<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

[X]      Quarterly report pursuant to section 13 or 15(d) of the Securities
         Exchange Act of 1934

         FOR THE QUARTER ENDED JUNE 30, 2002

[ ]      Transition report pursuant to section 13 or 15(d) of the Securities
         Exchange Act of 1934

COMMISSION FILE NUMBER 333-89561


                            E-XACT TRANSACTIONS, LTD
                            ------------------------
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                98-0212722
         (State of Incorporation)              (IRS Employer Identification No.)

    555 WEST HASTINGS STREET, SUITE 2410            VANCOUVER, B.C., V6B 4N4
(Address of principal executive offices)            (City, state, zip code)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (604) 691-1670

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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.

                                Yes [X]   No [ ]

Transitional Small Business Disclosure format (check one):

                                Yes [ ]   No [X]

The number of shares outstanding of the Registrant's $0.001 par value common
stock on June 30, 2002 was 10,502,000.


<PAGE>


                            E-XACT TRANSACTIONS, LTD
                                   FORM 10-QSB
                                TABLE OF CONTENTS



<Table>
<Caption>
                                                                                              PAGE
                                                                                              ----
<S>                                                                                           <C>
     PART I.      FINANCIAL INFORMATION

     Item 1.      Consolidated balance sheets -
                  June 30, 2002 and December 31, 2001                                           2

                  Consolidated statements of operations and deficit -
                  three months ended June 30, 2002 and 2001, and
                  six months ended June 30 , 2002 and 2001                                      3

                  Consolidated statements of cash flows -
                  three months ended June 30, 2002 and 2001, and
                  six months ended June 30, 2002 and 2001                                       4

                  Notes to consolidated financial statements                                  5 - 13

     Item 2.      Management's discussion and analysis of financial condition
                  and results of operations                                                   14 -18

    PART II.      OTHER INFORMATION

     Item 1.      Legal Proceedings                                                             19

     Item 2.      Changes in Securities                                                         19

     Item 3.      Defaults Upon Senior Securities                                               19

     Item 4.      Submission of Matters to a Vote of Security Holders                           19

     Item 5.      Other Information                                                             19

     Item 6.      Exhibits and Reports on Form 8-K                                              19

                  Signature                                                                     20
</Table>


                                      -1-
<PAGE>

EXACT TRANSACTIONS LTD.
CONSOLIDATED BALANCE SHEETS
Expressed in Canadian Dollars

<Table>
<Caption>
                                                                        JUNE 30              DECEMBER 31
                                                                         2002                   2001
                                                                     ------------           ------------
                                                                     (Unaudited)
<S>                                                                  <C>                    <C>
ASSETS
CURRENT
   Cash                                                              $      3,143           $     33,402
   Accounts receivable (Note 3)                                           130,097                 99,569
   Prepaid expenses and deposits                                           22,293                 12,520
                                                                     ------------           ------------
                                                                          155,533                145,491

Capital assets (Note 4)                                                    79,301                 94,296
                                                                     ------------           ------------
TOTAL ASSETS                                                         $    234,834           $    239,787
                                                                     ============           ============


LIABILITIES AND CAPITAL DEFICIENCY
CURRENT
   Accounts payable and accrued liabilities (Note 5)                 $    811,150           $    888,595
   Advances payable (Note 6)                                              199,368                188,335
                                                                     ------------           ------------
                                                                        1,010,518              1,076,930
                                                                     ------------           ------------
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 10)
CONTINGENCIES(Note 12)

CAPITAL DEFICIENCY
Common stock, common shares issued and outstanding (Note 7)
   10,502,000 at June 30, 2002 and December 31, 2001                       11,715                 11,715
   Share purchase warrants                                                281,465                281,465
   Additional paid In capital                                           4,833,343              4,833,343
   Accumulated deficit                                                 (5,902,207)            (5,963,666)
                                                                     ------------           ------------
                                                                         (775,684)              (837,143)
                                                                     ------------           ------------
TOTAL LIABILITIES AND CAPITAL DEFICIENCY                             $    234,834           $    239,787
                                                                     ============           ============
</Table>

See accompanying notes to consolidated interm financial statements


                                      -2-
<PAGE>


EXACT TRANSACTIONS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
Expressed in Canadian Dollars

<Table>
<Caption>
                                              3 months ended June 30               6 months ended June 30
                                               2002              2001              2002              2001
                                           ------------      ------------      ------------      ------------
                                           (Unaudited)        (Unaudited)      (Unaudited)        (Unaudited)

<S>                                        <C>               <C>               <C>               <C>
REVENUE                                    $    223,169           100,338      $    468,656           280,240

Cost of sales                                    24,242            31,074            52,973            53,352
                                           ------------      ------------      ------------      ------------
GROSS MARGIN                               $    198,927            69,264      $    415,683           226,888
                                           ------------      ------------      ------------      ------------

