<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


       [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
            Securities Exchange Act of 1934 for the Quarterly
            Period Ended June 30, 2001
                                        or

       [  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

                        Commission File Number: 000-31146

                               724 SOLUTIONS INC.
             (Exact Name of Registrant as Specified in its Charter)


                       ONTARIO                                  INAPPLICABLE
           (State or Other Jurisdiction of                    (I.R.S. Employer
           Incorporation or Organization)                    Identification No.)

           10 YORK MILLS ROAD, THIRD FLOOR                         M2P 2G4
                  TORONTO, ONTARIO                               (Zip Code)
       (Address of Principal Executive Office)

                                 (416) 226-2900
              (Registrant's Telephone Number, Including Area Code)

                                 NOT APPLICABLE
             (Former Name, Former Address, and Former Fiscal Year,
                         if Changed Since Last Report.)


         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. Yes X  No
                                             ---    ---

Common Shares, no par value - 58,278,693 shares outstanding as of July 31, 2001.
   (Indicate the number of shares outstanding of each of the issuer's classes
               of common stock, as of the latest practicable date)


<PAGE>


                               724 SOLUTIONS INC.


                                TABLE OF CONTENTS

Part I.  Financial Information

         Item 1.  Financial Statements

                  a)  Condensed Consolidated Balance Sheets ................. 1

                  b)  Condensed Consolidated Statement of Operations ........ 2

                  c)  Consolidated Statement of Cash Flows .................. 3

                  d)  Consolidated Statements of Shareholders' Equity ....... 4

                  e)  Notes to Condensed Consolidated Financial Statements .. 5

         Item 2.  Management's Discussion and Analysis of Financial
                  Conditionand Results of Operations ....................... 14

         Item 3.  Quantitative and Qualitative Disclosures About Market
                  Risk ..................................................... 22


Part II.  Other Information

         Item 1.  Legal Proceedings ........................................ 23

         Item 2.  Changes in Securities .................................... 23

         Item 3.  Defaults Upon Senior Securities .......................... 23

         Item 4.  Submission of Matters to a Vote of Security Holders ...... 23

         Item 5.  Other Information ........................................ 24

         Item 6.  Exhibits and Report on Form 8-K .......................... 25

Signatures ................................................................. 26


<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

(a) CONDENSED CONSOLIDATED BALANCE SHEETS

                               724 SOLUTIONS INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
           (IN THOUSANDS OF US DOLLARS, EXCEPT COMMON SHARES AMOUNTS)

<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                                        2001                December 31,
                                                                    (UNAUDITED)                 2000
                                                                 --------------           --------------
<S>                                                              <C>                      <C>
Assets

Current assets:
   Cash and cash equivalents (NOTE 3)                            $      74,959            $      73,898
   Short-term investments (NOTE 3)                                      63,068                   92,726
   Accounts receivable-trade
    net of allowance of nil (December 31, 2000 - $52)                   15,483                    4,376
   Prepaid expenses and other receivables                                2,754                    2,260
                                                                 -------------            -------------
                                                                       156,264                  173,260

Fixed assets                                                            14,153                   11,297

Investments (NOTE 4)                                                    16,091                   12,196

Intangible and other assets (NOTE 6)                                   367,866                   90,563
                                                                 -------------           --------------

Total assets                                                     $     554,374           $      287,316
                                                                 =============           ==============

Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable                                              $       6,484           $        2,203
   Accrued liabilities                                                  15,440                   18,198
   Note payable                                                          3,060                        -
   Deferred revenue                                                      5,619                    1,887
   Deferred consideration                                                1,461                    1,190
                                                                 -------------           --------------
                                                                        32,064                   23,478

Leasehold inducements                                                      326                      375

Deferred consideration, net of current portion                           1,508                    1,200

Note payable, net of current portion                                      1,948                       -
Shareholders' equity:
      Share capital (NOTE 9):
        Authorized:
              Unlimited common shares
              Unlimited preferred shares
        Issued and outstanding:
             58,221,154 common shares
            (December 31, 2000 - 39,112,975)                           767,561                  357,158
Deferred stock-based compensation (NOTE 5)                             (47,679)                 (14,946)
Accumulated deficit                                                   (201,151)                 (79,949)
Cumulative translation adjustment                                         (203)
                                                                 -------------           --------------
                                                                       518,528                  262,263
                                                                 -------------           --------------
Total liabilities and shareholders' equity                       $     554,374           $      287,316
                                                                 =============           ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       1

<PAGE>

(b) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

                               724 SOLUTIONS INC.
           CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
             (IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                 JUNE 30,                             JUNE 30,
                                                            2001           2000               2001                 2000
                                                        ------------    -----------       -------------         ----------
<S>                                                     <C>             <C>               <C>                   <C>
Revenue:
   Product                                              $      8,976    $     2,591       $      18,103         $    5,105
   Service                                                     5,102          1,377               9,824              1,974
                                                        ------------    -----------         -----------        -----------
Total Revenues                                          $     14,078    $     3,968       $      27,927         $    7,079

Operating expenses:
   Cost of revenue                                             5,646          2,550              10,736              4,503
   Research and development                                   11,728          6,227              22,917             10,390
   Sales and marketing                                        10,594          3,983              19,623              7,014
   General and administrative                                  3,997          5,045              10,583              6,941
   Depreciation                                                2,155            684               3,897              1,001
   Amortization of intangibles                                27,375          1,350              51,245              1,350
   Restructuring costs (note 10)                               3,433              -               3,433                  -
Stock-based compensation:
     Cost of revenue                                             230            125                 437                211
     Research and development                                  7,988            641              14,101              1,082
     Sales and marketing                                       2,815            160               5,344                270
     General and administrative                                2,047            530               3,886                736
                                                        ------------    -----------         -----------        -----------
Total operating expenses                                $     78,008     $   21,295        $    146,202        $    33,498
                                                        ------------    -----------         -----------        -----------
Loss from operations                                         (63,930)       (17,327)           (118,275)           (26,419)
Interest income                                                1,605          2,772               4,081              5,010
Equity in loss of affiliate                                     (480)          (213)               (758)              (279)
                                                        ------------    -----------         -----------        -----------
Loss before write-down of long-term investments              (62,805)       (14,768)           (114,952)           (21,688)
Write-down of long-term investments (NOTE 4)                       -              -              (6,250)                 -
                                                        ------------    -----------         -----------        -----------
   Net loss for the period                              $    (62,805)    $  (14,768)       $   (121,202)          $(21,688)
                                                        ------------    -----------         -----------        -----------
Other comprehensive income:
Unrealized holding gain or (loss) on
   Investments available for sale                                (49)             -              (3,549)                 -
   Cumulative translation adjustment                            (115)             -                (203)                 -
                                                        ------------    -----------         -----------        -----------
                                                        $    (62,969)    $  (14,768)           (124,954)           (21,688)
                                                        ------------    -----------         -----------        -----------
Basic and diluted net loss per share                    $      (1.08)    $    (0.40)        $     (2.09)       $     (0.61)

Weighted-average number of shares used in computing
basic and diluted loss per share (in thousands)
(NOTE 9)                                                      57,981         36,717              57,979             35,380
                                                        ------------    -----------         -----------        -----------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>

(c) CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

                               724 SOLUTIONS INC.
                CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
             (IN THOUSANDS OF U.S. DOLLARS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED                        SIX MONTHS ENDED
                                                              JUNE 30,          JUNE 30,               JUNE 30,          JUNE 30,
                                                                  2001              2000                   2001              2000
                                                        --------------    --------------        ---------------    --------------
<S>                                                     <C>               <C>                   <C>                <C>

