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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

|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

For the transition period from to

Commission file number:000-26319

(Exact name of registrant as specified in its charter)

1166 Alberni Street, Suite 1405

Vancouver, BC, Canada, V6E 3Z3

(604) 694-0300

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

(Title of class)

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), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I.............................................................................................................................................. 3

ITEM 1.  BUSINESS.................................................................................................................... 3

ITEM 2. PROPERTIES............................................................................................................... 17

ITEM 3. LEGAL PROCEEDINGS.............................................................................................. 18

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 18

PART II...........................................................................................................................................  20

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY  AND 

RELATED STOCKHOLDER MATTERS..................................................................................  20

ITEM 6. SELECTED FINANCIAL DATA................................................................................  22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 

FINANCIAL CONDITION AND RESULTS OF OPERATION..............................................  23

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 

ABOUT MARKET RISK........................................................................................................... 30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................  31

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 

ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................   58

PART III........................................................................................................................................   60

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................   60

ITEM 11.  EXECUTIVE COMPENSATION...........................................................................   61

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 

AND MANAGEMENT ............................................................................................................  63

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................  65

ITEM 14.  CONTROLS AND PROCEDURES.......................................................................   66

PART IV.......................................................................................................................................   67

ITEMS 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND 

REPORTS ON FORM 8-K......................................................................................................  67

SIGNATURES.........................................................................................................................   68

CERTIFICATIONS.................................................................................................................    69

EXHIBIT LIST.........................................................................................................................   71

EXHIBIT 10.29 Amendment of Asset Purchase Agreement dated July 1, 2002.............................72

PART I

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties.  All statements contained herein that are not statements of historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing forward-looking statements may be found in the material set forth under "Business," "Business - Risks Related to Our Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in this Annual Report generally.  We generally use words such as "believes," "intends," "expects," "anticipates," "plans," and similar expressions to identify forward-looking statements.  You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those expressed or implied in the forward-looking statements for many reasons, including the risks described under "Business - Risks Related to Our Business" and elsewhere in this Annual Report.

ITEM 1. BUSINESS

Introduction

Bingo.com, Inc. (the "Company") is in the business of developing and operating a bingo based web portal designed to provide a variety of free games and other forms of entertainment, including an online community, chat rooms, contests, sweepstakes, tournaments, and more. The Company envisions becoming the preminent bingo-based web portal on the Internet, using its bingo.com domain name and incorporating a variety of games and content to attract and retain a large number of subscribers. The Company's existing website has attracted over 900,000 registered users and served over 1,500,000,000 bingo cards since its inception; the Company intends to continue to build on this subscriber base to further develop its online presence.

The Company generates revenue principally from the free website, which is supported by advertising revenue obtained by displaying advertisements on our web site and delivering advertisements to our players by email.

The free site provides content to our players in the form of free-to-play, multiplayer theme bingo games, such as Astrology Bingo, Cupid Bingo, and the like, as well as online video poker, sweepstakes and slot machines. We also offer our registered players other forms of entertainment such as fortune telling, chat rooms, and member profiles.

We intend to continue to build on the success of the existing free site by offering a greater depth and variety of content that we expect will hold subscribers and allow us to generate more revenue through advertising. We also intend to add enhanced content available to users for a monthly subscription charge in order to further grow our revenue base. We intend to provide non-North American players with the opportunity to play traditional bingo for cash. 

References in this document to "the Company," "we," "us," and "our" refer to Bingo.com, Inc. and its subsidiaries, which are described below.

Our executive offices are located at 1166 Alberni Street, Suite 1405, Vancouver, British Columbia, Canada, V6E 3Z3.  Our telephone number is (604) 694-0300. 

History and Corporate Structure

The Company was originally incorporated in the State of Florida on January 12, 1987, under the name Progressive General Lumber Corp. ("PGLC') with an authorized share capital of 7,500 shares of common stock with a $1.00 par value per share.  PGLC was for the most part inactive until January 1999.

On July 17, 1998, PGLC filed Articles of Amendment and increased its authorized share capital to 50,000,000 common shares with a $0.001 par value per share. The shares were also subject to a forward stock split by way of a stock dividend to increase the number of then issued and outstanding shares on a 200 shares for 1 share basis.

In January 1999, management of PGLC changed and the new management filed Articles of Amendment to the Articles of Incorporation of PGLC to amend the Articles of Incorporation and change the name of PGLC to Bingo.com, Inc. effective January 22, 1999. Concurrent with the name change the Company acquired the use of the second level domain name bingo.com and embarked on its business strategy to become a leading online provider of bingo based games and entertainment.

The Company conducts its business through the Florida incorporated entity and through its wholly owned subsidiary Bingo.com (Canada) Enterprises Inc. ("Bingo Canada"). Bingo Canada was incorporated under the laws of British Columbia, Canada, on February 10, 1998 as 559262 B.C. Ltd. and changed its name to Bingo.com (Canada) Enterprises Inc. on February 11, 1999. 

On August 15, 2002, the Company acquired 99% of the share capital of Bingo.com (UK) plc ("Bingo UK"). Bingo UK was incorporated under the laws of England and Wales on August 18, 2000 as CellStop plc. and changed its name to Bingo.com (UK) plc. on August 5, 2002.

The Company also maintains a number of inactive wholly owned subsidiaries.  These include

•         Bingo.com (Antigua), Inc., ("Bingo.com (Antigua") incorporated as an Antigua International Business Corporation on April 7, 1999 as Star Communications Ltd. and changed its name to Bingo.com. (Antigua), Inc. on April 21, 1999;

•         Bingo.com (Wyoming), Inc., incorporated in the State of Wyoming on July 14, 1999;

•         Bingo.com Acquisition Corp., incorporated in the State of Delaware on January 9, 2001. 

All three of the inactive subsidiaries were incorporated to facilitate the implementation of business plans that the Company has since modified and refocused and consequently, there is no activity in these entities.

The Company's common shares are currently quoted on the National Association of Securities Dealers' Over-The-Counter Bulletin Board ("OTCBB") under the symbol "BIGR". We have not been subject to any bankruptcy, receivership or other similar proceedings.

Development of the Business

The current business strategy of the Company is to manage and grow the business with minimal overhead focusing on its major asset, the bingo.com domain name, which was acquired in 1999.