EXPENSES:
   General and administrative expenses          124,388           104,293           240,386           328,216
   Sales and marketing                           25,973             9,678            55,664            45,770
   Research and development                      61,379            64,648           115,300           162,857
                                           ------------      ------------      ------------      ------------
                                                211,740           178,619           411,350           536,843
                                           ------------      ------------      ------------      ------------
OPERATING INCOME (LOSS)                    $    (12,813)         (109,355)     $      4,333          (309,955)
                                           ------------      ------------      ------------      ------------

OTHER INCOME
   Other Income                                  52,060            70,343            57,126            11,238
                                           ------------      ------------      ------------      ------------
NET INCOME (LOSS) BEFORE INCOME TAXES            39,247           (39,012)           61,459          (298,717)
Income taxes                                         --                --                --                --
                                           ------------      ------------      ------------      ------------

NET INCOME (LOSS)                          $     39,247           (39,012)     $     61,459          (298,717)
Deficit, beginning of period                 (5,941,454)       (5,758,363)       (5,963,666)       (5,498,658)
                                           ------------      ------------      ------------      ------------

Deficit, end of period                     $ (5,902,207)       (5,797,375)     $ (5,902,207)       (5,797,375)
                                           ============      ============      ============      ============

Basic earnings (loss) per share            $      0.004      $     (0.005)     $      0.006      $     (0.035)
                                           ------------      ------------      ------------      ------------
Diluted earning (loss) per share           $      0.004      $     (0.005)     $      0.006      $     (0.035)

WEIGHTED AVERAGE NUMBER OF SHARES USED TO CALCULATE LOSS PER SHARE
BASIC                                        10,502,000         8,502,000        10,502,000         8,502,000
DILUTED                                      10,502,000         8,502,000        10,502,000         8,502,000
</Table>

See accompanying notes to consolidated interm financial statements


                                      -3-
<PAGE>

EXACT TRANSACTIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in Canadian Dollars

<Table>
<Caption>
                                                                       3 months ended June 30         6 months ended June 30
                                                                          2002           2001           2002           2001
                                                                       -----------   -----------    -----------     -----------
                                                                       (Unaudited)   (Unaudited)    (Unaudited)     (Unaudited)
<S>                                                                    <C>           <C>            <C>             <C>
OPERATING ACTIVITIES
Net income (loss)                                                      $  39,247        (39,012)     $  61,459       (298,717)
Item not affecting cash:
   Amortization of capital assets                                          7,444         15,706         14,890         31,283
   Loss on disposal of capital assets                                         --            415             --
Net change in operating assets and liabilities
   (Increase) decrease in accounts receivable                             12,502          6,725        (30,528)       (61,932)
   (Increase) decrease in prepaid expenses and deposits                   (8,019)         5,890         (9,773)       (12,866)
   Increase (decrease) in accounts payable and accrued liabilities       (60,844)      (121,858)       (77,445)        (8,100)
                                                                       ---------      ---------      ---------      ---------
                                                                          (9,670)      (132,549)       (40,982)      (350,332)
                                                                       ---------      ---------      ---------      ---------

FINANCING ACTIVITIES
 Advances from shareholders                                               (5,800)       123,456         11,033        374,292
                                                                       ---------      ---------      ---------      ---------
                                                                          (5,800)       123,456         11,033        374,292
                                                                       ---------      ---------      ---------      ---------
 INVESTING ACTIVITIES
 Proceeds on disposal of capital assets                                     (333)          (580)          (310)        (1,031)
                                                                       ---------      ---------      ---------      ---------
                                                                            (333)          (580)          (310)        (1,031)
                                                                       ---------      ---------      ---------      ---------

INCREASE (DECREASE) IN CASH                                            $ (15,803)        (9,672)     $ (30,259)        22,929

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            18,946         48,310         33,402         15,709
                                                                       ---------      ---------      ---------      ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD                               $   3,143         38,638      $   3,143         38,638
                                                                       =========      =========      =========      =========
</Table>

See accompanying notes to consolidated interm financial statements


                                      -4-
<PAGE>
EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

1.       CONTINUING OPERATIONS

         The Company specializes in online financial transaction processing
         supporting customers' e-commerce activities. The Company was initially
         incorporated on August 13, 1998 under the laws of British Columbia,
         Canada. On July 28, 1999 the Company was reincorporated in the State of
         Delaware.

         The Company was formed through the acquisition of certain software and
         other intangible assets from Sutton Group Financial Services ("Sutton")
         and Data Direct Holdings Ltd. ("DataDirect"). In consideration for the
         acquisition of these assets, Sutton and Data Direct, two unrelated
         companies, at the time of the acquisition, each received 2,100,000
         common shares.

         The accompanying financial statements have been prepared on a going
         concern basis, which contemplates the realization of assets and
         satisfaction of liabilities in the normal course of business.