Cash flows from (used in) operating activities:
   Loss for the year                                    $     (62,805)    $     (14,768)        $     (121,202)    $    (21,688)
   Depreciation and amortization                               29,530             2,034                 55,142            2,351
   Stock-based compensation                                    13,080             1,456                 23,768            2,547
   Other non-cash expenses                                       (120)              705                   (482)             392
   Write-down of long-term investments                              -                 -                  6,250                -
   Equity in loss of affiliate                                    480               213                    758              279
   Foreign exchange loss                                           90               431                     72              385
   Change in operating assets and liabilities:
     Accounts receivable                                       (7,359)              (75)                (5,894)           2,029
     Prepaid expenses and other receivables                       478              (361)                   488           (1,259)
     Accrued interest on short term investments                  (337)                -                  1,166                -
     Accounts payable                                           3,960             3,512                  3,534            3,168
     Accrued liabilities                                       (6,566)              743                 (9,806)           3,468
     Deferred revenue                                           1,218            (1,691)                 1,589             (916)
                                                        --------------    --------------        ---------------    --------------
Net cash flows used in operating activities                   (28,351)           (7,801)               (44,617)          (9,244)

Cash flows from financing activities:
   Issuance of common shares for cash                              165                -                    783          165,708
                                                        --------------    --------------        ---------------    --------------
   Net cash flows from financing activities                        165                -                    783          165,708

Cash flows from (used in) investing activities:
   Purchase of fixed assets                                    (1,514)           (4,575)                (4,692)          (5,779)
   Sale (purchase) of short-term investments                   16,672           (10,110)                28,492          (10,110)
   Purchase of intangible and other assets                          -              (819)                  (592)          (2,069)
   Sale of long term investments                                1,251                 -                  1,251                -
   Long term investments                                       (2,031)          (10,500)                (9,652)         (11,250)
   Acquisitions                                                     -            (1,431)                30,248           (2,923)
                                                        --------------    --------------        ---------------    --------------
   Net cash flows from (used in) investing activities          14,378           (27,435)                45,055          (32,131)

Foreign exchange loss on cash held in a foreign                   (90)             (431)                  (160)            (385)
                                                        --------------    --------------        ---------------    --------------

Net increase (decrease) in cash and cash equivalents          (13,898)          (35,667)                 1,061          123,948

Cash and cash equivalents, beginning of period                 88,857           224,902                 73,898           65,287

                                                        --------------    --------------        ---------------    --------------
Cash and cash equivalents, end of period                $       74,959    $      189,235        $        74,959    $    189,235
                                                        --------------    --------------        ---------------    --------------

Supplemental disclosures of non-cash investing
and financing activities:
     Net assets acquired from acquisitions                           -    $        1,870        $        24,025    $      1,775
                                                        --------------    --------------        ---------------    --------------

     Common shares issued upon acquisitions                          -    $    1,003,594        $    17,119,869    $  1,003,594
                                                        --------------    --------------        ---------------    --------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>


(d) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

                               724 SOLUTIONS INC.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
             (IN THOUSANDS OF U.S. DOLLARS, EXCEPT NUMBER OF SHARES)

                SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000

<TABLE>
<CAPTION>

                                                                          Deferred
                                                                        stock-based
                                                                       compensation
                                                                        related to                      Cumulative         Total
                                               Common shares               stock        Accumulated     translation    shareholders'
                                        Number          Amount            options         deficit       adjustment         equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>               <C>           <C>
Balances, December 31, 1999             29,402,426      $   84,762     $   (5,909)    $   (16,685)      $       -     $     62,168

Loss for the period                              -               -              -         (21,688)              -          (21,688)
Deferred stock-based compensation                -           8,587         (8,587)              -               -                -
Amortization of deferred
  stock-based compensation                       -               -          2,547               -               -            2,547
Issuance on exercise of options            248,998             314              -               -               -              314
Issuance of common shares                7,903,594         219,664              -               -               -          219,664

-----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 2000                 37,555,018     $   313,327     $  (11,949)    $   (38,373)      $       -     $    263,005
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2000             39,112,975     $   357,158     $  (14,946)    $   (79,949)      $       -     $    262,263

Loss for the period                              -               -              -        (121,202)              -        (121,202)
Cumulative translation adjustment                -               -              -               -            (203)           (203)
Deferred stock-based compensation                -          53,280        (53,280)              -               -               -
Amortization of deferred
  stock-based compensation                       -               -         20,547               -               -          20,547
Issuance on exercise of options            844,161             748              -               -               -             748
Issuance of common shares               18,264,018         356,375              -               -               -         356,375

-----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 2001                 58,221,154     $   767,561     $  (47,679)    $  (201,151)      $    (203)    $   518,528
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4


<PAGE>



(e) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     BASIS OF PRESENTATION:

       The accompanying condensed consolidated financial statements include the
       accounts of 724 Solutions Inc. and its wholly owned subsidiaries
       (collectively referred to as the "Company"). Intercompany transactions
       and balances are eliminated on consolidation.

       The condensed consolidated financial statements are stated in U.S.
       dollars, except as otherwise noted. They have been prepared in accordance
       with Canadian generally accepted accounting principles, which conform, in
       all material respects, with U.S. generally accepted accounting
       principles. The interim financial statements follow the same accounting
       polices and methods of application as the most recent annual financial
       statements. For further information, reference should be made to the
       audited annual consolidated financial statements for the year ended
       December 31, 2000 that are included in the Company's Annual Report filed
       with the Canadian Securities Administrators on March 21, 2001 and with
       the Securities and Exchange Commission on Form 10-K on March 29, 2001.
       Certain comparative figures have been reclassified to conform to the
       current year's presentation.

       The information furnished as at June 30, 2001 and for the three and six
       month periods ended June 30, 2001 and June 30, 2000 reflects, in the
       opinion of management, all adjustments, consisting only of normal
       recurring adjustments, necessary for a fair presentation of the results
       of the interim periods presented. Interim results are not necessarily
       indicative of results for a full year.

2.     ACQUISITIONS:

       On January 16, 2001, the Company acquired all of the issued and
       outstanding shares and assumed all of the common share purchase options
       of TANTAU Software, Inc in exchange for the issuance of 17,119,869 common
       shares and 2,011,055 replacement common share purchase options.

       Of the 17,119,869 common shares issued, 14,276,536 common shares are
       fully vested shares, with the balance of 2,843,333 subject to future
       vesting under the terms of the assumed TANTAU Stock Option Plan. The
       value of the fully vested shares has been recorded as a component of the
       purchase consideration. The value of the unvested shares has been
       allocated between purchase consideration and deferred stock-based
       compensation. The Company has determined the amount attributable to
       deferred stock-based compensation as the proportionate share of the
       intrinsic value of the unvested shares pertaining to the service period
       subsequent to the date of acquisition. The amount attributable to
       purchase consideration represents the fair value of the unvested shares
       as at the purchase date less the amount recorded as deferred stock-based
       compensation related to these unvested shares.


                                       5


<PAGE>



2.     ACQUISITIONS (CONTINUED):

       The value of the 2,011,055 TANTAU employee stock options assumed on
       acquisition has been allocated between purchase consideration and
       deferred stock-based compensation. The Company has determined the amount
       attributable to deferred stock-based compensation as the proportionate
       share of the intrinsic value of the assumed options pertaining to the
       service period subsequent to the date of acquisition. The amount
       attributable to purchase consideration represents the fair value of the
       replacement options as at the purchase date less the amount recorded as
       deferred stock-based compensation related to the replacement options.

