities assumed as follows:      

                                                        [Enlarge/Download Table]

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

                                                                                           
Capital assets, net of accumulated amortization                               $     22,482 
Technology                                                                       4,230,029 
Bank indebtedness                                                                   (8,214)
Accounts payable and accrued liabilities                                           (72,767)
Demand loan                                                                        (22,479)
Other short term loan                                                              (20,000)
-------------------------------------------------------------------------------------------

Purchase price                                                                $  4,129,051 
-------------------------------------------------------------------------------------------

5.   FIXED ASSETS:                                                              

                                                                [Download Table]


----------------------------------------------------------------------------------
                                                        Accumulated       Net book
2002                                          Cost     amortization          value
----------------------------------------------------------------------------------

                                                                                  
Furniture and equipment                 $   56,790       $   24,509     $   32,281
Computer equipment and software            132,098           59,065         73,033
Web engine                                 102,590           30,181         72,409
----------------------------------------------------------------------------------

                                        $  291,478       $  113,755     $  177,723
----------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


-------------------------------------------------------------------------------------------
                                                                 Accumulated       Net book
2001                                                     Cost   amortization          value
-------------------------------------------------------------------------------------------

                                                                                           
Furniture and equipment                            $   77,773     $   17,117     $   60,656
Computer equipment and software                        97,422         23,413         74,009
Web engine                                            102,590          9,663         92,927
-------------------------------------------------------------------------------------------

                                                   $  277,785     $   50,193     $  227,592
-------------------------------------------------------------------------------------------

     Furniture and equipment under capital lease at December 31, 2002 amounts to
$47,651 (2001 - $41,606).                                             

6.   DEMAND LOAN:                                                               

  The demand loan is unsecured and bears interest at the bank's prime rate
plus 3% per annum.                                                    

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

7.   DUE TO PENSBREIGH HOLDINGS INC.:                                           

 During 2001, Pensbreigh Holdings Inc. ("Pensbreigh") provided a loan to
     Verb in the form of a promissory note. The note bears interest at a rate of
Canadian prime plus 1% per annum, calculated and compounded monthly in
arrears. At December 31, 2001, Verb has been advanced funds totaling  
$100,000 from Pensbreigh.                                             

On January 10, 2002, Verb repaid the balance in full.                 

8.   DUE TO ZWISS A.V.V.:                                                       

On June 5, 2000, Verb entered into a loan agreement with Zwiss A.V.V. 
 ("Zwiss"), which was amended on October 8, 2000. Under the terms of the
agreement, Zwiss lent Verb U.S. $500,000 ($750,000) to fund the cash  
deposit required by AT&T.                                             

As consideration for this loan, Verb issued 1,000,000 share purchase  
warrants to Zwiss and transferred to Zwiss 15% of the common shares of
  Qualtel. In addition, one of the shareholders of Verb transferred 40,000
     founders' shares of Verb to Zwiss. Each share purchase warrant entitled the
   holder to purchase one common share of Verb at a price of $0.50 per share
    until November 15, 2002. The share purchase warrants were assigned a value
    of $460,412 based on their estimated fair value at that time and have been
  recorded as a financing cost in the statement of operations for the year
  ended December 31, 2000, since the loan has no fixed terms of repayment.
   The Qualtel shares were assigned a nominal value based on their estimated
    fair value. No accounting recognition has been given in these consolidated
financial statements, to the 40,000 founders shares transferred by the
shareholder to Zwiss in connection with this transaction as this was a
transaction separate from Verb.                                       

 The loan bears interest at a rate of Canadian Imperial Bank of Commerce
    ("CIBC") prime plus 2% per annum payable monthly and has no fixed terms of
 repayment. Security for the loan was provided by the AT&T deposit which
was, effectively, sold by Verb on December 13, 2001 though no formal  
release of their security interest has been obtained from Zwiss.      

During the year ended December 31, 2001, U.S. $250,000 ($398,200) was 
repaid and applied against the loan.                                  

  During the year ended December 31, 2002, Zwiss agreed to reduce the loan
  balance to $200,000. In exchange for the debt reduction, Zwiss agreed to
exchange 1,000,000 share purchase warrants of Verb for 200,000 share  
purchase warrants of the Company and 347,632 common shares from       
    shareholders of the Company. The amount by which the carrying value of the
previous loan balance to Zwiss exceeds the fair value of the total    
   consideration issued on renegotiation, being $29,615, has been recognized
  in the statements of operations as a gain on reduction in debt. The fair
     value of the consideration attributable to the 347,632 common shares issued
     has been recognized in contributed surplus as a capital contribution by the
issuing shareholders to the Company.                                  