         The Company incurred a net profit of $39,247 for the quarter ended June
         30, 2002, and at June 30, 2002 had a working capital deficiency of
         $854,985 and capital deficiency of $775,684. These factors among others
         indicate that the Company may be unable to continue as a going concern
         for a reasonable period of time. The financial statements do not
         include any adjustments that might result from the outcome of this
         uncertainty. The Company's continuation as a going concern is dependent
         upon achieving operating levels adequate to support the Company's cost
         structure and obtaining adequate financial resources through a
         contemplated financing or otherwise. However, there can be no assurance
         that such financings will be successful.

         In the event that cash flow from operations, if any, together with the
         proceeds of any future financings, are insufficient to meet the
         Company's current operating expenses, the Company will be required to
         reevaluate its planned expenditures and allocate its total resources in
         such manner as the Board of Directors and management deems to be in the
         Company's best interest. This may result in the substantial reduction
         of the scope of existing and planned operations.

         The success of the Company's future operations is dependent upon
         maintaining its profitability, and upon its ability to raise additional
         financing. Management's plans include obtaining the continued support
         of creditors, raising additional financing and, ultimately, positioning
         the Company for profitable operations.


                                      -5-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

2.       SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

         The accompanying financial statements have been prepared pursuant to
         the rules and regulations of the Securities and Exchange Commission.
         Certain information and footnote disclosures normally included in the
         annual financial statements prepared in accordance with generally
         accepted accounting principles in the United States of America have
         been condensed or omitted pursuant to those rules or regulations. The
         interim financial statements are unaudited, but reflect all adjustments
         which are, in the opinion of management, necessary to provide a fair
         statement of results for the interim periods presented. These financial
         statements should be read in conjunction with the consolidated
         financial statements and related notes thereto in the Company's Annual
         Report on Form 10KSB for the year ended December 31, 2001. The results
         of operations for the interim periods are not necessarily indicative of
         the results to be expected in the future periods.

         These financial statements have been prepared in accordance with the
         following significant accounting polices.

         (a)      Basis of consolidation

                  These consolidated financial statements include the assets,
                  liabilities and operating results of the Company and its
                  wholly-owned subsidiary. All significant intercompany balances
                  and transactions have been eliminated.

         (b)      Use of Estimates

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets, liabilities, revenues and expenses and
                  disclosure of contingent assets and liabilities at the date of
                  the financial statements and for the periods presented.
                  Estimates are used for, but not limited to, accounting for
                  doubtful accounts, amortization, recoverability of long-lived
                  assets, income taxes, and contingencies. Actual results may
                  differ from those estimates.

         (c)      Foreign Currency Translation

                  On January 1, 2002 the Company changed its functional currency
                  from the United States dollar to the Canadian dollar. The
                  majority of the Company's operating transactions are
                  denominated in Canadian dollars. Monetary assets and
                  liabilities denominated in other than the Canadian dollars are
                  translated using the exchange rates prevailing at the balance
                  sheet date. Revenues and expenses are translated using average
                  exchange rates prevailing during the period. Gains and losses
                  on foreign currency transactions are recorded in the
                  consolidated statement of operations. The Company has
                  re-measured its assets, liabilities, revenues and expenses for
                  prior periods using the historical exchange rates in existence
                  at the date of the transactions.


                                      -6-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         (d)      Research and Development Costs

                  All research and development costs are expensed when incurred
                  unless they meet generally accepted accounting criteria for
                  deferral and amortization. The Company reassesses whether it
                  has met the relevant criteria for deferral and amortization at
                  each reporting date. To date, no development costs have been
                  deferred.

         (e)      Capital Assets and Amortization

                  Capital assets are recorded at cost and amortized over the
                  estimated useful lives of the assets on the following basis:

                      Leasehold improvement     5 years on a straight-line basis
                      Computer software         100% declining balance
                      Computer equipment        30% declining balance

                  In the year of acquisitions, half the above-mentioned rates
                  are used.

                  The Company periodically evaluates the recoverability of its
                  capital assets whenever events or changes in circumstances
                  indicate that the carrying amount of an asset may not be
                  recoverable. An impairment loss would be recognized when
                  estimates of future cash flows expected to result from the use
                  of an asset and its eventual disposition are less than its
                  carrying amount. No impairment in assets had been identified
                  by the Company in the periods ended June 30, 2002 and 2001.

         (f)      Revenue Recognition

                  The Company's revenue is derived from the following sources:

                  (i)      Online Transactions

                           Revenue from the setup, maintenance, customization
                           and processing of online transactions is recognized
                           when the services are performed, the amount of
                           revenue is fixed or determinable and collectibility
                           is reasonably assured.

                  (ii)     Web Development

                           Revenue from services related to web development are
                           recognized when the services are performed, the
                           amount of revenue is fixed or determinable and
                           collectibility is reasonably assured. Provision for
                           estimated losses on contracts is recorded when
                           identified.