       The purchase price has been determined to be $407,734, including
       acquisition costs of $9,385. The deferred stock-based compensation
       related to the unvested shares and replacement stock options has been
       determined to be $53,280.

       The acquisition has been accounted for by the purchase method with the
       fair value of the consideration paid being allocated to the fair value of
       the identifiable assets and liabilities assumed on the closing date as
       set out below. There are no significant accounting differences between
       Canadian and U.S. GAAP in the accounting for the acquisition.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Fair Value
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>
       Net tangible assets acquired:
           Cash and cash equivalents                                                              $     30,248
           Accounts receivable                                                                           5,213
           Prepaid expenses and other receivables                                                          721
           Investment in Accrue Software Inc.                                                              581
           Capital assets                                                                                1,884
           Other assets                                                                                    303
           Accounts payable                                                                               (743)
           Accrued liabilities                                                                          (7,039)
           Deferred revenue                                                                             (2,143)
           Notes payable                                                                                (5,000)
 ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        24,025

       Allocation of the net purchase price:
           Goodwill                                                                                    302,859
           Identifiable assets                                                                          27,570
           Deferred stock-based compensation                                                            53,280
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                       383,709

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                  $    407,734
       Consideration paid:
           Share and stock option consideration                                                   $    398,349
           Costs of acquisition                                                                          9,385

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                  $    407,734
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       6


<PAGE>



2.     ACQUISITIONS (CONTINUED):

       The table below reflects the unaudited pro forma consolidated results of
       the Company and TANTAU as if the acquisition had taken place on January
       1, 2000 and January 1, 2001.

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                     Six months ended
                                                                                June 30,              June 30,
                                                                                    2001                  2000
---------------------------------------------------------------------------------------------------------------------------------
                                                                              (unaudited)          (unaudited)

<S>                                                                        <C>                  <C>
       Revenue                                                             $       28,131       $       10,170
       Pro forma loss for the period                                             (131,429)             (81,083)
       Pro forma loss for the period per common share                               (2.21)               (1.51)
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>


3.     CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

       Cash consists of deposits with major financial institutions. Cash
       equivalents consist of short-term deposits and high-grade commercial
       paper with an original term to maturity of three months or less at the
       date of purchase.

       All short-term debt securities are classified as held-to-maturity because
       the Company has the intent and ability to hold the securities to
       maturity. Held-to-maturity securities are stated at amortized cost,
       adjusted for amortization of premiums and accretion discounts to
       maturity. The Company owns no short-term investments that are considered
       to be trading securities nor available-for-sale securities.




<PAGE>




3.     CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (CONTINUED):

       The components of cash and cash equivalents and short-term investments
       are summarized as follows:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                 June 30,         December 31,
                                                                                     2001                 2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>

       Cash and cash equivalents:
           Cash                                                               $    16,045          $     1,297
           Cash equivalents:
                Government T-Bills                                                 35,001               32,086
                Corporate bonds                                                         -               33,374
                Corporate commercial paper                                         23,913                7,141

--------------------------------------------------------------------------------------------------------------------------------
                                                                              $    74,959          $    73,898
--------------------------------------------------------------------------------------------------------------------------------

       Short-term investments:
           Held-to-maturity:
                Corporate commercial paper                                    $    53,519          $    90,546
                Corporate bonds                                                     9,549                    -
                Government term deposits                                                -                2,180

--------------------------------------------------------------------------------------------------------------------------------
                                                                              $    63,068          $    92,726
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


4.     INVESTMENTS:

       (i)  INVESTMENT IN CASHEDGE INC.

       On May 31, 2001, the Company acquired an 11.0% interest in CashEdge Inc.
       ("CashEdge") for $2,000 in cash. CashEdge is a privately held company in
       the business of developing software that provides end-users with the
       ability to aggregate account information electronically via the Internet.
       The investment is accounted for using the cost method of accounting. In
       addition, the Company also entered into a reseller arrangement with
       CashEdge, whereby CashEdge was appointed a non-exclusive distributor of
       the Company's Alerts and Wireless Aggregation product and the Company was
       appointed as a non-exclusive distributor of CashEdge's Aggregation
       Service. As at June 30, 2001 no sales between the parties have taken
       place.


                                       8


<PAGE>




4.     INVESTMENTS (CONTINUED):

       (ii)  INVESTMENT IN WEBHELP INC.

       On March 26, 2001, the Company entered into a series of transactions with
       Webhelp Inc. ("Webhelp"), a private company incorporated in Delaware.

       The Company acquired 4,087,193 series C convertible preferred shares of
       Webhelp for cash and share consideration of $7,621 and 196,836 common
       shares of the Company. This investment represents a shareholder interest
       of approximately 11% in Webhelp. The investment of $9,558 is being
       accounted for on a cost basis.

       On March 26, 2001, the Company purchased the right, title and interest in
       Webhelp's "Web Application Event Framework" technology ("WAEF"). This
       technology is designed to allow mobile applications to be executed with
       real-time interaction. As part of the arrangement, Webhelp retained a
       worldwide right to use the WAEF in its current businesses. The Company
       may also extend employment offers to certain Webhelp employees directly
       involved in the development of WAEF. The aggregate purchase price
       consisted of 820,150 common shares of the Company and additional
       consideration based on a fixed percentage of future sales of WAEF and
       products incorporating WAEF for a period of three years. The value
       ascribed to the shares issued on acquisition amounted to approximately
       $8,070 and has been recorded as acquired technology. The Company intends
       to expense, as a selling cost, any amounts paid under the conditional
       consideration obligations. Of the 820,150 common shares issued, 369,067
       common shares are being held in escrow pending the completion by Webhelp
       of certain conditions to the agreement.

       On March 26, 2001, Webhelp purchased, from the Company, a perpetual
       license for a fixed number of users of the Company's Wireless Internet
       Platform ("WIP") for a non-refundable fee based on commercial rates that
       are comparable to rates charged to other customers.

       (iii)  WRITE-DOWN OF LONG-TERM INVESTMENTS

       Due to adverse changes in operating market conditions, several of the
       Company's long-term investments in other companies have experienced
       significant other than temporary declines in their values. As a result in
       the first quarter of 2001, the Company made a one-time write down of
       $6,250 as to these investments.



                                       9



<PAGE>




5.     DEFERRED STOCK-BASED COMPENSATION:

       Deferred stock-based compensation related to employee options represents
       amounts that the Company recorded as a result of granting stock options
       to its employees at less than the fair market value for financial
       reporting purposes of the Company's shares on the date of the grant.
       Deferred stock-based compensation relating to options issued to employees
       is recognized as an expense over the vesting period of the stock option.
       Deferred stock-based compensation related to options and unvested shares
       issued in connection with business acquisitions amounted to $53,280 for
       the six months ended June 30, 2001 and relates to the Company's
       acquisition of TANTAU (note 2). This amount is recognized as an expense
       over a maximum period of two years, which is the maximum vesting period
       of the stock options and unvested shares.