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

9.   OBLIGATIONS UNDER CAPITAL LEASE:                                           

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

Year ending December 31:                                              

     2003                                                             $   33,516
     2004                                                                 17,307
     ---------------------------------------------------------------------------

     Total minimum lease payments                                         50,823
     Amount representing interest                                          9,255
     ---------------------------------------------------------------------------

     Present value of net minimum lease payments                          41,568
     Current portion                                                      31,697
     ---------------------------------------------------------------------------

                                                                      $    9,871
     ---------------------------------------------------------------------------

10.  SHARE CAPITAL:                                                             

   On November 11, 2002, the Company consolidated its issued and outstanding
   common shares, options and warrants, on a 5-for-1 basis. All common share
   information of the Company in these consolidated financial statements has
been retroactively restated to reflect the consolidation:             

(a) Authorized:                                                       

100,000,000 common shares without par value         

100,000,000 preferred shares without par value      

(b) Issued and outstanding:                                           

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------
                                                                          Number                   
                                                                       of shares             Amount
---------------------------------------------------------------------------------------------------

                                                                                                   
Ayotte balance, February 28, 1999 and February 29, 2000                2,341,800       $ 2,525,737 
     Issued for cash through private placement                           247,000           494,000 
     Issued for cash                                                      30,000            15,000 
     Share issue costs                                                         -            (5,665)
---------------------------------------------------------------------------------------------------

Ayotte balance, February 28, 2001                                      2,618,800         3,029,072 
     Issued for cash through private placement                           200,000           100,000 
     Issued for exercise of stock options                                 80,000            40,000 
---------------------------------------------------------------------------------------------------

Ayotte balance, December 31, 2001                                      2,898,800         3,169,072 
     Issued for exercise of stock options                                190,000            95,000 
     Issued on exercise of warrants                                      200,000           150,000 
     Sale of special warrants                                                  -           720,040 
---------------------------------------------------------------------------------------------------

Ayotte balance, November 11, 2002, carried forward                     3,288,800       $ 4,134,112 

                                                                              13

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

10.  SHARE CAPITAL (CONTINUED):                                                 

(b) Issued and outstanding (continued):                               

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------
                                                                          Number                    
                                                                       of shares             Amount 
----------------------------------------------------------------------------------------------------

                                                                                                    
Ayotte balance, November 11, 2002, brought forward                     3,288,800       $  4,134,112 
     Adjustments to share capital to comply with                                                    
       recapitalization accounting                                     4,320,925          3,002,588 
     Issued for services rendered on capital transactions              1,050,000            472,500 
     Issued for cash                                                   1,724,230            896,210 
     Share issue costs                                                         -           (472,500)
----------------------------------------------------------------------------------------------------

The Company, balance, December 31, 2002                               10,383,955       $  8,032,910 
----------------------------------------------------------------------------------------------------

         Of the 4,320,925 common shares issued on the Verb transaction (note 1),
       2,953,176 shares were originally held in escrow; 10% were released on
    November 11, 2002, with an additional 15% to be released every six
months thereafter, until November 11, 2005.                   

        As at December 31, 2002, there are a total of 2,667,861 shares held in
escrow.                                                       

(c) Warrants:                                                         

         Prior to completion of the transaction described in note 1(a), Verb had
   4,873,501 warrants outstanding. These warrants were exchanged for
       1,255,000 warrants of the Company upon completion of the transaction.

    During 2002, the Company issued 1,050,000 common shares and 50,000
    warrants for services related to the transaction described in note
       1(a). The warrants are exercisable at $0.80 each to November 8, 2003.
  The shares issued were valued at the market price at the date of
completion of the reverse takeover transaction.               

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

10.  SHARE CAPITAL (CONTINUED):                                                 

(c) Warrants (continued):                                             

  During 2002, the Company sold 132,000 common shares, each with a
      warrant attached, for proceeds of $105,000. The warrants entitle the
         holder to purchase one common share for $0.80 per share until March 27,
 2003. Subsequent to December 31, 2002, the Company repriced and
       extended the expiration date of these warrants to $0.35 per share and
March 27, 2004, respectively.                                 