                                      -7-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         (g)      Income Taxes

                  The Company accounts for income taxes under the provisions of
                  Statement of Financial Accounting Standards ("SFAS") No. 109,
                  Accounting for Income Taxes. This statement provides for a
                  liability approach under which deferred income taxes are
                  provided based upon enacted tax laws and rates applicable to
                  the periods in which the temporary differences will reverse.

                  Deferred tax assets, if any, are recognized only to the extent
                  that, in the opinion of management, it is more likely than not
                  that the income tax assets will be realized.

         (h)      Basic and Diluted Loss Per Share

                  Basic loss per share is computed by dividing net loss
                  available to common stockholders by the weighted-average
                  number of common shares outstanding for the period along with
                  the contingently issuable common shares on exercise of special
                  warrants which have been treated as outstanding as all
                  necessary conditions for their exercise have been satisfied.

         (i)      Comprehensive Income

                  SFAS No. 130, Reporting Comprehensive Income, establishes
                  standards for the reporting and display of comprehensive
                  income and its components (revenue, expenses, gains and
                  losses) in a full set of general-purpose financial statements.
                  The Company has no comprehensive income items, other than the
                  net loss, in any of the periods presented.

         (j)      Recent Accounting Pronouncements

                  In July 2001,the Financial Accounting Standards Board ("FASB")
                  issued SFAS No. 141, Business Combinations and SFAS No. 142,
                  Goodwill and Other Intangible Assets. SFAS No. 141 addresses
                  the initial recognition and measurement of intangible assets
                  acquired in a business combination and SFAS No. 142 addresses
                  the subsequent recognition and measurement of intangible
                  assets acquired outside of a business combination whether
                  acquired individually or with a group of other assets. These
                  standards require all business combinations to be accounted
                  for using the purchase method of accounting. Goodwill is no
                  longer amortized but instead is subject to impairment tests at
                  least annually.

                  The Company was required to adopt SFAS No. 141 and No. 142 on
                  a prospective basis as of January 1, 2002; however, certain
                  provisions of these new standards may also apply to any
                  acquisitions concluded subsequent to June 30, 2001. The
                  adoption of SFAS No. 141 and No. 142 did not to have a
                  material effect on the Company's financial position or results
                  of operations.


                                      -8-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         (j)      Recent Accounting Pronouncements (continued)

                  The FASB issued SFAS No. 144, Accounting for the Impairment or
                  Disposal of Long-Lived Assets, in August 2001. SFAS No. 144,
                  which addresses financial accounting and reporting for the
                  impairment of long-lived assets and for long-lived assets to
                  be disposed of, supersedes SFAS No. 121 and is effective for
                  fiscal years beginning after December 15, 2001. Therefore, the
                  Company was required to adopt SFAS No. 144 as of January 01,
                  2002. The adoption of SFAS No. 144 did not have a material
                  impact on the Company's financial position or results of
                  operations.

        (k)       Stock options

                  Stock options are denominated in United States dollars and are
                  therefore subject to variable accounting. For the periods
                  ended June 30, 2002 no compensation expense was recognized as
                  the exercise price of the options was greater than market
                  price.

         (l)      Comparative figures

                  Certain comparative figures have been reclassed to conform
                  with the current period's presentation

3.       ACCOUNTS RECEIVABLE

         Accounts receivable and other are recorded net of a $13,352 allowance
         for doubtful accounts at June 30, 2002 (December 31, 2001 - $19,999)

4.       CAPITAL ASSETS

<Table>
<Caption>
                                                      June 30                        December 31
                                      ----------------------------------------       -----------
                                                       2002                             2001
                                      ----------------------------------------       -----------
                                                    Accumulated       Net Book        Net Book
                                        Cost        Amortization       Value            Value
                                      --------      ------------      --------       -----------
<S>                                   <C>           <C>               <C>            <C>
Leasehold improvements .......        $  7,333           2,933           4,400        $  5,143
Computer software ............         130,828         130,499             329             775
Computer equipment ...........         175,944         101,372          74,572          88,378
                                      --------        --------        --------        --------
                                      $314,105        $234,804        $ 79,301        $ 94,296
                                      ========        ========        ========        ========
</Table>


                                      -9-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

5.       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

         The principal components of accounts payable and accrued liabilities
         were as follows:

<Table>
<Caption>
                                      June 30        December 31
                                     ---------       -----------
                                        2002            2001
                                      --------       -----------
<S>                                   <C>            <C>
Trade payables ...............        $781,761        $855,067
Other accrued liabilities ....          29,389          33,528
                                      --------        --------
                                      $811,150        $888,595
                                      ========        ========
</Table>

6.       ADVANCES PAYABLE

         The advances payable from certain stockholders of the Company bear
         interest at bank prime rate plus one percent and have no fixed terms of
         repayment. The advances are secured by certain assets of the Company.


7.       STOCKHOLDERS' EQUITY

         (a)      Authorized Stock

                  The Company was initially incorporated on August 13, 1998
                  under the laws of British Columbia, Canada with 50,000,000
                  authorized common stock with no par value. On July 28, 1999
                  the Company was reincorporated in the State of Delaware.