6.     INTANGIBLE AND OTHER ASSETS:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                 June 30,         December 31,
                                                                                     2001                 2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>

       Goodwill                                                              $    396,698           $   87,387
       Deferred acquisition costs                                                      --                9,385
       Acquired technology and other assets                                        40,482               12,634
---------------------------------------------------------------------------------------------------------------------------------
                                                                                  437,180              109,406

       Less accumulated amortization                                               69,314               18,843

---------------------------------------------------------------------------------------------------------------------------------
                                                                             $    367,866           $   90,563
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

       Goodwill represents the excess of the purchase price over the fair value
       of net assets acquired, and is being amortized on a straight-line basis
       over a period of up to five years. On an ongoing basis, management
       reviews the valuation and amortization of goodwill, taking into
       consideration any events and circumstances which might impair the fair
       value of the related asset. Goodwill is written down to fair value when
       decreases in value are considered to be other than temporary, based upon
       expected cash flows of the acquired business.


                                       10


<PAGE>



7.     SEGMENTED INFORMATION:

       The Company operates in a single reportable operating segment, that is,
       the design and delivery of an Internet infrastructure platform and
       related applications that enable financial institutions and other
       customers to deliver financial information and services to a range of
       internet-enabled devices. The single reportable operating segment derives
       its revenue from the sale of software and related services. Information
       about the Company's geographical net revenues and assets is set forth
       below:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                     Three Months Ended                  Six Months Ended
---------------------------------------------------------------------------------------------------------------------------------
                                                  June 30,         June 30,          June 30,         June 30,
                                                      2001             2000              2001             2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>              <C>              <C>
       Net revenue by geographic locations:
           North America                         $   8,485        $   3,968        $   18,235       $    7,079
           Europe                                    3,488                -             5,672                -
           Asia Pacific                              2,105                -             4,020                -

---------------------------------------------------------------------------------------------------------------------------------
                                                 $  14,078        $   3,968        $   27,927       $    7,079
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                        June 30, 2001                     June 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
                                                                 Intangible                         Intangible
                                                     Fixed        and other             Fixed        and other
                                                    assets           assets            assets           assets
---------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>                <C>              <C>
       North America                           $    12,784      $   367,866        $    7,748       $   58,932
       Europe                                        1,246                -                23                -
       Asia Pacific                                    123                -                30                -

---------------------------------------------------------------------------------------------------------------------------------
                                               $    14,153      $   367,866        $    7,801       $   58,932
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

       For the six months ended June 30, 2001, two customers accounted for 14%
       and 12% of revenue, respectively. For the six months ended June 30, 2000,
       four customers accounted for 32%, 24%, 23% and 20% of revenue,
       respectively.


                                       11


<PAGE>




8.     RELATED PARTY TRANSACTIONS:

       In 2000, the Company transacted with certain shareholders who owned in
       excess of 10 percent of the outstanding common shares of the Company. In
       2001, these shareholders ceased to own in excess of 10 percent of the
       outstanding common shares of the Company and are therefore no longer
       considered to be related parties. The following table sets out the
       balances and transactions with these shareholders in the period when they
       were related parties. These amounts have been recorded at the exchange
       amount:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                       Six months ended
                                                                                 June 30,             June 30,
                                                                                     2001                 2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
       Related party balances:
           Accounts receivable, net of allowance
              for doubtful accounts of  nil                                    $        -           $    1,092
           Deferred revenue                                                             -                5,457

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

       Related party transactions:
           Net revenue:
                Product                                                         $       -           $    5,105
                Service                                                                 -                1,671

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

9.     COMMON SHARES:

       In connection with the acquisition of TANTAU, the Company issued
       2,843,333 unvested common shares to TANTAU shareholders who were also
       employees or consultants ("Employee Shareholders"). These shares vest
       over a maximum period of two years. If an Employee Shareholder ceases to
       be a Company employee, the Company may repurchase any unvested common
       shares from the Employee Shareholder at the original Employee Shareholder
       cost.

       At June 30, 2001 and December 31, 2000, there were options outstanding to
       acquire 7,385,922 and 3,973,522 common shares of the Company,
       respectively.

       Common shares issuable upon the exercise of stock options and other
       potentially convertible instruments that could dilute basic loss per
       share in the future were not included in the computation of diluted loss
       per share, because to do so would have been anti-dilutive for the six
       months ended June 30, 2001 and June 30, 2000, amounted to 1,167,499 and
       1,942,551 shares, respectively.


                                       12


<PAGE>



10.    RESTRUCTURING COSTS

       In the second quarter of 2001, the Company identified areas to reduce
       costs and leverage the infrastructure that it had obtained due to the
       TANTAU acquisition, by eliminating duplicate resources and positions and
       streamlining its operating processes. Consequently, the Company adopted a
       restructuring plan and incurred a restructuring charge of $3,433. The
       Company eliminated approximately 100 positions in its worldwide
       operations in its research and development, sales and marketing and
       general and administrative areas. Included in the Company's "Accrued
       Liabilities" is approximately $1,700 in restructuring reserve relating to
       unpaid severance costs and lease exit costs.

       The following table sets forth the components of the Company's
       restructuring charge:

<TABLE>

       --------------------------------------------------------------
       <S>                                                   <C>
       Workforce reduction                                   $ 2,259
       Lease exit costs                                        1,174

       --------------------------------------------------------------
       Total Restructuring Charges                             3,433
       Draw downs                                             (1,733)

       --------------------------------------------------------------
       Provision balance                                     $ 1,700
       --------------------------------------------------------------

</TABLE>


                                       13


<PAGE>


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

         The following discussion and analysis should be read together with our
audited annual consolidated financial statements for the year ended December 31,
2000 and the accompanying notes included in our annual report filed with the
Canadian Securities Administrators on March 21, 2001 and our annual report on
Form 10-K, which was filed with the Securities and Exchange Commission on March
29, 2001, and the condensed consolidated financial statements and accompanying
notes appearing elsewhere in this report. All financial information is presented
in U.S. dollars.

         Some of the statements set forth in this section are forward-looking
statements relating to our future results of operations. Our actual results may
vary from the results anticipated by these statements. Please see "Information
Regarding Forward-Looking Statements".

         OVERVIEW

         We are a leading global provider of Internet infrastructure software
that enables the delivery of secure financial services applications and mobile
transaction solutions across a wide range of Internet-enabled devices. We were
incorporated in 1997, and introduced our initial financial services products in
1999. Since that time, we have also begun to offer Brokerage, Aggregation and
Alerts applications, in a variety of languages and currencies around the world.
Our suite of products and services enables companies to capitalize on the mobile
Internet by building, deploying and integrating personalized and secure mobile
commerce and lifestyle applications. With critical security features built in,
our Wireless Internet Platform and applications can be quickly implemented and
integrated with existing systems and scaled or expanded to accommodate future
growth. We also enable our customers to more rapidly introduce services with
end-to-end customer support through our global hosting and contact center
services.

         Using our platform and suite of applications, our customers can offer
new, easy to use, highly personalized, value-added services which leverage the
flexibility and convenience of the mobile Internet, while building stronger
relationships with their customers. Our customers currently include leading
financial institutions such as Citigroup, Bank of America, Wells Fargo, Hanvit
Bank and Bank of Montreal. With corporate offices in Toronto, Canada and Austin,
Texas, we have development and sales offices around the world, including
Australia, Barbados, Finland, France, Germany, Hong Kong, Japan, the
Netherlands, Switzerland, the United Kingdom and the United States.