Bingo.com Domain Name

On January 18, 1999, the Company purchased the exclusive right to use the domain name bingo.com from a then unrelated company Bingo, Inc., an Anguilla corporation, for (i) a $200,000 cash payment, (ii) 500,000 shares of our common stock (at a deemed value of $2.00 per share) and (iii) an agreement to pay, on an ongoing basis, the Domain Name Purchase price amounting to 4% of our annual gross revenues, with a total minimum guaranteed Domain Name Purchase payment of $1,100,000 in the first three years of the 99 year period ended December 31, 2098. During the year ended December 31, 2002 the agreement was amended so that the remaining Domain Name Purchase payments to the vendor are made monthly, based on 4% of the preceding months gross revenue. The value of the bingo.com domain name was based on factors such as the relationship of the name to our business, the ability for us to create a brand for our Website and portal based on the name, the ease of internet browser search ability of the domain name and the ability of visitors to our website to remember and associate the name with our website and portal. We negotiated the terms of the domain name acquisition at arms' length, and we believe the consideration we paid for the name was reasonable.

During the year ended December 31, 2002, the Company made payments totalling $197,000 including interest (2001 - $362,000) under the terms of this agreement. $185,000 of this payment related to the final payments made in accordance with the minimum guaranteed Domain Name Purchase payment of $1,100,000. The remaining $12,000 related to payments based on 4% of the preceding months gross revenue as defined in the amended agreement. T. M. Williams, the President and Chief Executive Officer of the Company is the potential beneficiary of several discretionary trusts that hold approximately 80% of the shares of Bingo, Inc.

Business Overview

The Company aims to become the leading online provider of bingo based games and entertainment. The Company intends to leverage the worldwide popularity of bingo with the growth of the Internet to become the premier bingo portal.

We are in the business of developing and operating an entertainment and service based website designed to provide a variety of free bingo games, and other forms of entertainment, initially focused on the game bingo and including chat rooms, sweepstakes, communities, and other forms of enhanced content. We are attempting to create a value-based website, complete with online services and an extensive database of registered players.

The entertainment and other content provided on the bingo.com portal do not include adult content or gambling for cash. The Company, however, intends to offer traditional bingo for cash to non-North American players.

Free Bingo Business

Our free bingo Website is built around a variety of free bingo games, offered to registered players who compete against other users for the chance to win prizes. Our primary objective is to provide Internet users a website offering a variety of free bingo based games and entertainment, as well as free online video poker and free slot machines. The Company intends to continue to provide prize-based, play-for-free games emphasizing entertainment.

The Company uses the appeal of the bingo.com domain name to sell advertising on the free site, which is currently the Company's primary revenue source. Advertising revenue from the bingo.com website accounted for approximately 99% of our revenue for the year ended December 31, 2002. During the year ended December 31, 2002, over 175 million player sessions were offered to the Company's registered players. The average visitor session length was 55 minutes per user. The Company's website continues to be one of the stickiest sites on the Internet. As a result of this appeal to web users, the Company was able to serve approximately one billion ads on the bingo.com website during the year ended December 31, 2002

Although the games are free to play, players are required to register to receive prizes and to access certain features on the site. All registration information is stored in online databases. We intend to continue to build awareness of, and drive traffic to, bingo.com through a marketing program consisting of various elements such as strategic alliances and online and off-line advertising. The Company will continue to pursue a co-branding strategy as part of its overall plans. In addition, the Company will continue to establish promotional agreements with prominent websites and media content providers that have reciprocal links to bingo.com, or to display advertising.

The Company has built multiple revenue streams and believes that there is value in the ability to direct the traffic of our membership base and their buying power, and intend to pursue affinity arrangements with merchant partners. The Company will continue to sell advertising space on the bingo.com website. The Company believes that its growing user base and stickiness will provide advertisers with an attractive platform to reach their target audience.

 The Niche

The Company is continuing to position itself to become a leading entertainment portal through the incorporation of bingo and technology, to create a fun and exciting daily user experience centered around bingo and bingo-based games. We believe the size of the worldwide community familiar with bingo, the domain name bingo.com, and the attractive nature of the Company's product offering provides an opportunity to build a large loyal base of daily visitors.

The game of bingo is reported to be the most socially acceptable form of gaming in the world played by over 500 million people worldwide. The online casino market is well developed on the Internet whereas the online bingo market is still in its infancy. Industry experts have indicated that the online bingo market could, over time, be larger than the online casino market and grow at a faster rate. 

The Company's website bingo.com has broader appeal in the marketplace, is less regulated, and is typically classed as a minor form of gambling. We believe that a significant percentage of American bingo players are between the ages of 18 and 44, and that Baby Boomers are playing bingo more than ever. The Baby Boomer generation is considered to have the most disposable income and the highest ability to access the Internet. We believe that bingo is well suited for online entertainment content, and that online games are a compelling entertainment medium for a mass user audience. There is appeal in providing players with an opportunity to win prizes and cash while allowing them to access entertaining content according to their own schedule from their own location. We intend to lead the way using the popularity of bingo games, the accessibility of the Internet and the rate of growth for entertainment based game sites.

The Company believes that its future success will be dependent on a number of factors. These include focus on online bingo games, and online entertainment, and the development of a personalized community atmosphere, which will encourage lengthy site visits by users. We believe the nature of the Company's website content and our player base will allow the Company to establish a large detailed database of registered players, which is a distinguishing factor to attracting online advertisers.

The Company intends to promote the bingo.com brand name by building a network of affiliations with prominent companies, both online and off.

Business Strategy

Our objective is to become the premier online destination for web-based bingo entertainment and a leading entertainment destination on the Internet. The Company is pursuing this objective through the following strategies:

Continue to enhance content

Registered players are provided with a variety of free games, and other forms of entertainment such as chat, sweepstakes, fortune telling, and more. The free bingo games can be played for points, which are redeemable for prizes. We are able to create low-cost content through creative face-changes of the standard bingo games. These 'skins' can reflect themes, corporate interests or other targeted messages.