                  The Company has authorized 50,000,000 common stock with a par
                  value of $0.001 per share. As a result of the re-incorporation
                  and change from no par value to par value shares, $60,317 was
                  reclassified during 1998 from common stock to additional paid
                  in capital.



                                      -10-
<PAGE>

EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

7.       STOCKHOLDERS' EQUITY (CONTINUED)

         (b)      Stock Options

                  The following table summarizes information about stock options
                  outstanding at June 30, 2002:

<Table>
<Caption>
                      Date granted      Expiry date      Number of options    Exercise price

                                                                               (US dollars)
<S>                                     <C>              <C>                  <C>
                       12-Jan-00          11-Jan-05             357,000           $  1.00
                       21-Mar-00          20-Mar-05              13,000              1.00
                       17-May-00          16-May-05              78,500              3.35
                       24-Apr-01          23-Apr-06             625,000              0.25
                                                              ---------
                                                              1,073,500
                                                              ---------
</Table>

          (c)     Warrants

                  The following warrants were outstanding as at June 30, 2002

<Table>
<Caption>
                      Date granted      Expiry date      Number of shares     Exercise price

                                                                               (US dollars)
<S>                                     <C>              <C>                  <C>
                       28-Jul-99          28-Jul-04           1,007,136            $ 1.32
                       02-Aug-00          02-Aug-02             549,532              2.25
                       26-Apr-01          26-Apr-03           2,000,000              0.23
                                                              ---------
                                                              3,556,668
                                                              ---------
</Table>

8.       FINANCIAL INSTRUMENTS

         (a)      Fair Value

                  The carrying values of cash, accounts receivable, deposits,
                  accounts payable and accrued liabilities, income taxes payable
                  and advances payable, as reflected in the balance sheet,
                  approximate their respective fair values as at June 30, 2002
                  and December 31, 2001 because of the demand or short-term
                  maturity of these instruments.


                                      -11-
<PAGE>
EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

         (b)      Credit Risk and Economic Dependence

                  Financial instruments which potentially subject the Company to
                  credit risk consist of bank deposits and accounts receivable.
                  Cash is deposited with high credit quality financial
                  institutions. Accounts receivable consist of amounts
                  receivable from trade and other receivables. The Company does
                  not require collateral or other security to support accounts
                  receivable. The Company estimates its allowance for doubtful
                  accounts based on analysis of specific accounts and its
                  operating history.

                  The Company is subject to credit risk as it earns revenue from
                  a limited number of customers. During the six months ended
                  June 30, 2002 $134,885 (2001 - $49,256) and the quarter ended
                  June 30, 2002 - $58,506 (2001 - $27,186) of revenue was
                  derived from two customers. As at June 30, 2002 accounts
                  receivable included $44,374 (December 31, 2001 - $6,235) due
                  from these two customers.

9.       RELATED PARTY TRANSACTIONS

         Related party transactions not otherwise disclosed in these financial
         statements include:

         (a)      As at June 30, 2002 accounts payable and accrued liabilities
                  included $115,055 (December 31, 2001 - $83,028) due to two
                  corporate stockholders for operating costs paid on its behalf;

         (b)      During the quarter ended June 30, 2002, the Company incurred
                  interest of $2,556 (2001 - $7,931) and for the six months then
                  ended, the Company incurred interest of $4,897 (2001- $20,591)
                  on advances from certain stockholders of the Company; and,

         (c)      As at June 30, 2002, $199,368 (December 31, 2001 - $188,335)
                  was due to certain stockholders and directors of the Company;

10.      COMMITMENTS

         Future minimum operating lease payment for premises and equipment
         leases for the years ended June 30, are due as follows:

<Table>
<S>                                      <C>
2003 .................................   $16,069
2004 .................................     4,516
                                         -------
                                         $20,585
                                         =======
</Table>

                                      -12-
<PAGE>
EXACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)

11.      SEGMENTED INFORMATION

         The Company operates in one segment - electronic commerce services.

         The Company attributes revenue among geographical areas based on the
         location of the customers. During the quarter ended June 30, 2002, 86%
         of revenues were derived in Canada (quarter ended June 30, 2001 - 93%).
         During the six months ended June 30, 2002, 92% of revenues were derived
         in Canada (six months ended June 30, 2002 - 96%). Long-lived assets
         include capital assets and are located in Canada.

         The Company's customer sales concentration is discussed in Note 8 (b).

12.      CONTINGENCIES

         The Company received a statement of assessment from Canada Customs and
         Revenue Agency ("CCRA") on April 18, 2002 denying the Company's filing
         position with regards to its continuation in the U.S. CCRA has assessed
         a liability of $324,484. Subsequent to June 30, 2002 the Company filed
         its Notice of Objection strongly defending its position. No provision
         for this amount has been recorded, as the outcome of this assessment is
         uncertain.