  During 2002, the Company sold 843,530 common shares, each with a
       warrant attached, for proceeds of $421,745. The warrants entitles the
        holder to purchase one common share for $0.80 per share until November
8, 2003.                                                      

  During 2002, the Company sold 748,700 common shares, each with a
      warrant attached, for proceeds of $369,465. The warrants entitle the
         holder to purchase one common share for $0.80 per share until September
30, 2003.                                                     

   During 2002, Ayotte sold 900,126 Special Warrants for proceeds of
       $720,000. These Special Warrants were exchangeable into common shares
     and warrants of the Company. The Special Warrants carried a penalty
  clause, entitling the holder to 10% additional common shares and
        warrants if the Company did not complete an offering prospectus by 120
      days from the closing of the offering. As the Company did not file a
       prospectus by the specified date, the Special Warrants were exchanged
         into 990,138 common shares and 990,138 warrants of the Company in April
        2003. The warrants entitle the holder to purchase one common share for
        $0.80 per share until April 23, 2003. Subsequent to December 31, 2002,
         the Company repriced and extended the expiration date of these warrants
to $0.35 per share and April 23, 2004, respectively.          

         At December 31, 2002, after giving effect to these changes, the Company
        has 4,118,568 warrants outstanding, exercisable at prices ranging from
      $0.35 to US$2.50 each, and expiring at various dates to May 8, 2004.

(d) Stock options:                                                    

     During the year, the Company adopted a stock option plan (the Plan)
     that provides for the issuance of incentive and non-qualified stock
         options to officers, directors, employees and consultants to acquire up
    to 2,250,000 of the Company's issued and outstanding common stock.

   The Board of Directors determines the terms and conditions of the
  options granted under the Plan, including the exercise price and
    vesting schedule. The exercise price for qualified incentive stock
       options cannot be less than the closing price of the common shares on
     the immediately preceding day of the grant, and the maximum term is
        five years from the date of grant. Options granted generally vest over
a period of 18 months.                                        

                                                                              15

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

10.  SHARE CAPITAL (CONTINUED):                                                 

(d) Stock options (continued):                                        

 A summary of the Company's stock option activity is as follows:

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------
                                                                           Outstanding options    
--------------------------------------------------------------------------------------------------
                                                                         Number           Exercise
                                                                      of shares              price
--------------------------------------------------------------------------------------------------

                                                                                                  
Balances at December 31, 2001                                           190,000           $  0.50 
Options exercised prior to reverse takeover                            (190,000)             0.50 
Options granted subsequent to recapitalization                        1,717,000              0.50 
--------------------------------------------------------------------------------------------------

Balances at December 31, 2002                                         1,717,000           $  0.50 
--------------------------------------------------------------------------------------------------

The following table summarizes information about stock options
  outstanding and exercisable under the Plan at December 31, 2002:

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------
                                          Weighted                                                    
                                           average         Weighted                           Weighted
Range of                 Number          remaining          average            Number          average
exercise prices     outstanding   contractual life   exercise price       exercisable   exercise price
------------------------------------------------------------------------------------------------------

                                                                                                      
$0.50                1,717,000         4.9 years           $ 0.50            95,389           $ 0.50  

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

(e) Pro forma compensation expense:                                   

      Under the intrinsic value method, the Company has not recognized any
     compensation expense for options issued to its employees during the
       year ended December 31, 2002. Had the Company determined compensation
     expense for option grants made to employees after December 31, 2001
         based on the fair values at grant dates of the stock options consistent
       with the fair value method, the Company's loss and loss per share for
        the year ended December 31, 2002 would have been the pro forma amounts
indicated below:                                              

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

         Net loss - as reported                                     $  4,462,840
         Net loss - pro forma                                          4,505,240

         Net loss per share - as reported                                   0.86
         Net loss per share - pro forma                                     0.87

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

    The weighted average estimated fair value at the date of grant for
       options granted during the year ended December 31, 2002 was $0.41 per
share.                                                        

                                                                              16

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

10.  SHARE CAPITAL (CONTINUED):                                                 

(e) Pro forma compensation expense (continued):                       

        The fair value of each option granted was estimated on the date of the
       grant using the Black-Scholes option pricing model with the following
assumptions:                                                  

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

        Risk-free interest rate                                           4.5%
       Dividend yield                                                      -
        Volatility factor                                                 150%
         Weighted average expected life of the options                   5 years

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

        For the purposes of pro forma disclosures, the estimated fair value of
      the option is amortized to expense on a straight-line basis over the
vesting period.                                               

11.  RESEARCH AND DEVELOPMENT:                                                  

    During the year ended December 31, 2002, the Company incurred research and
    development costs totaling $1,599,893 (2001 - $2,735,550; 2000 - $27,094).
 These costs are classified in the consolidated statements of operations
according to their nature and, for the year ended December 31, 2002,  
 primarily reflect amortization ($1,057,507), general and administrative
($202,626) and salaries and wages ($291,852).                         