Build multiple revenue streams

We currently generate revenue from selling advertising on the free bingo site, and through other initiatives such as co-branding and affiliates. An example of this is the online store Walter Drake, where bingo.com users can receive discounts on purchases made at the Walter Drake site. The Company receives a commission for all purchases made on the Walter Drake site by our users. We expect to continue to offer similar sorts of arrangements with the goal of building a diversified revenue base. There are also other methods of broadening our revenue base that we intend to pursue. Some of these include offering a premium service, via subscription, on our free site; traditional bingo for cash to non-North American players; and the licensing of our games to Websites which complement our growth strategies. The Company currently earns revenues from its portal through a variety of ways, such as the following:

•         Banner and button advertisements on our bingo.com site;

•         Pop-ups, which are interstitial ads that appear as a separate window on top of content;

•         Superstitials; which are interstitial commercials that seamlessly load while a visitor is surfing the site;

•         Sponsorships of email newsletters or parts of our site;

•         Commissions on purchases made on Partner sites. e.g. Walter Drake;

•         Third-Party referral arrangements such as that with lavalife, where the Company receives a fee whenever a bingo.com player becomes a registered user of their online personals service.

Advertising revenue calculations are based on click-throughs, percentage of sales transactions, or other methods depending on the details of the agreements. The majority of the Company's current revenue is calculated on a  Cost Per Thousand ("CPM") basis.

Expand registered user database

We have demonstrated the ability to attract and keep a large subscriber base. It is our intention to continue the growth of our database through expansion of our co-branding strategy and through strategic partnerships with affinity groups and penetration of traditional bingo venues by use of targeted promotions with suppliers of goods and services to such venues.

Entertainment and game sites have become increasingly popular and are showing strong growth rates. The Company's Website traffic reports indicate that between 800 to 1200 new players a day are registering with www.bingo.com. There has been in excess of 35,000 unique visitors per day, with an average visitor session length of more than 55 minutes. The Company is becoming the premier online destination for Web-based bingo entertainment and a leading entertainment destination on the Internet.

 Leverage licensed users and alliances

We are confident that the variety of games and entertainment available on our website will encourage many visitors to come, stay, play and revisit often. In the process of providing a one-stop entertainment arena for bingo lovers, we are creating a value based website which is backed by an extensive database of registered players and their buying preferences. We believe the value of this demographic data has enabled the Company to generate premium CPM and Cost Per Click ("CPC") rates for the sale of its advertising inventory.

Extend and enhance the value of the brand name

We believe that establishing a readily recognizable brand name is critical to attracting a larger player base and deriving additional revenue. We believe that bingo.com website has inherent value as a brand name and we intend to aggressively expand our player base by promoting that name. We intend to pursue online and offline marketing strategies, promotional opportunities, and strategic alliances to make bingo.com website the leading entertainment destination for bingo on the Internet.

Marketing Strategy

Our goal is for the bingo.com website to become the most recognized bingo and entertainment destination site on the Internet. We intend to build an Internet community consisting of a dedicated and loyal user base that we believe will support our ability to generate advertising revenues, and e-commerce sales for the Company.

Advertising focused on promoting the bingo.com website within North America and in targeted international markets through strategic partnerships, co-branding and other promotional activities with a variety of companies is contemplated. This strategy is intended to further develop the growing database of registered players.

We also use our database of registered users to send targeted emails and other advertisements in order to encourage our subscribers to play. We offer special promotions and other offerings that bring additional users to our site such as the use of our email list to promote special events.

Employees

As of December 31, 2002, the Company had six full-time employees, not including temporary personnel, consultants, and independent contractors. The Company retains consultants to provide special expertise in developing strategy, marketing, software and technologies and outsources its development resources. None of our employees is represented by a labor union, and we believe that our relationship with our employees is good.

We are substantially dependent upon the continued services and performance of T. M. Williams, our President, Chief Executive Officer and Chairman of our Board. The loss of the services of this key individual would have a material adverse effect on our business, financial condition and results of operations.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

We are in the business of developing and operating a bingo based web portal designed to provide a variety of free games and intend to provide traditional bingo for cash games for residents outside of North America, and other forms of entertainment on the Internet. At the end of fiscal 2002, the majority of the Company's fixed assets were located in Canada.

Seasonality

The Company does not believe that seasonality has an effect on its traffic volumes or its revenue realization.

Competition

The Company faces competition primarily from other companies that target the entertainment segment of the market. Lycos, Inc., through its site Gamesville, Electronic Arts Inc., though its site Pogo, and Vivendi Universal, though its site Flipside, are large online entertainment destinations, offering games, game shows and other interactive experiences to users. We will continue to compete with these large sites as well as many other smaller offerings, and there can be no assurances that we will be successful in attracting users from these sites.

Trademarks and Intellectual Property Protection

The Company will continue to consider the need to apply for trademark registration and protection for its games, logo and various phrases in Canada and the United States. The Company has not submitted any other applications for trademark registration. In the event that we determine that we have created an asset whose value can be protected, we will attempt to protect our proprietary asset by applying for patents, copyrights or trademarks. In addition, we intend to rely on trade secret laws and non-disclosure and confidentiality agreements with our employees and consultants, who have access to its proprietary technology, to protect our technologies.

RISK FACTORS

Our business is subject to a number of risks due to the nature and the present state of development of our business. An investment in our securities is speculative in nature and involves a high degree of risk. You should read carefully and consider the following risk factors.

Risks Related to Our Business

We have a limited operating history and a history of losses and expect future losses, and there can be no assurances that we will achieve profitability, which makes our ability to continue as a going concern questionable.

We have incurred significant net losses and negative cash flow from operations since our inception. We incurred net losses of approximately $3,335,000 in fiscal 2000, $1,955,000 in fiscal 2001, and $969,000 in fiscal 2002.  As of December 31, 2002, we had an accumulated deficit of approximately $9,174,000, and during the year ended December 31, 2002 we used cash of approximately $83,000 in operating activities (2001 - $647,000) Although we reduced our operating costs and our cash utilization rate significantly during the 2002 fiscal year, we expect to continue to incur sales and marketing and general and administrative expenses in the future. As a result, we expect to incur losses for the foreseeable future and will need to generate significantly higher revenues in order to achieve profitability. If we achieve profitability, we may not be able to sustain it.