         On October 2, 2001 Robert Roker, a former employee (the "Plaintiff")
         filed a complaint in the Supreme Court of British Columbia, Vancouver
         County, against the Company in connection with an employment contract
         dated November 26, 1999. The Plaintiff alleges that he was terminated
         without cause on September 11, 2001 and seeks severance pay of $45,000
         plus two weeks vacation and out of pocket expenses of $2,431.

         On October 23, 2001 the Company filed a Statement of Defense denying
         the allegation that any moneys are due to the Plaintiff.

         The Company believes that the Plaintiff's complaint is without merit
         and intends to vigorously defend these proceedings. The Company
         believes that the Plaintiff was terminated with reasonable cause and
         has sufficient evidence to support its case.


                                      -13-
<PAGE>

EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

      Forward-looking Statements

      The following Management Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the accompanying
consolidated interim financial statements and notes included in this report.
Statements made in this Form 10-QSB that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements often can be identified by the use of
terms such as "may," "will," "expect," "believes," "anticipate," "estimate," or
"continue," or the negative thereof. The Company intends that such
forward-looking statements be subject to the safe harbors for such statements.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to risks,
uncertainties and important factors beyond the control of the Company that could
cause actual results and events to differ materially from historical results of
operations and events from those presently anticipated or projected. These
factors include adverse economic conditions, entry of new and stronger
competitors, inadequate capital, unexpected costs, failure to gain product
approval in the North American or foreign countries and failure to capitalize
upon access to new markets. Additional risks and uncertainties that may affect
forward-looking statements about the Company's business and prospects include
the possibility that a competitor will develop a more comprehensive solution,
delays in market awareness of its products, possible delays in execution of
sales and marketing strategy, which could have an immediate and material adverse
effect. The Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

      Overview

      The Company was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 29, 1999 the Company filed a certificate of
domestication and certificate of incorporation with the Secretary of State of
the State of Delaware, thereby "domesticating" or transitioning from a Canadian
company to one organized under the laws of the State of Delaware.

      The consolidated financial statements of the Company are prepared in
accordance with accounting principles generally accepted in the United States of
America which for this Company complies in all material respects with Canadian
generally accepted accounting principles.

      The Company provides real-time financial transaction processing services
using web-centric technology. Its electronic commerce (e-commerce) software
services allow PC based cash registers, PCs, point-of-sale terminals, computer
systems and proprietary product platforms to accept credit card payments and
submit those payments to various payment processing companies for
pre-authorization, authorization and settlement/deposit. The Company is approved
to act as a third party payment processor to conduct transaction processing with
major banks in North America.

      The Company's success will depend largely upon its ability to compete
successfully, develop new products and services and market them successfully in
a market that is becoming increasingly competitive.


                                      -14-
<PAGE>
EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

The Company determined that as of January 1, 2002 its functional currency was
the Canadian dollar. Previously the functional currency of the Company was the
United States dollar. The change in the Company's functional currency was made
as the majority of the Company's operating transactions are now denominated in
the Canadian dollar. Monetary assets and liabilities denominated in other than
Canadian dollars were translated using the exchange rates prevailing at the
balance sheet date. Revenues and expenses were translated using average exchange
rates prevailing during the period. Gains and losses on foreign currency
transactions were recorded in the consolidated statement of operations and
deficit. The Company remeasured its assets, liabilities, revenues and expenses
for prior periods using historical exchange rates in existence at the date of
the transactions. As at June 30, 2002 a significant component of the existing
accounts payable and accrued liabilities and advances payable were denominated
in United States dollars ($425,421). The impact of a 1% increase in the relative
value of the Canadian dollar to the United States dollar would reduce accounts
payable and and accrued liabilities and advances payable and increase net income
from operations by $4,254 United States dollars - approximately $6,300 Canadian
dollars.


Results of Operations
Interim Financial Results
(All amounts are expressed in Canadian dollars)

The Company earns its revenues by charging its customers setup fees, monthly
account maintenance fees and transaction fees for usage of its services.
Transaction fees are based on the number of transactions processed in a month.

Revenues

The revenues are derived primarily from transaction processing fees and monthly
service fees. During the three month period ended June 30, 2002, revenues
increased by 222.42% over the comparable period in 2001. The increase was due
primarily to an increase in the number of customers, an increase in the number
of transactions processed per customer, and custom solutions for certain
customers. As at June 30, 2002 the Company had 304 customers compared to 270
customers as at June 30, 2001. The total value of transactions processed by the
Company for the quarter ended June 30, 2002 amounted to approximately $321
million compared to $292 million in the comparable quarter in 2001. For the six
month period ended June 30, 2002, revenue increased by 167.2% over the
comparable period in 2001 for the above mentioned reasons.