12.  RECAPITALIZATION:                                                          

As disclosed in note 1(a), during 2002 Ayotte and Verb entered into a 
 transaction which resulted in the former shareholders of Verb acquiring
  control of the Company. Additional information with respect to Ayotte is
provided below.                                                       

    The total consideration paid was allocated, based on estimated fair values
    of the assets acquired and the liabilities assumed on November 11, 2002 as
follows:                                                              

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

    Cash                                                          $     37,415
    Amounts receivable                                                 104,988
    Due from Verb                                                    1,827,808
     Accounts payable                                                   (25,795)
     ---------------------------------------------------------------------------

                                                                  $  1,944,416
     ---------------------------------------------------------------------------

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

12.  REVERSE TAKEOVER (CONTINUED):                                              

   A summary of the operations of Ayotte for the period from January 1, 2002
to November 11, 2002 is provided below:                               

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

Expenses:                                                             
        Bank charges and interest                                 $      1,458
        Legal and accounting                                           130,530
        Management and consulting fees                                  96,491
        Public company expenses                                         35,941
        Office                                                          17,349
         -----------------------------------------------------------------------
                                                                       281,769

Other earnings:                                                       
        Other earnings                                                  63,910
        Foreign exchange gain                                            1,361
        Gain on sale of assets                                           4,741
         -----------------------------------------------------------------------
                                                                        70,012
     ---------------------------------------------------------------------------

     Loss for the period                                               (211,757)

     Deficit, beginning of period                                    (1,870,697)
     ---------------------------------------------------------------------------

     Deficit, end of period                                        $ (2,082,454)
     ---------------------------------------------------------------------------

13.  DISCONTINUED OPERATIONS:                                                   

  On December 13, 2001, Verb adopted a formal plan and entered into a sale
agreement to dispose of the operations of its wholesale long distance 
    services business by selling its 75% interest in TelQuest Technologies LLC
DBA Qualtel Communications ("Qualtel") for cash proceeds of $1.       

   From January 1, 2001 to December 13, 2001 Verb recorded a total operating
  loss, including provisions, of $627,462 in respect of the wholesale long
     distance services business in Qualtel. A summarized statement of operations
of Qualtel to the date of disposition is as follows:                  

     ---------------------------------------------------------------------------
                                                 Period ended         Year ended
                                                 December 13,       December 31,
                                                         2001               2000
     ---------------------------------------------------------------------------

     Revenues                                  $    634,325         $          -
     Operating expenses                           1,269,317               60,449
     ---------------------------------------------------------------------------
                                                    634,992               60,449
     Non-controlling interest                         7,230               15,112
     ---------------------------------------------------------------------------

     Loss from operations                      $    627,762         $     45,337
     ---------------------------------------------------------------------------

 The consideration received on the sale of the Qualtel consisted of cash
   proceeds of $1, resulting in a gain on disposition of $153,070. The total
assets and total liabilities of Qualtel were $796,432 and $949,502,   
respectively.                                                         

                                                                              18

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

14.  INCOME TAXES:                                                              

    The Company is subject to Canadian federal and British Columbia provincial
taxes in Canada. The Company has accumulated tax losses that may be   
 deducted from taxable income in future years. The potential tax benefit
 that may result for application of the losses is not reflected in these
     consolidated financial statements. Management's best estimate of tax losses
is as follows:                                                        

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

Expiring in year ending December 31:                                  

     2007                                                           $    720,000
     2008                                                              1,714,000
     2009                                                              3,126,000
     ---------------------------------------------------------------------------

                                                                    $  5,560,000
     ---------------------------------------------------------------------------

In addition, the Company has other deductible temporary differences   
   totalling $373,000 (2001 - $345,000) which may be deducted against future
taxable income.                                                       

   As it is not considered to be more likely than not that the potential tax
    benefit of these losses and expenditures will be realized in the future, a
  full valuation allowance has been provided. The potential tax benefit of
these losses and expenditures has therefore not been recorded in the  
financial statements.                                                 

15.  COMMITMENTS:                                                               

The Company has entered into operating leases which have the following
remaining minimum lease payments:                                     

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

     2003                                                           $    264,994
     2004                                                                266,350
     ---------------------------------------------------------------------------

                                                                    $    531,344
     ---------------------------------------------------------------------------

16.  RELATED PARTY TRANSACTIONS:                                                

During the year, the Company incurred $291,432 (2001 - $90,358; 2000 -
$41,703) in professional fees to a law firm in which a director of the
 Company is a partner. At December 31, 2001, the Company had outstanding
  payables of $246,785 (2001 - $61,344) for unpaid professional fees which
are included in accounts payable and accrued liabilities.             