Our financial statements have been prepared on a going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern principle is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate cash flows from operations, obtaining additional financing. If the Company is unable to achieve profitable operations or obtain additional financing, we may be required to reduce or to limit operations, or cease operations altogether. The auditors' report on the December 31, 2002 consolidated financial statements contains an explanatory paragraph that states that the Company has suffered losses and negative cash flows from operations that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We may not be able to generate sufficient revenue to entirely support our operations in fiscal 2003 due to a number of factors including, among others:

•         the cost of promoting and marketing our bingo portal;

•         the general demand for online advertising has decreased, as have advertising rates, which will impact our advertising revenue;

•         the costs associated with developing our software and technologies, installing equipment and expanding our facilities;

•         the costs associated with hiring and retaining experienced management and staff for our operations.

We are subject to risks and challenges frequently encountered by early stage companies engaged in early stage enterprises and Internet commerce.

We face risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development that may be using new and unproven business models, particularly companies engaged in Internet commerce. These risks include, but are not limited to:

•         our revenue forecasts may be incorrect because of our limited experience selling our products and services;

•         our ability to generate revenues will depend on selling advertising on a website focused on bingo entertainment, a newly developed business concept currently with only limited market acceptance;

•         as our business grows and the expectations of our customers increase, we must develop and upgrade our infrastructure, including internal controls, transaction processing capacity, data storage and retrieval systems and website to remain competitive. We may not have the capital resources to do so;

•          we compete with a number of larger competitors with greater financial, capital, technical, marketing and human resources and experience than us;

•          we may not be able to continue to offer new and exciting content that is attractive and compelling to existing users;

•         our business is dependent upon the Internet for commerce and growth. The Internet is still a relatively unproven business medium and has received negative publicity in recent years;

•         general economic conditions could change and adversely affect our business;

•         we intend to rely upon strategic relationships to build market awareness and to bring visitors to our portal and players to the online bingo games. These relationships may not be successful;

•         our business is subject to regulatory risks, which may increase the cost of operating our businesses or prohibit us from conducting our business altogether;

•         we depend upon key personnel and management to fully develop our businesses.

Due to our brief operating history, we have not generated sufficient data to permit meaningful period-to-period comparisons of our operating results. Our quarterly operating results have varied significantly in the past and will likely vary significantly in the future. As a result, we believe that period-to-period comparisons of our operating results to date are not meaningful and should not be relied upon as indicators of our future performance. In addition, it is difficult to fully evaluate our business and our prospects. We cannot assure you that we will attract users, advertisers, consumers or network affiliates, or generate significant revenues or operating margins in the future.

We are substantially dependent on third parties for most aspects of our business.

We have chosen to pursue a strategy whereby we have outsourced many of our mission-critical business functions, including website hosting, and serving, and web server collocation. Most of these functions are performed by a limited number of small companies. As a result, we face increased risk that our business could be interrupted by the failure of any one of our key vendors or suppliers, and such an interruption could have a material impact on our financial position and results of operations.

We will need additional capital to continue to operate our business.

We have not yet achieved profitable operations or secured a long-term source of consistent and reliable revenue. As of December 31, 2002 we had approximately $15,000 in cash and cash equivalents. We may not have sufficient cash and cash equivalents on hand to conduct our operations throughout 2003, and are substantially dependent, if the Company fails to generate sufficient funding, on continued funding from our President and Chief Executive Officer to continue operations. Although our cash flow is improving, we may need to obtain additional financing to grow our operations for the duration of 2003.

If we successfully raise additional funds through the issuance of debt, we will be required to service that debt and are likely to become subject to restrictive covenants and other restrictions contained in the instruments governing that debt, which may limit our operational flexibility. If we raise additional funds through the issuance of equity securities, then those securities may have rights, preferences or privileges senior to the rights of holders of our common stock, and holders of our common stock will experience dilution.

We cannot be certain that such additional debt or equity financing will be available to us on favorable terms when required, or at all. If we cannot raise funds in a timely manner, or on acceptable terms, we may not be able to promote our brand, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures or unexpected requirements, and we may be required to reduce or limit operations.

If our key personnel leave the Company, our ability to succeed will be adversely affected

The future success of the Company will depend on certain key management, marketing, sales and technical personnel. We are currently dependent on our President and Chief Executive Officer, T. M. Williams, for the success of the business. We also rely upon consultants and advisors who are not employees. The loss of key personnel could have a material adverse effect on our operations. We do not maintain key-man life insurance on any of our key personnel. The inability to attract, retain and motivate highly skilled personnel required for expansion of operations and development of technologies could adversely affect our business, financial condition and results of operations. We cannot assure you that we will be able to retain our existing personnel or attract additional, qualified persons when required and on acceptable terms.

We have capacity constraints and system development risks that could damage our customer relations or inhibit our possible growth, and we may need to expand our management systems and controls quickly, which may increase our cost of operations

Our success and our ability to provide high quality customer service largely depends on the efficient and uninterrupted operation of our computer and communications systems and the computers and communication systems of our third party vendors in order to accommodate any significant numbers or increases in the numbers of consumers and advertisers using our service. Our success also depends upon our and our vendors' abilities to rapidly expand transaction-processing systems and network infrastructure without any systems interruptions in order to accommodate any significant increases in use of our service.

We and our service providers may experience periodic systems interruptions and infrastructure failures, which we believe will cause customer dissatisfaction and may adversely affect our results of operations. Limitations of technology infrastructure may prevent us from maximizing our business opportunities.

We cannot assure you that our and our vendors' data repositories, financial systems and other technology resources will be secure from security breaches or sabotage, especially as technology changes and becomes more sophisticated. In addition, many of our and our vendors' software systems are custom-developed and we and our vendors rely on employees and certain third-party contractors to develop and maintain these systems. If certain of these employees or contractors become unavailable, we and our vendors may experience difficulty in improving and maintaining these systems. Furthermore, we expect that we and our vendors may continue to be required to manage multiple relationships with various software and equipment vendors whose technologies may not be compatible, as well as relationships with other third parties to maintain and enhance their technology infrastructures. Failure to achieve or maintain high capacity data transmission and security without system downtime and to achieve improvements in their transaction processing systems and network infrastructure could have a materially adverse effect on our business and results of operations.