         TANTAU ACQUISITION

         In January 2001, we completed our acquisition of Austin-based TANTAU
Software Inc. TANTAU develops and designs software and related services that
enable enterprises to conduct high-volume, secure, m-commerce transactions.
TANTAU's infrastructure complements our 724 Solutions applications. By
integrating TANTAU's platform with our 724 Solutions applications, we offer
enhanced services to customers that require a strong enterprise-wide solution.
As consideration for the acquisition, we issued an aggregate of 17,119,869 of
our common shares and assumed options originally issued by TANTAU, which, as of
the closing date, became exercisable to purchase an additional 2,011,055 of our
common shares. The calculated acquisition price is estimated to be approximately
$407.7 million, including acquisition costs of $9.4 million and approximately
$53.3 million in deferred stock-based compensation relating to the assumption of
TANTAU's stock option plan. The acquisition is accounted for by the purchase
method. For additional information regarding our accounting for this
acquisition, see Note 2 to our condensed consolidated financial statements.

         RESTRUCTURING

         In the second quarter of 2001, we identified areas to reduce costs and
leverage the infrastructure that we have obtained due to the TANTAU acquisition,
by eliminating duplicate resources and positions and streamlining our operating
processes. Consequently, we adopted a restructuring plan and incurred a
restructuring charge of $3.4 million. In this restructuring, we realigned our
organization, developed a single product architecture and roadmap, unified the
company network and infrastructure, integrated business processes and purchasing
and consolidated worldwide offices. We also eliminated approximately 100
redundant and unnecessary positions in our worldwide operations in our research
and development, sales and marketing, and general and administrative areas.


                                       14


<PAGE>

         SOURCES OF REVENUE

         Our primary sources of revenue are generated from our direct sales and
sales through resellers and other channels of our Banking and Brokerage, Alerts,
Aggregation and wireless Internet platform products. These revenues are
generated through license agreements, reseller arrangements, implementation
service fees, maintenance fees and hosting fees. In the future, we expect that
our services revenue will also include amounts derived from revenue sharing
arrangements and commissions on m-commerce transactions.

         PRODUCT REVENUE

         APPLICATIONS: FIXED FEE LICENSES
         Our two initial license agreements were with Bank of Montreal and Bank
of America, and used a fixed fee license model. Under this model, the customer
pays us a fixed annual license fee in whole or part upon execution of the
license agreement, and/or periodically thereafter during the term of the
agreement. The use of this model helped provide the initial cash flow that was
necessary to fund our development and start-up costs. Our initial fixed fee
license contracts contained provisions that required us to deliver to our
customers additional technology that we developed and made generally available
to our customers during the term of the agreement. As such, these fees have been
recognized using the subscription accounting method commencing with the delivery
of the first product in the contract.

         APPLICATIONS: VARIABLE LICENSE FEES
         After raising additional capital in August 1999 through the issuance of
common shares, we had the financial resources to begin to forego the fixed fee
license model in favor of a variable fee license model. Our agreements with
several of our customers, including Citigroup, Wells Fargo, Wachovia and
Claritybank.com, utilize this model. The variable fee license model is based on
a per user fee and specified minimum payments. We expect that the transition of
our revenue model from fixed fee to variable fee will have two significant
consequences: first, we will no longer receive the primary portion of our
license fees as initial payments under our customer agreements; and second, we
expect that our revenue stream will vary with the number of our customers' end
users. We expect that these variable fees will be subject to a minimum quarterly
payments, and expect to provide incentive discounts and/or maximum quarterly
payments to our customers based on the number of their customers using our
applications. To date, we have not received revenues from the user fees in
excess of any minimum payments. However, over time, we expect these fees to
become a significant portion of our revenue once our customers roll out services
based upon our solution to a substantial number of consumers. We expect that in
our future contracts that use the variable fee license model, the customer will
pay us a license fee consisting of an up front payment upon execution of the
contract and an ongoing variable fee based on the number of users. The monthly
user fees may be subject to minimum quarterly payments. We will allocate revenue
to the software based on vendor specific objective evidence of fair value. The
portion of revenue that will be allocated to the software will be recognized as
revenue when delivery and acceptance have occurred and when the collection of
any related receivable is deemed probable. As a result, we anticipate that the
initial payments under these contracts will tend to be recognized as revenue
either in the quarter in which the contract is executed or shortly thereafter.
Revenue from the minimum payments will be recognized on a monthly basis. Revenue
associated with user fees in excess of any minimum payments will be recognized
on a monthly basis when the amount is determined.

         PLATFORM LICENSING FEES
         We sell our platform license using a per seat model, in which the
licensee pays a one-time license fee for a fixed number of copies in exchange
for a license with a perpetual term. The standard perpetual license agreement
includes post-contract customer support for a specified period of time.
Thereafter, post-contract customer support can be renewed annually for an
additional fee. We use the post-contract customer support renewal rate as
evidence of the fair value of this service. Since post-contract customer support
is the only undelivered element in these arrangements, revenue is recognized
using the residual method. The fair value of post-contract customer support is
recognized over the term of the support obligation and the remaining portion of
the one-time license fee is recognized after the execution of a license
agreement and the delivery of the product to the customer, provided that there
are no uncertainties surrounding the product acceptance, fees are fixed and
determinable, collectibility is probable, and we have no remaining obligations
other than the delivery of the support.

                                       15
<PAGE>

         RESELLER ARRANGEMENTS
         We have entered into and expect to continue to enter into a number of
reseller agreements. While each arrangement can be different, the reseller
generally pays either a non-refundable licensing fee for our software and/or a
royalty fee based on the related number of users. We recognize revenue
associated with a non-refundable license fee upon the execution of the contract
when delivery and acceptance have occurred, no significant performance
requirements are remaining, and when the collection of the related receivable is
deemed probable. Royalty fees based upon the number of users will be recognized
monthly.


         SERVICE REVENUE

         IMPLEMENTATION AND CUSTOMER SERVICE FEES
         Revenue from implementation and customer services includes fees for
implementation of our product offerings, consulting and training services. We
currently rely, and expect to continue to rely, upon a combination of our own
resources and third-party consulting organizations to deliver these services to
our customers. Customers are charged a fee based on time and expenses. Revenue
from implementation and customer service fees is recognized as the services are
performed.

         MAINTENANCE FEES
         We receive revenue from maintaining and servicing our products for
customers. The maintenance fee is typically equal to a specified percentage of
the customer's license fee. If associated with the fixed fee license model, the
maintenance revenues received will be recorded as deferred revenue and
recognized on a straight-line basis over the contract period. When associated
with the variable fee license model, any maintenance payments will be recognized
on a monthly basis as earned.

         HOSTING FEES
         Since fiscal 2000, some of our existing customers have required us, and
we expect that some of our potential customers will require us, to host and
manage the server infrastructure and software platform as part of the
implementation of our products. We typically charge a customer a one-time setup
fee plus a monthly flat fee or a monthly fee based on the number of users. The
set-up fees are recognized ratably over the term of the hosting arrangement, and
the monthly fees are recognized on a monthly basis.


         RESULTS OF OPERATIONS

         THREE AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE AND
         SIX MONTHS ENDED JUNE 30, 2000

         REVENUE

         PRODUCT REVENUE

         In the three and six month periods ended June 30, 2001, product revenue
increased to $9.0 million and $18.1 million, respectively, from $2.6 million and
$5.1 million in the comparative three and six month periods of 2000. Product
revenue primarily increased as a result of our acquisition of TANTAU and the
increase in the number of customers licensing our products. In addition, in
2000, our product offerings were limited to our Banking and Brokerage products.
However, since that time, we have been generating more sales from our expanded
suite of product offerings, which include our Alerts, Aggregation and Platform
products. Since 2000, we have expanded our sales force to gain customers outside
of North America. In 2001, we gained new customers from Europe and Asia Pacific.