Gross profit percentage for the three months ended June 30, 2002 increased from
69.03% in 2001 to 89.1% in 2002. For the six months then ended, gross profit
percentages were 88.70% in 2002 and 80.96% in 2001. The Company was able to
contain its cost of sales despite an increase in revenue.


Expenses

Total expenses during the three months ended June 30, 2002 amounted to $211,740
compared to $178,619 for the three months ended June 30, 2001. The increase of
18.5% in operating expenses was due additional development costs for new product
initiatives and costs related to the Notice of Objection filed with the CCRA in
dispute of the Company's 2000 tax assessment. The decrease in operating expenses
from $536,843 for the six months ended June 30, 2001 to $411,350 in 2002 is
largely attributable to the closing of the Company's office in the United
States.


                                      -15-
<PAGE>
EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

General and Administrative (G&A): During the three months ended June 30, 2002,
G&A expenses amounted to $124,388 compared to $104,293 in the comparable period
in 2001. The increase of approximately 19% in G&A expenses over the comparable
period was due to the fact that there was a $43,000 recovery of a bad debt in
the quarter ended June 30, 2001, thereby having the effect of reducing the
overall G & A expenses in 2001. Accounting expenses decreased from $ 29,841 in
2001 to $17,845 in 2002, rent decreased from $12,339 in 2001 to $10,401 in 2002.
Amortization of equipment decreased from $15,710 in 2001 to $7,446 in 2002.
Wages and salaries decreased from $51,337 in 2001 to $ 48,236 in 2002. For the
six months ended June 30, 2002, G&A expenses decreased from $200,783 in 2001 to
$147,354. Besides the above mentioned quarterly changed for 2002 and 2001, the
decrease in G&A expenses can be largely contributed to the closing of the office
in the United States in the first quarter of 2001.

Sales and Marketing: Sales and Marketing expenses for the six months ended June
30, 2002 were $35,333 compared to $29,904 for the same period ended 2001 and
quarter ended June 30, 2002 amounted to $25,973 compared to $9,678 incurred in
the three months ended June 30, 2001. The majority of the sales and marketing
expense consisted of the payroll of employees involved in marketing.

Research and Development (R&D): Research and development expenses consist
primarily of compensation expenses and consulting fees to support the
development of the Company's software, services and technologies. Research and
development expenditures were $61,379 for the three months ended June 30, 2002
compared to $64,648 in the comparable period in 2001. For the six months ended
June 30, 2002, research and development expenditures were $115,300 compared to
$162,857 in the comparable period in 2001. The decrease in R&D expenses was due
to a reduction of US staff in 2001. The Company has adequate resources to meet
its software development goals. The Company has contingency plans to hire
contract developers should the need arise.


Net Profit:

The Company incurred a net profit of $39,247 for the three months ended June 30,
2002 and $61,459 for the six months then ended compared to a loss of $39,012 for
the three months ended June 30, 2001 and $298,717 for the six months then ended.
As the Company has a significant amount of its trade payables denominated in
United States dollars and because the Canadian dollar had strengthened against
the United States dollar during the quarter ended June 30, 2002, it recognized
approximately $40,000 of unrealized foreign exchange gains included in other
income in this quarter. Management believes that it has the right mix of
customers to enable it to maintain its profitability in the future.


Recent Accounting Pronouncements

In July 2001,the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 addresses the initial recognition and measurement of
intangible assets acquired in a business combination and SFAS No. 142 addresses
the subsequent recognition and measurement of intangible assets acquired outside
of a business combination whether acquired individually or with a group of other
assets. These standards require all business combinations to be accounted for
using the purchase method of accounting. Goodwill is no longer amortized but
instead is subject to impairment tests at least annually.


                                      -16-
<PAGE>

EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

The Company is required to adopt SFAS No. 141 and No. 142 on a prospective basis
as of January 1, 2002; however, certain provisions of these new standards may
also apply to any acquisitions concluded subsequent to June 30, 2001. The
adoption of SFAS No. 141 and No. 142 did not to have a material effect on the
Company's financial position or results of operations.

The FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supersedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. Therefore, the Company was
required to adopt SFAS No. 144 as of January 1, 2002. The adoption of SFAS No.
144 has not had a material impact on the Company's financial position or results
of operations.


Critical Accounting Policies and Estimates

The significant accounting policies are outlined within note 2 to the
consolidated interim financial statements. Some of those accounting policies
require the Company to make estimates and assumptions that affect the amounts
reported by the Company. The following items require the most significant
judgment or estimation:

     Revenue Recognition:

     New customers are required to complete a Merchant Registration Form and a
     Transactions Processing Agreement. The term of the Agreement is normally
     for a year with an automatic renewal at the anniversary date. The Company
     receives it revenue from three sources: new account activations, monthly
     service/membership fees and online transactions fees. New account
     activations fees are recognized as revenue when customers' production
     accounts are activated while monthly services fees are recognized when
     customers are invoiced. Online transaction fees are recognized when
     services have been performed.