Increased security risks of online commerce may deter future use of our website, which may adversely affect our ability to generate revenue

Concerns over the security of transactions conducted on the Internet and the privacy of consumers may also inhibit the growth of the Internet and other online services generally, and online commerce in particular. Failure to prevent security breaches could significantly harm our business and results of operations. We cannot be certain that advances in computer capabilities, new discoveries in the field of cryptography, or other developments will not result in a compromise or breach of the algorithms used to protect our transaction data. Anyone who is able to circumvent our or our vendors' security measures could misappropriate proprietary information, cause interruptions in our operations or damage our brand and reputation. We may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Any well-publicized compromise of security could deter people from using the Internet to conduct transactions that involve transmitting confidential information or downloading sensitive materials, which would have a material adverse effect on our business.

We face the risk of system failures, which would disrupt our operations

A disaster could severely damage our business and results of operations because our services could be interrupted for an indeterminate length of time. Our operations depend upon our ability to maintain and protect our computer systems.

Our systems and operations are vulnerable to damage or interruption from fire, floods, earthquakes, hurricanes, power loss, telecommunications failures, break-ins, sabotage and similar events. The occurrence of a natural disaster or unanticipated problems at our principal business headquarters or at a third-party facility could cause interruptions or delays in our business, loss of data or render us unable to provide our services. In addition, failure of a third-party facility to provide the data communications capacity required by us, as a result of human error, natural disaster or other operational disruptions, could cause interruptions in our service. The occurrence of any or all of these events could adversely affect our reputation, brand and business.

We face risks of claims from third parties for intellectual property infringement that could adversely affect our business

Our services operate in part by making Internet services and content available to our users. This creates the potential for claims to be made against us, either directly or through contractual indemnification provisions with third parties. These claims might, for example, be made for defamation, negligence, copyright, trademark or patent infringement, personal injury, invasion of privacy or other legal theories. Any claims could result in costly litigation and be time consuming to defend, divert management's attention and resources, cause delays in releasing new or upgrading existing services or require us to enter into royalty or licensing agreements.

Litigation regarding intellectual property rights is common in the Internet and software industries. We expect that Internet technologies and software products and services may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps. There can be no assurance that our services do not or will not in the future infringe the intellectual property rights of third parties. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. A successful claim of infringement against us and our failure or inability to license the infringed or similar technology could adversely affect our business.

Our success and ability to compete are substantially dependent upon our technology and data resources, which we intend to protect through a combination of patent, copyright, trade secret and/or trademark law. We currently have no patents or trademarks issued to date on our technology and there can be no assurances that we will be successful in securing them when necessary.

We may not be able to protect our Internet domain name, which is important to our branding strategy

Our Internet domain name, www.bingo.com, is an extremely important part of our business. Governmental agencies and their designees generally regulate the acquisition and maintenance of domain names. The regulation of domain names in the United States and in foreign countries may be subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all countries in which we conduct business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. Third parties have acquired domain names that include "bingo" or variations thereof both in the United States and elsewhere, which may result in an erosion of our user base.

If we are unable to develop relationships with a network of affiliates, our Web portal may never achieve market acceptance or generate sufficient advertising revenues

We believe that our future success in penetrating our target markets depends in part on our ability to further develop and maintain relationships with affiliates. These affiliates provide their users with the bingo.com links on their sites or direct their traffic to the bingo.com web portal. We believe these relationships are important in order to facilitate broad market acceptance of our service and enhance our sales. Our future ability to attract consumers to our bingo site may be dependent upon the growth of our network of affiliates, which is in the early stages of development. If we are unable to obtain agreements or arrangements for traffic on commercially acceptable terms or to establish a relationship with a network of affiliates, our business may not be successful.

Our financial position and results of operations will vary depending on a number of factors, most of which are out of our control

We anticipate that our operating results will vary widely depending on a number of factors, some of which are beyond our control. These factors are likely to include, but not be limited to:

•         demand for our online services by registered users, advertisers and consumers, including the number of searches performed by registered users, consumers and the rate at which they click-through to paid search listing advertisements;

•         prices paid by advertisers using our service, which fluctuate with the changing market;

•         costs of attracting consumers to our website, including costs of receiving exposure on third-party websites and advertising costs;

•         costs related to forming strategic relationships;

•         loss of strategic relationships;

•         our ability to significantly increase our distribution channels;

•         competition from companies offering same or similar products and services and from companies with much deeper financial, technical, marketing and human resources;

•         the amount and timing of operating costs and capital expenditures relating to expansion of our operations;

•          costs and delays in introducing new services and improvements to existing services;

•          changes in the growth rate of Internet usage and acceptance by consumers of electronic commerce;

•         technical difficulties, system failures or Internet downtime;

•         government regulations related to our business, and to the Internet;

•          our ability to upgrade and develop our information technology systems and infrastructure;

•         general economic conditions, as well as those specific to the Internet and related industries.

Because we have a limited operating history, it is difficult to accurately forecast the revenues that will be generated from our current and proposed future product offerings.

Risks Related to Our Industry

If we are unable to meet the changing needs of our industry, our ability to compete will be adversely affected

We operate in an intensely competitive industry. To remain competitive, we must be capable of enhancing and improving the functionality and features of our online services. The Internet portal, the online advertising industry and the Internet gaming industry are rapidly changing. If competitors introduce new products and services embodying new technologies, or if new industry standards and practices emerge, our existing services, technology and systems may become obsolete. There can be no assurances that we will be successful in responding quickly, cost effectively and adequately to new developments or that funds will be available to respond at all. Any failure by us to respond effectively would significantly harm our business, operating results and financial condition.

Our future success will depend on our ability to accomplish the following:

•        license and develop leading technologies useful in our business;

•        develop and enhance our existing products and services;

•        develop new services and technologies that address the increasingly sophisticated and varied needs of prospective consumers; and

•        respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

Developing Internet services and other proprietary technology entails significant technical and business risks, as well as substantial costs. We may use new technologies ineffectively, or we may fail to adapt our services, transaction processing systems and network infrastructure to user requirements or emerging industry standards. If our operations face material delays in introducing new services, products and enhancements, our users may forego the use of our services and use those of our competitors. These factors could have a material adverse effect on our financial position and results of operations.