Also during the year, the Company paid $69,500 (2001 - $73,500; 2000 -
$58,000) to a company controlled by a director of the Company for     
     management fees. At December 31, 2002, the Company had outstanding payables
    of $13,245 (2001 - nil) which are included in accounts payable and accrued
liabilities.                                                          

                                                                              19

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VERB EXCHANGE INC.                                                              
Notes to Consolidated Financial Statements                                      
(Expressed in Canadian dollars)                                                 

Years ended December 31, 2002, 2001 and 2000                                    

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

16. RELATED PARTY TRANSACTIONS (CONTINUED):                                     

In addition, included in accounts payable and accrued liabilities at  
     December 31, 2001 is $51,700 owing to a company controlled by a director of
the Company.                                                          

Amounts due to other related parties included in accounts payable and 
accrued liabilities aggregate $114,833 (2001 - nil). These amounts are
non-interest bearing.                                                 

 During the year ended December 31, 2002, the Company issued nil (2001 -
     71,842; 2000 - $25,000) share purchase warrants as compensation to officers
and directors of the Company.                                         

17.  SUBSEQUENT EVENTS:                                                         

   (a) The Company has entered into an Arrangement Agreement with Millennium
    Ventures Ltd. and Lattice Capital Corporation (jointly the "CPCs")
        pursuant to which each CPC whose common shareholders have approved the
       Arrangement Resolution (a "Merging CPC") will merge with and into the
Company, such that the Company shall continue as the surviving
      corporation. As a result of the merger, the Company will acquire the
Merging CPCs assets and liabilities.                          

       The CPCs have established a Credit Facility in favour of the Company,
         whereby the CPCs agreed to advance Verb up to $200,000 to fund approved
     working capital expenditures by the Company. The Credit Facility is
         secured as a charge over all assets of the Company. The Credit Facility
      will be repayable to the CPCs in certain events of default or in the
         event of termination of the Arrangement. To December 31, 2002, the CPCs
       have advanced $112,897 to the Company. Amounts advanced bear interest
     at a rate of 12% per annum, and are due within 120 days if the CPCs
    terminate the letter of intent or are repayable immediately if the
Company terminates the letter of intent.                      

The Company and Millennium Ventures possess a common director.

         Completion of this acquisition is subject to regulatory and shareholder
approval.                                                     

  (b) On April 23, 2003, the Company completed a private placement to sell
        1,500,000 Units of the Company at a price of $0.20 per Unit. Each Unit
 consists of one common share of the Company and one-half of one
    non-transferable share purchase warrant. Each whole share purchase
      warrant entitles the holder thereof to acquire one common share at a
price of $0.35 for a period of one year following closing.    

                                                                              20

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘20-F/A’ Filing		Date		First		Last			Other Filings
		7/7/08		22
		11/12/07		22
		11/11/05		50
Filed as of:		7/6/04							6-K
Filed on:		7/2/04		32					6-K
		5/8/04		51
		4/23/04		51
		3/27/04		51
		11/8/03		50		51
		9/30/03		51					6-K
		6/27/03		25
		6/25/03		21		23
		6/24/03		9
		6/20/03		5
		6/1/03		5
		5/1/03		5
		4/23/03		36		56
		4/1/03		5
		3/27/03		41		51
		3/1/03		5
		2/1/03		5
		1/1/03		5
For Period End:		12/31/02		1		56			20-F,  6-K/A,  NT 20-F
		12/1/02		5
		11/15/02		48
		11/12/02		9		25			6-K
		11/11/02		4		54
		8/1/02		31					20-F
		5/1/02		41
		1/10/02		48
		1/1/02		5		54
		12/31/01		4		56			20-F,  20-F/A,  NT 20-F
		12/13/01		38		54
		12/3/01		41
		11/30/01		8					6-K
		2/19/01		17		46
		1/1/01		5		54
		12/31/00		4		56
		10/8/00		48
		6/5/00		48
		5/22/00		31					20FR12G,  3
		5/16/00		8		41
		1/14/00		4		41
		1/1/00		5
		12/1/99		41
		10/18/99		31
		2/28/99		49
		2/27/98		8
		8/30/96		31
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