         We expect that our product revenue will increase as we sell more
products to new customers and as customers who have licensed our primary Banking
and Brokerage applications based upon our variable fee model begin to deliver
services to a substantial number of end users. In particular, we anticipate that
sales of our platform product will represent an increased portion of our sales
during the next several quarters.

                                       16

<PAGE>

         SERVICE REVENUE

         Service revenue increased to $5.1 million and $9.8 million for the
three and six month periods ended June 30, 2001, respectively, compared to $1.4
million and $2.0 million in the same periods last year. The change from the
comparative periods in 2000 mainly resulted from increases in consulting and
implementation fees from additional customers and increases in maintenance fees
due to growth in product sales. The increase in consulting and implementation
fees resulted primarily from the additional implementation services that we
performed in connection with our Banking and Brokerage, Aggregation and Alerts
product offerings. In addition, in 2001, we derived consulting revenue from
performing strategic consulting work relating to assisting a number of customers
with their wireless and mobile offerings.

         In the future, we expect that most of the services revenue will be
derived from consulting work related to the implementation of our applications,
and increasingly from services revenue from strategic consulting contracts
relating to our wireless and m-commerce strategy, as more customers demand our
expertise in these areas.

         COST OF REVENUE

         Cost of revenue consists primarily of personnel costs associated with
customer support, training, implementation, consulting and hosting services, as
well as amounts paid to third-party consulting firms for those services,
together with an allocation of expenses for our facilities and administration.
Cost of revenue also includes software licensing expenses paid for the
integration of third-party software into our products.

         Cost of revenue was $5.6 million and $10.7 million for the three and
six month periods ended June 30, 2001, respectively, compared to $2.6 million
and $4.5 million in the same periods of 2000. The increase is mainly due to the
fact that in the first and second quarter of 2001, we had more customers for
whom we were performing consulting and implementation work than we did in 2000.
Cost of revenue for the three and six month periods ended June 30, 2001 was 40%
and 38% of revenue, respectively, compared to 64% for the three and six month
periods ended June 30, 2000. This decrease resulted primarily from our
utilization of the personnel and infrastructure that we have previously hired or
built, and leveraging the experience that we have gained in enabling our
customers to deploy our products. We have also reduced the per customer costs
that we incur in driving the adoption and implementation of our products. With
the acquisition of TANTAU, we expect that our cost of sales as a percentage of
revenue will decrease, as platform sales do not typically require the same level
of services as application sales, and therefore have relatively higher margins.
In addition, we expect to see a decrease, in absolute dollars, in our cost of
sales over the next two quarters as we realize cost savings from our June 2001
restructuring.

         RESEARCH AND DEVELOPMENT

         Research and development expenses include the compensation of software
development teams working on the continuing enhancement of our products as well
as our quality assurance and testing activities. These expenses also include
independent contractors and consultants, software licensing expenses, and
allocated operating expenses.

         Research and development (R&D) expenses increased to $11.7 million and
$22.9 million in the three and six month periods ended June 30, 2001,
respectively, from $6.2 million and $10.4 million in the same periods in 2000.
The increase mainly reflects the growth in R&D personnel and product offerings,
mainly as a result of our acquisition of Ezlogin, in June 2000, our September
2000 acquisition of Spyonit, and our January 2001 acquisition of TANTAU. This
increase also resulted from our investment in our mobile commerce services
platform. R&D expense, as a percentage of net revenues, was 83% and 82% in the
three and six month periods ended June 30, 2001, respectively, compared to 157%
and 147% in the same periods in 2000. We expect that our R&D costs will remain
relatively stable in absolute dollars for the next two quarters as we channel
the savings that we realized in the June 2001 restructuring into new R&D
initiatives and as we focus on leveraging our existing R&D infrastructure.

         SALES AND MARKETING

         Sales and marketing expenses include compensation of sales and
marketing personnel, public relations and advertising, trade shows, marketing
materials and allocated operating expenses.

                                       17

<PAGE>

         Sales and marketing (S&M) expenses were $10.6 million and $19.6 million
for the three and six month periods ended June 30, 2001, respectively, compared
to $4.0 million and $7.0 million in the same periods in 2000. These costs
increased primarily because in 2001, with the acquisition of TANTAU, we have
additional sales personnel to manage our relationships with our major customers
and to expand our business in North America and in particular, Europe and the
Asia Pacific region. In addition, the increase in absolute dollars is
attributable to our continuing strategy of expanding our reach to new markets
and of increasing our efforts to sell our expanding suite of products. However,
S&M expenses, as a percentage of revenues, decreased to 75% and 70% for the
three and six month periods in 2001, respectively, from 100% and 99% in 2000. We
expect that our S&M costs will decrease as we leverage our sales infrastructure
around the world and realize the savings we incurred as a result of the
restructuring in June 2001.

         GENERAL AND ADMINISTRATIVE

         General and administrative (G&A) expenses include salaries and benefits
for corporate personnel and other general and administrative expenses such as
professional fees, facilities, travel and professional consulting costs. Our
corporate staff includes several of our executive officers and our business
development, financial planning and control, legal, human resources and
corporate administration staff.

         Our G&A expenses decreased to $4.0 million for the second quarter of
2001, from $5.0 million in the same quarter in 2000. The decrease is mainly due
to the fact that in the second quarter of 2000, we incurred non-recurring costs
related to professional fees due to acquisitions and corporate development
activities. For the six month period ended June 30, 2001, G&A expenses increased
to $10.6 million from $6.9 million in the same period of 2000. The increase in
G&A expenses reflected expenditures related to the enhancement of our
international infrastructure necessary to support our growing business. The
remainder of the increase is related to our acquisition of TANTAU and the
realigning of our business. G&A expenses as a percentage of revenues decreased
to 28% and 38% for the three and six month periods ended June 30, 2001,
respectively, from 127% and 98% in the same periods of 2000. We expect to see a
further decrease in these percentages and to some extent, a reduction in
absolute dollars in the next two quarters as we realize savings from our June
2001 restructuring and as we continue to leverage the infrastructure that we
have built across our larger business, and as we begin to recognize additional
operating efficiencies arising from our integration of TANTAU.

         DEPRECIATION AND AMORTIZATION

         Depreciation expense increased to $2.2 million and $3.9 million in the
three and six month periods ended June 30, 2001, respectively, compared to
$684,000 and $1.0 million in the same periods in 2000. The increase reflects our
capital spending in computer hardware, office furniture and leasehold
improvements at our facilities to support the additional personnel that we have
hired and/or acquired through our acquisitions. Additional software development
tools used for research and development and computer hardware purchased for our
hosting facilities accounted for the remainder of the increase.

         Amortization expense increased to $27.4 million and $51.3 million in
the three and six month periods ending June 30, 2001, from $1.4 million in both
the first and second quarters in 2000. The increase was mainly due to the
goodwill and acquired intangibles of the Ezlogin acquisition which was completed
in June 2000, the Spyonit acquisition which was completed in September 2000 and
the TANTAU acquisition which was completed in January 2001. We are amortizing
goodwill related to these acquisitions over periods of up to 60 months.