Risks Associated with the Internet and Internet Games

Consumer use of the Internet as a medium for commerce is a recent phenomenon and is subject to a high level of uncertainty. While the number of Internet users has been rising, the Internet infrastructure may not expand fast enough to meet the increased levels of demand. If use of the Internet as a medium for commerce does not continue to grow or grows at a slower rate than we anticipate, the number of registered users of our site would be lower than expected and our business would be harmed.

If our web portal is unable to achieve and maintain a critical mass of registered users, advertisers and consumers, we may be unable to sell advertising or to generate revenue

The success of our web portal is dependent upon achieving significant market acceptance of our site by registered users, advertisers and consumers. Internet advertising in general is at an early stage of development and most potential advertisers have only limited experience advertising on the Internet and have not devoted a significant portion of their advertising expenditures to Internet advertising. Our competitors and potential competitors may offer more cost-effective advertising solutions, which could damage our business. In addition, our website may not achieve significant acceptance by registered users and consumers. Failure to achieve and maintain a critical mass of registered users; advertisers and consumers would seriously harm our business.

Our business may be subject to government regulation and legal uncertainties that may increase the costs of operating our web portal, limit our ability to sell advertising, or interfere with future operations of the Company

There are currently few laws or regulations directly applicable to access to, or commerce on, the Internet. Due to the increasing popularity and use of the Internet, it is possible that laws and regulations may be adopted, covering issues such as user privacy, defamation, pricing, taxation, content regulation, quality of products and services, and intellectual property ownership and infringement. Such legislation could expose the Company to substantial liability as well as dampen the growth in use of the Internet, decrease the acceptance of the Internet as a communications and commercial medium, or require the Company to incur significant expenses in complying with any new regulations. The European Union has adopted privacy and copyright directives that may impose additional burdens and costs on international operations.

Because the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure and many areas with high Internet usage have begun to experience interruptions in phone services, some local telephone carriers have petitioned the FCC to regulate the Internet and to impose access fees. Increased regulation or the imposition of access fees could substantially increase the costs of communicating on the web, potentially decreasing the demand for our service.

A number of proposals have been made at the federal, state and local level that would impose additional taxes on the sale of goods and services through the Internet. Such proposals, if adopted, could substantially impair the growth of electronic commerce and could adversely affect us.

We are also subject to new laws such as the Digital Millennium Copyright Act, which is intended to reduce the liability of online service providers for listing or linking to third-party websites that include materials that infringe copyrights. Also, the Children's Online Protection Act and the Children's Online Privacy Act will restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. Furthermore, the Protection of Children from Sexual Predators Act mandates that electronic communication service providers report facts or circumstances from which a violation of child pornography laws is apparent. Although this will not have a direct impact on our business, we may incur additional costs to service our existing customers or to work with our affiliates.

In addition, because legislation and other regulations relating to online games vary by jurisdiction, from state to state and from country to country, it is difficult for us to ensure that our players are accessing our portal from a jurisdiction where it is legal to play our games.  Although we believe we have adequate controls in place, we cannot ensure that we will not be subject to enforcement actions as a result of this uncertainty and difficulty in controlling access.

We are constantly reviewing various pieces of legislation, and cannot currently predict the effect, if any, that this legislation will have on our business. There can be no assurances that this legislation will not impose significant additional costs on our business or subject the Company to additional liabilities. Moreover, the applicability to the Internet of existing laws governing issues such as gambling, property ownership, copyright, defamation, obscenity and personal privacy is uncertain. The Company may be subject to claims that our services violate such laws. Any new legislation or regulation in Canada, the United States or abroad or the application of existing laws and regulations to the Internet could damage our business.

Due to the global nature of the Internet, it is possible that the governments of other states and foreign countries might attempt to regulate its transmissions or prosecute the Company for violations of their laws. The Company might unintentionally violate such laws. Such laws may be modified, or new laws may be enacted, in the future. Any such development could damage our business in a material way.

We cannot predict what new laws will be enacted or how courts will interpret both existing and new laws.  As a result, we are uncertain about how new laws or the application of existing laws may affect our business. In addition, our business may be indirectly affected by our suppliers or customers who may be subject to such legislation. Increased regulation of the Internet may decrease the growth in the use of the Internet or hamper the development of Internet commerce and online entertainment, which could decrease the demand for our services, increase our cost of doing business or otherwise have a material adverse effect on our business, results of operations and financial condition.

Risks Associated With our Common Stock

We are indebted to lenders, which may limit your ability to influence the outcome of key transactions, including changes of control

During 2001, we issued a $1,250,000 12% secured convertible Debenture "A", due April 16, 2006. Bingo, Inc. holds this Debenture "A" in its entirety. During 2002, we issued $145,000 12% convertible Debenture "B" due July 2, 2006. Bingo, Inc. acquired $50,000 of this Debenture "B". The remaining holders of Debenture "B" are several unrelated parties. Our President and Chief Executive Officer is a potential beneficiary of several discretionary trusts that hold approximately 80% of the shares of Bingo Inc.

In addition, the Debenture "A" holders were granted warrants entitling them to purchase, for a period of three years from the issuance date of the Debenture "A", up to 12,000,000 shares of common stock of the Company at an exercise price of $0.25 per share. 7,200,000 "A" Warrants were cancelled during May 2002, in exchange for unused advertising inventory on the bingo.com website. The Debenture "B" holders were granted warrants entitling them to purchase, for a period of three years from the issuance date of the Debenture "B", up to 580,000 shares of common stock of the Company at an exercise price of $0.25 per share.

As secured debt holders of Debenture "A" and Debenture "B", these lenders' interests may differ from the interests of our Company or our stockholders. Our current operations do not generate cash from which the debentures can be repaid. If we are unable to repay the Debenture "A" when it becomes due, the holder of the Debenture "A" may be able to sell or otherwise realize against our assets in preference to other creditors and to our stockholders or negotiate terms to extend the due date of the Debenture "A" that are unfavorable to us.