     Accounts Receivable:

     The Company performs monthly reviews of its accounts receivable. Customers
     who are in arrear are normally given the opportunity to pay off arrear
     balances prior to suspension of processing services. Provision for doubtful
     accounts are normally based on customers who are 120 days in arrear.
     However, the review is also based on a case by case basis depending on the
     customer's circumstances. A significant change in the financial position of
     the Company's customers could have a material adverse impact on the
     collectability of the accounts receivable.

     Use of estimates:

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenues
     and expenses during the reporting period. Examples include provisions for
     bad debts, and the contingencies described in Legal Proceedings in item 1
     following. Actual results could differ from those estimates.


     Liquidity & Capital Resources

     Cash flow:

     The Company's net cash outflow during the three months ended June 30, 2002
     was $15,803 compared


                                      -17-
<PAGE>

EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

     to $ 9,672 for the three months ended June 30, 2001 and for the six months
     ended June 30, 2002 was $30,259 compared to a net inflow of $22,929 for the
     six months ended June 30, 2002. The Company's cash position is expected to
     improve as it expects to activate new accounts as a result of its
     relationship with Scotiabank.

     No investment was made in capital equipment during the three months ended
     June 30, 2002. Management will continue to review its operations and adjust
     its operations based on market conditions.

     Capital resources. The Company had a capital deficiency of $775,684 as at
     June 30, 2002 compared to a deficiency of $837,143 as at December 31, 2001.
     In the event that cash flow from operations, together with the proceeds of
     any future financings, are insufficient to meet the Company's expenses, the
     Company will be required to re-evaluate its planned expenditures and
     allocate its total resources in such manner as the board of directors and
     management deems to be in the best interest of the Company and its
     stockholders.

     The success of the Company is dependant upon the continuing support of its
     creditors, its ability to continue to raise financing to fund operations
     and ultimately upon its ability to achieve profitable operations.

     The Company incurred a net profit of $39,247 for the quarter ended June 30,
     2002, $61,459 for the six months ended, and at June 30, 2002 had a working
     capital deficiency of $854,985 and capital deficiency of $775,684. These
     factors among others indicate that the Company may be unable to continue as
     a going concern for a reasonable period of time. The financial statements
     do not include any adjustments that might result from the outcome of this
     uncertainty. The Company's continuation as a going concern is dependent
     upon achieving operating levels adequate to support the Company's cost
     structure and obtaining adequate financial resources through a contemplated
     financing or otherwise. However, there can be no assurance that such
     financings will be successful.

     In the event that cash flow from operations, if any, together with the
     proceeds of any future financings, are insufficient to meet the Company's
     current operating expenses, the Company will be required to reevaluate its
     planned expenditures and allocate its total resources in such manner as the
     Board of Directors and management deems to be in the Company's best
     interest. This may result in the substantial reduction of the scope of
     existing and planned operations.

     The success of the Company's future operations is dependent upon
     maintaining its profitability, and upon its ability to raise additional
     financing. Management's plans include obtaining the continued support of
     creditors, raising additional financing and, ultimately, positioning the
     Company for profitable operations.

     Subsequent events

     The Company received a statement of assessment from Canada Customs and
     Revenue Agency ("CCRA") on April 18, 2002 denying the Company's filing
     position with regards to its continuation to the U.S. CCRA has assessed a
     liability of $324,484. Subsequent to June 30, 2002 the Company filed its
     Notice of Objection strongly defending its position. No provision for this
     amount has been recorded, as the outcome is of this assessment uncertain.


                                      -18-
<PAGE>
EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

Part II. Other Information

Item 1. Legal Proceedings

1. On October 2, 2001 Robert Roker, a former employee (the "Plaintiff") filed a
complaint in the Supreme Court of British Columbia, Vancouver County, against
the Company in connection with an employment contract dated November 26, 1999.
The Plaintiff alleges that he was terminated without cause on September 11, 2001
and seeks severance pay of $45,000 plus two weeks vacation and out of pocket
expenses of $2,431.

      On October 23, 2001 the Company filed a Statement of Defense denying the
allegation that any moneys are due to the Plaintiff.

      The Company believes that the Plaintiff's complaint is without merit and
intends to vigorously defend these proceedings. The Company believes that the
Plaintiff was terminated with reasonable cause and has sufficient evidence to
support its case.

Item 2. Changes in Securities

        No changes in securities.

Item 3. Defaults Upon Senior Securities

        Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

        Not applicable

Item 5. Other Information

        Not applicable

Item 6.  Exhibits and Reports on Form 8-K

                (a)      Exhibits

                         None

                (b)      Reports on Form 8-K.

                         No form 8-K reports were file in the quarter ended June
                         30, 2002


                                      -19-
<PAGE>

EXACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1933 the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.





E-XACT TRANSACTIONS LTD
(Registrant)

Dated:   August 14, 2002               By:  /s/ Peter Fahlman
                                            Peter Fahlman
                                            President and CEO


                                      -20-