         Consistent with our current accounting policy, on an ongoing basis, we
review the valuation and amortization of goodwill, taking into consideration any
events and circumstances which might impair the fair value of the related
assets. Goodwill is written down to fair value when decreases in value are
considered to be other than temporary, based upon expected future cash flows of
the acquired business. We are currently performing a periodic review of the
carrying values of our intangible and other assets to assess whether their
carrying values are supportable. As this review has not yet been completed, we
have not yet determined the effect that this assessment will have on our
financial statements.


                                       18


<PAGE>

         RESTRUCTURING COSTS

         In connection with our June 2001 restructuring, we adopted a
restructuring plan and incurred a restructuring charge of $3.4 million. Most of
the severance cost related to this restructuring has been paid in June 2001.
Included in our "Accrued Liabilities" is approximately $1.7 million in
restructuring reserve relating to unpaid severance costs and lease exit costs.

         STOCK-BASED COMPENSATION

         Stock-based compensation represents amortization of deferred stock
compensation that we recorded as a result of granting stock options to employees
at less than the fair market value of our shares for financial reporting
purposes on the date of grant. This stock based compensation is being amortized
on a straight-line basis over the vesting periods of these options, which is
generally three years. In addition, included in stock-based compensation expense
is the amortization of deferred stock compensation that arose due to our
acquisition of TANTAU (see note 2 of our condensed consolidated financial
statements) and compensation expense relating to the contingent consideration
incurred as part of our acquisition of YRLess. Stock-based compensation
increased to $13.1 million and $23.8 million in the three and six month periods
ending June 30, 2001, from $1.5 million and $2.3 million in the same periods of
2000. Most of the increase was attributed to the amortization of $53.3 million
of deferred stock compensation that we recorded as part of the TANTAU
acquisition in the first quarter. This amount will be amortized over a maximum
period of two years.

         INTEREST INCOME

         Interest income decreased to $1.6 million and $4.1 million in the three
and six month periods ended June 30, 2001, compared to $2.8 million and $5.0
million in the same periods of 2000. Interest was derived from cash and cash
equivalent balances and short-term investments, representing primarily the
unused portion of the proceeds from our issuances of common shares, including,
in particular, the proceeds from our initial public offering in the first
quarter of 2000. Interest income decreased in 2001 compared to 2000 because we
have smaller holdings of cash and cash equivalent balances and short-term
investments. Given the recent reductions in prevailing interest rates, we
anticipate that we will receive reduced rates of interest on these assets during
the current year than we did during the year ended December 31, 2000.

         EQUITY IN LOSS OF AFFILIATE

         We owned 24.9% of the equity of Maptuit, as of June 30, 2001. Our
investment in Maptuit is accounted for using the equity method. Our share in the
net loss of Maptuit increased to $480,000 and $758,000 for the three and six
month periods ending June 30, 2001, respectively, compared to $213,000 and
$279,000 in the comparative periods of 2000.

         WRITE-DOWN OF LONG-TERM INVESTMENTS

         Due to adverse changes in market conditions, several of the Company's
long-term investments in other companies have experienced significant other than
temporary declines in their values. As a result, we took a one-time write down
of $6.3 million in the first quarter of 2001.

         NET LOSS

         We recorded a net loss of $62.8 million and $121.2 million for the
three and six month periods ended June 30, 2001, compared to net losses of $14.8
million and $21.7 million for the same periods in 2000. Our loss increased as we
amortized significant non-cash charges, and as we invested heavily in building
our infrastructure. In particular, our research and development expenses and our
sales and marketing expenses increased to meet required product delivery
schedules and to gain market share. In addition, we incurred restructuring costs
related to the realigning our operations to eliminate duplicate resources as a
result of the acquisition of TANTAU. We expect to see improved operational
savings begin in the third quarter of 2001 with a more streamlined organization,
efficient process and integrated infrastructure. We expect that the magnitude of
those savings and benefits from our increased scale and efficiency will more
than offset the costs incurred.

                                       19

<PAGE>


         LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities was $28.4 million and $44.6
million for the three and six month periods ended June 30, 2001, respectively,
compared to $7.8 million and $9.2 million in the same periods last year. Net
cash used in operating activities in the second quarter of 2001 consisted mainly
of our net loss of $62.8 million, offset by depreciation and amortization
expenses of $30.0 million and stock-based compensation expense of $13.1 million.

         Cash provided by financing activities was $165,000 and $783,000 in the
three and six month periods ended June 30, 2001, respectively, compared to nil
and $165.7 million in the same periods in 2000. The funds in 2000 represented
the proceeds we raised in connection with our initial public offering of
6,900,000 common shares. The funds in 2001 represent the exercise of stock
options.

         Cash used in investing activities, before the sale of short-term
investments, was $2.3 million for the quarter ended June 30, 2001, compared to a
use of $17.3 million for the same period in 2000. The main reason for the
decrease compared to the three months ended June 30, 2000 is because in 2000, we
made significant investments and acquisitions. For the six month period ended
June 30, 2001, our cash flows from investing activities, before the sale of
short-term investments, amounted to $16.6 million, compared to a use of cash of
$22.0 million in the same period in 2000. The reason for the decrease compared
to the six months ended June 30, 2001 is because in 2001, we acquired $30
million in cash as a result of the acquisition of TANTAU, offset by our
investment in Webhelp Inc. of $7.6 million and CashEdge of $2.0 million.
Short-term investments consisted mainly of corporate debt and commercial paper
with terms to maturity of no greater than one year. The increase in cash from
short-term investments was primarily due to the fact that a significant portion
of our short-term investments had maturity dates during the first six months of
2001.

         We anticipate capital expenditures will continue to increase as we
purchase computer equipment and development tools to support our research and
development departments. In addition, as at June 30, 2001, we had commitments to
purchase services and make minimum lease payments amounting to approximately
$3.4 million. In February 2000, TANTAU borrowed $5.0 million under a note and
a related loan agreement. The note bears interest at the rate of 10% per
annum, and is repayable monthly over a three year term ending in February
2003. To date, under the terms of the note, only interest payments have been
made on the outstanding balance, with principal payments commencing in
monthly installments in September 2001. Aggregate principal and interest
payments are expected to amount to $1.5 million for the year ending December
31, 2001, of which $250,000 has been paid as of June 30, 2001.

         We expect that cash from operations, interest income and funds provided
from our initial public offering will be sufficient to cover our cash
requirements, including planned capital expenditures, for at least the next 12
months. We may require additional financing if we expand our operations at a
faster rate than currently expected, or if we seek to effect one or more
significant acquisitions.

         RECENT ACCOUNTING POLICIES AND REGULATIONS

         In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, BUSINESS COMBINATIONS, and
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS No. 141 also specifies the
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized; instead, these assets must
be tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 will also require that intangible assets with
definite useful lives must be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.

         We are required to adopt the provisions of SFAS No. 141 immediately. We
are required to adopt the provisions of SFAS No. 142 as of January 1, 2002.
Until that time, any goodwill and any intangible assets determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the accounting standards in effect
prior to the adoption of SFAS No. 142. Goodwill and intangible assets


                                       20


<PAGE>

acquired in business combinations completed before July 1, 2001 will continue
to be amortized in the manner required prior to the adoption of SFAS No. 142.

         SFAS No. 141 will require that upon adoption of SFAS No. 142, we will
evaluate our existing intangible assets and goodwill that we acquired in prior
purchase business combinations, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, we will also be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption, which will be
the three months ending March 31, 2002. In addition, to the extent an intangible
asset is identified as having an indefinite useful life, we will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 within the that period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in that period.