The holder of Debenture "A" may also convert the Debenture "A" at its option into shares of common stock at a conversion price of $0.125 per share. The accrued interest may also be paid in shares of common stock, valued at $0.25 per share, at the option of the Company when the interest becomes payable, in April 2003. The Company is in negotiations with the holder of Debenture "A" in regards to repayment of this interest. The conversion of the balance of the debentures Debenture "A" & Debenture "B" (the "Debentures") outstanding at December 31, 2002 into shares of common stock would have resulted in Bingo, Inc. owning an aggregate of approximately 43% of our common stock. The conversion of the Debentures would provide the lenders with a certain level of control over matters requiring approval of our stockholders and may result in dilution to our stockholders. In addition, the holders of the Debentures may exercise their warrants, which would increase each of the foregoing risks.

Our shares are considered Penny Stock and are subject to the Penny Stock rules, which may adversely affect your ability to sell your shares

Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving Penny Stock.  Subject to certain exceptions, a Penny Stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. We anticipate that our shares are deemed to be Penny Stock for the purposes of the Exchange Act. The additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of our shares and impede the sale of our shares in the secondary market.

Under the Penny Stock regulations, a broker-dealer selling Penny Stock to anyone other than an established customer or Accredited Investor (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the Penny Stock regulations require the broker-dealer to deliver, prior to any transaction involving a Penny Stock, a disclosure schedule prepared by the Commission relating to the Penny Stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the Penny Stock held in a customer's account and information with respect to the limited market in Penny Stocks.

Substantial sales of our common stock could cause our stock price to fall.

If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and warrants, the market price of our common stock could decline. As of the date of this report, we have outstanding 11,104,608 shares of common stock, a Debenture "A" payable convertible at the option of the holder into a total of 10,000,000 shares of common stock and a Debenture "B" payable convertible at the option of the holders into a total of 967,000 shares of common stock, stock purchase Warrant "A" to purchase a total of 4,800,0000 shares of common stock and stock purchase Warrant "B" to purchase a total of 580,0000 shares of common stock, and stock purchase options to acquire an aggregate of 2,700,000 shares of common stock, of which 2,058,000 were vested and exercisable as at December 31, 2002.

Holders of such warrants and options are likely to exercise them when, in all likelihood, we could obtain additional capital on terms more favorable than those provided by the options and warrants. Further, while our warrants and options are outstanding, our ability to obtain additional financing on favorable terms may be adversely affected.

We have not declared dividends and may never declare dividends, which may affect the value of your shares

We have never declared or paid any dividends on our common stock and do not expect to pay any dividends in the near future.

ITEM 2. PROPERTIES.

Our primary administrative, sales and marketing facility is located in leased space in Vancouver, British Columbia.  This facility occupies approximately 2,000 square feet.  We entered into a sublease arrangement on March 1, 2002 with a term of 43 months and ending September 29, 2005. The monthly rental is approximately $2,400 per month. We believe that these facilities will be adequate to meet our requirements for the foreseeable future and that suitable additional space will be available if needed. Other than described above, neither we, nor any of our subsidiaries presently own or lease any other property or real estate.

ITEM 3. LEGAL PROCEEDINGS.

Other than described below, the Company is not currently a party to any legal proceeding, and was not a party to any other legal proceeding during the fiscal year ended December 31, 2002. Management of the Company is currently not aware of any other legal proceedings proposed to be initiated against the Company. However, from time to time, the Company may become subject to claims and litigation generally associated with any business venture. The Company has included in the accounts an amount of $23,000 net from the cancellation of capital leases and the settlement of outstanding debts. Should the Company be unable to successfully negotiate a settlement with its outstanding payables an unrecorded liability will be incurred.

On July 6, 2001, Roger W. Ach, II, filed a complaint in the Court of Common Pleas, Hamilton County, Ohio against the Company in connection with a promissory note issued by the Company.  Mr. Ach alleges that on or about March 16, 2001 the Company borrowed the sum of $45,000 and executed and delivered to him a promissory note and that the Company owes him the amount of the Note together with interest from March 16, 2001 at the rate of prime plus 1%.  Mr. Ach demands judgment against the Company in the sum of $45,000, plus interest and costs. 

On October 5, 2001, the Company filed an Answer, Counterclaim and third party complaint in defense of the proceedings commenced, among other things, denying the allegation that any moneys are due to Mr. Ach and counterclaiming against him and bringing a third party complaint against the Lottery Channel, Inc. for payment of outstanding invoices of $39,168 plus interest, costs and attorney fees. 

The Company believes that Mr. Ach's complaint is without merit and intends to vigorously defend these proceedings and believes it is not likely to produce an outcome which would have a material adverse effect on the Company's consolidated financial position or results of operations.

Subsequent to the year ended December 31, 2002 the Company and Mr. Ach agreed to defer the complaint and counterclaim, for 90 days in an attempt to effect settlement. 

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

We held our Annual Meeting of Stockholders on October 8, 2002 for the purposes of electing our directors, to ratify the appointment of Davidson & Company as our independent auditors for the 2002 fiscal year, to ratify and approve the amendment of the Company's Articles of Incorporation, subject to the discretion of the Board of Directors, to effect a Reverse split of the Company's common stock at a ratio of up to one for five, to ratify and approve the amendment of the Company's Articles of Incorporation, increasing the number of authorized shares of the Company's common stock to 100,000,000 shares of common stock with a $0.001 par value should the reverse split option occur, and to ratify the actions of the Company's Officers and Directors for the last year and for the period from the 2001 Fiscal year end through to the date of the shareholder meeting.

All nominees for directors were elected, the appointment of auditors was ratified, the proposal to amend the Company's Articles of Incorporation to effect a Reverse split of the Company's common stock at a ratio of up to one for five was ratified, the proposal to amend the Company's Articles of Incorporation, increasing the number of authorized shares of the Company's common stock to 100,000,000 shares of common stock with a $0.001 par value should the reverse split occur was ratified, and the actions of the Company's Officers and Directors for the last year and for the period from the 2001 Fiscal year end through to the date of the shareholder meeting were ratified. The voting on each matter is set forth below:

Election of the Directors of the Company.

Nominee                      For                   Against             Abstain

T. M. Williams            7,387,518            64,178               17,779

P. A. Crossgrove        7,384,652            65,778               19,045

Proposal to ratify the appointment of Davidson & Company as our independent auditors for the 2002 fiscal year.

For                          Against                         Abstain

7,397,208                       57,363                              14,904

Proposal to amend the Company's Articles of Incorporation, subject to the discretion of the Board of Directors, to effect a reverse split of the Company's common stock at a ratio of up to one for five.

For                          Against                         Abstain

7,261,506                      169,666                            38,303

Proposal to amend the Company's Articles of Incorporation to increase the number of authorized shares of the Company's common stock to 100,000,000 shares of common stock with a $0.001 par value should a reverse split occur.

For                          Against                         Abstain

7,267,161                       173,750                          28,564

Proposal to ratify the actions of the Company's Officers and Directors for the last year and for the period from the 2001 Fiscal year end through to the date of the shareholder meeting (October 8, 2002).

For                          Against                         Abstain

7,296,544                       129,198                          43,733

PART II

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

Our Common Stock is currently quoted on the National Association of Securities Dealers OTC Bulletin Board (the "OTCBB") under the symbol BIGR.

On March 19, 1997, the Company's common stock was approved for trading on the OTCBB under the symbol "PGLB".  In January 1999, when we changed our name to Bingo.com, Inc., our OTCBB symbol was changed to "BIGG".  On July 26, 1999, we changed our trading symbol from "BIGG" to "BIGR".  There were no trades of our securities on the OTCBB prior to the first quarter 1999.  The bid quotations set forth below, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not reflect actual transactions.

On April 11, 2003, the last reported sale price of our common stock, as reported by the OTCBB, was $0.025 per share.

As of April 9, 2003, the Company believes there are approximately 3,825 shareholders (including nominees and brokers holding street accounts) of the Company's shares of common stock.

Other than described above, the Company's shares of common stock are not and have not been listed or quoted on any other exchange or quotation system.

Dividend Policy

We have not declared or paid any cash dividends on our common stock since our inception, and our Board of Directors currently intends to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends will depend upon our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Recent Sales of Unregistered Securities

On July 2, 2002, the Company received a loan from and issued a convertible Debenture "B for $145,000. Bingo, Inc., an Anguilla corporation holds $50,000 of this Debenture "B". Our President and Chief Executive Officer is a potential beneficiary of several discretionary trusts that hold approximately 80% of the shares of Bingo Inc. The remaining holders of the Debenture "B" are several unrelated parties.

Under the terms of the Debenture "B" interest shall accrue on the outstanding principal amount of the Debenture "B" at a fixed rate of 12% per annum. The interest will become payable on July 2, 2004. ("Accrued Interest Payment Date") Thereafter, interest shall accrue and be payable on the first business day of each succeeding quarter through and including July 2, 2006. All principal, accrued but unpaid interest and any other amounts owing are due and payable at maturity on July 2, 2006.

The Company has the option to pay all accrued interest on the Accrued Interest Payment Date, and shall pay all other interest thereafter accrued, in cash, common stock of the Company, or a combination of both cash and common stock. Any amounts remaining unpaid on the Debenture "B" on the maturity date, whether principal, interest or other amounts due, shall be paid in full in cash on such date. Any common stock of the Company delivered to the holders of Debenture "B" in payment of the Debenture "B" will be valued at $0.25 per share.

The holders of the Debenture "B" received a total of 580,000 common stock purchase warrants with an exercise price of $0.25 per share. The common stock purchase warrants issued in connection with the Debenture "B" are exercisable for a period of three years from the date of the Debenture "B". The holders of the Debenture "B" have the right, but not the obligation, to elect to convert any or all of the outstanding principal amount of the Debenture "B" into shares of the Company's common stock at a conversion price of $0.15 per share until the third anniversary date of the Debenture "B". 

The Debenture "B" transaction was private in nature, and the Debenture "B" and the common stock purchase warrants issued in connection with the Debenture "B" were issued in reliance upon Regulation S promulgated under the Securities Act of 1933, as amended (the "Securities Act").

During the year ended December 31, 2002 the Company issued 250,000 shares of common stock to the former Chief Executive of the Company under the terms of a revised employment agreement. The agreed value of $42,500 for these shares was recorded in accrued liabilities at December 31, 2001. These shares were issued pursuant to exemptions from the registration requirements of the Securities Act, and are subject to certain resale restrictions.

Securities authorized for issuance under equity compensation plans.

The Company has reserved a total of 1,895,000 common shares for issuance under its 1999 stock option plan.  The Company has granted a total of 1,800,000 (2001 - 1,600,000) stock purchase options under this plan, 1,700,000 (2001 - 1,575,000) of which remain outstanding at December 31, 2002.

The Company has reserved a total of 2,000,000 common shares for issuance pursuant to grants under the 2001 stock option plan.  The Company has granted a total of 1,400,000 (2001 - 865,000) stock options under the 2001 plan, 1,000,000 (2001 - 865,000) of which remain outstanding as at December 31, 2002.  750,000 of the stock options outstanding at December 31, 2002 were granted with vesting provisions as to 10% vesting at the grant date, an additional 15% vesting one year following the date of grant and an additional 2% vesting per month thereafter.

Both plans were approved in 2001 by the Company's shareholders.

Equity Compensation Plan Information

ITEM 6. SELECTED FINANCIAL DATA 

The following selected consolidated financial data should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Item 8, with "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" and with other financial data included elsewhere in this Form 10-K. The consolidated statement of operations data for the year ended December 31, 2002, and the consolidated balance sheet data as of December 31, 2002 are derived from our audited consolidated financial statements included in Item 8 of this report, which have been audited by Dohan & Company, CPA.'s, P.A., independent auditors. The consolidated statement of operations data for the year ended December 31, 2001, and the consolidated balance sheet data as of December 31, 2001 are derived from our audited consolidated financial statements included in Item 8 of this report, which have been audited by Davidson and Company, independent auditors. The consolidated statement of operations data for the year ended December 31, 2000, are derived from our audited consolidated financial statements included in Item 8 of this report, which have been audited by Grant Thornton, independent auditors.

The independent auditors' reports appearing elsewhere in this document contain explanatory paragraphs that state that the Company's losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements and the selected financial data do not include any adjustments that might result from the outcome of that uncertainty. 

The consolidated statement of operations data for the years ended December 31, 1999, and the consolidated balance sheet data as of December 31, 2000, and 1999 are derived from audited consolidated financial statements not included in this report. The historical results are not necessarily indicative of results to be expected in any future period.