         In connection with the transitional goodwill impairment evaluation,
SFAS No. 142 will require us to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this we must identify our reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of the date
of adoption. We will then have up to six months from the date of adoption to
determine the fair value of each reporting unit and compare it to the reporting
unit's carrying amount. To the extent a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may be
impaired and we must then perform the second step of the transitional impairment
test. In the second step, we must compare the implied fair value of the
reporting unit's goodwill, determined by allocating the reporting unit's fair
value to all of its assets and liabilities in a manner similar to a purchase
price allocation in accordance with SFAS No. 141, to its carrying amount, both
of which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in our consolidated
statement of operations.

         Because of the extensive effort needed to comply with adopting SFAS No.
141 and SFAS No. 142, it is not practicable to reasonably estimate the impact of
adopting these statements on our financial statements at the date of this
report, including whether any transitional impairment losses will be required to
be recognized as the cumulative effect of a change in accounting principle.



         INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

         This report contains statements of a forward-looking nature. These
statements are made under the U.S. Private Securities Litigation Reform Act of
1995. These statements include the statements herein regarding: our plans to
expand our distribution channels, enter into new markets and increase the
functionality of our products; the expected benefits from our acquisition of
TANTAU Software; our expected new sources of revenue; the consequences of our
shift from a fixed-fee to a variable fee license model; our future cost of
revenue, gross margins and net losses; our future research and development,
sales and marketing, general and administrative, and depreciation and
amortization expenses; and our future capital expenditures and capital
requirements.

         The accuracy of these statements may be impacted by a number of
business risks and uncertainties that could cause actual results to differ
materially from those projected or anticipated, including unanticipated trends
and conditions in our industry; any delays or difficulties that we encounter in
rolling out enhanced products and services; the risk that demand for the
services enabled by our products will not increase as we anticipate; the risk
that the sale of our products and services involves a long sales cycle; the risk
that the economic environment and business conditions will remain difficult to
predict and that general economic activity could decline; the risk that we will
not have sufficient capital to expand our operations; any delay, inability or
difficulty encountered in increasing our revenues from our existing and future
contracts; risks associated with our ability to efficiently integrate the
companies that we have acquired; any inability to effectively develop and manage
our combined international operations; competition in our industry and target
markets; and other risks described in our SEC filings, including


                                       21


<PAGE>

our annual report on Form 10-K. These risks are also described in our filings
with the Canadian Securities Administrators, including our prospectuses,
material change reports, Annual Information Form and Management Information
Circular. We do not undertake any obligation to update this forward-looking
information, except as required under applicable law.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         IMPACT OF INTEREST RATE EXPOSURE

         As of June 30, 2001, we had approximately $138.0 million in cash, cash
equivalents and short-term investments, of which over $63.1 million were
short-term investments. A significant portion of the cash earns interest at
variable rates. In addition, although our short-term investments are fixed-rate
instruments, the average term is short. Accordingly, our interest income is
effectively sensitive to changes in the level of prevailing interest rates. This
is partially mitigated by the fact that we generally do not liquidate our
short-term investments before their maturity dates.

         IMPACT OF FOREIGN EXCHANGE RATE EXPOSURE

         Our functional currency is the U.S. dollar. The majority of our non-US
dollar denominated expenses are still incurred in Canadian dollars, although
with the purchase of TANTAU, an increased proportion are incurred in Euros and
other European currencies. Changes in the value of these currencies relative to
the U.S. dollar may result in currency gains and losses, which could affect our
operating results. In the period ended June 30, 2001, we incurred foreign
currency losses of approximately $90,000. In the future, we may seek to minimize
this risk by hedging our known exposures, such as salaries, rent and other
payments. We plan to account for any arrangements of this kind according to
Financial Accounting Standard 133 of the U.S. Financial Accounting Standards
Board.


                                       22

<PAGE>


PART II.          OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         In June 2001, we and certain of our present and former officers and
directors were named as defendants in a series of purported class actions filed
in the United States District Court for the Southern District of New York
asserting that the underwriters of our initial public offering in January 2000
engaged in allegedly improper compensation arrangements that were not disclosed
in the offering's prospectus. Similar actions have been filed against more than
ninety other issuers and their underwriters. We intend to defend these cases
vigorously.


ITEM 2.  CHANGES IN SECURITIES

            In March 2001, we issued 127,163 of our common shares to the former
shareholders of YRless Internet Corporation as a portion of the consideration
from our March 2000 acquisition. Under our agreements with these shareholders,
who are former employees of our company, we expect to pay the two remaining
installments of the purchase price through the issuance of additional common
shares in March 2002 and March 2003.

            The issuance of these shares was exempt from registration under the
Securities Act of 1933 under Section 4(2) and Regulation S under the Act.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           None.

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

          Our Annual and Special Meeting of Shareholders (the "Meeting") was
held on April 26, 2001. The following matters were submitted to our shareholders
for their vote, and the results of the vote taken at the Meeting were as
follows:

1. Each of our current directors standing for reelection was reelected for a one
year term.

<TABLE>

<S>                                <C>                          <C>                          <C>
(a)    Gregory Wolfond:            41,299,172 votes for;         2,350 votes withheld       8,742 broker held non-voted shares;
(b)    John Sims:                  41,298,922 votes for;         2,350 votes withheld;      8,992 broker held non-voted shares;
(c)    Lloyd F. Darlington:        41,153,648 votes for;       147,894 votes withheld;      8,722 broker held non-voted shares;
(d)    James D. Dixon:             41,153,358 votes for;       147,894 votes withheld;      9,012 broker held non-voted shares;
(e)    Holger Kluge:               41,153,407 votes for;       147,894 votes withheld;      8,963 broker held non-voted shares;
(f)    J. Robert S. Prichard:      41,298,775 votes for;         2,350 votes withheld;      9,139 broker held non-voted shares;
(g)    Barry Reiter:               41,153,578 votes for;       147,894 votes withheld;      8,792 broker held non-voted shares;
(h)    Joseph Aragona:             41,153,578 votes for;       147,894 votes withheld;      8,792 broker held non-voted shares;
(i)    Charles Goldman:            41,299,022 votes for;         2,350 votes withheld;      8,892 broker held non-voted shares;
(j)    Frederick T. White:         41,299,072 votes for;         2,350 votes withheld;      8,842 broker held non-voted shares; and
(k)    Antti Vasara:               41,298,946 votes for;         2,350 votes withheld;      8,968 broker held non-voted shares;
</TABLE>

2. Resolutions authorizing: (i) an amendment to our Amended and Restated 2000
Stock Option Plan (the "2000 Plan") increasing the maximum number of common
shares of our ("Common Shares") which may be reserved for issuance thereunder
from 3,800,000 to 10,500,000 Common Shares (including certain stock options
assumed on the acquisition of TANTAU Software, Inc.), and deleting the related
restriction limiting the number of stock options under all of our equity
compensation plans to a specified percentage of our outstanding capital; and
(ii) certain technical amendments to the 2000 Plan, the full text of which was
set forth in Annex A to the Management Information Circular and Proxy Statement
accompanying the notice of the Meeting.

   36,606,514 votes for;     1,692,296 votes against;    11,967 abstentions; and
     2,999,437 broker held non-voted shares.

                                       23

<PAGE>

3. The appointment of KPMG LLP, Chartered Accountants, as our independent
auditors for fiscal 2001 and the authorization of our Board of Directors to fix
the remuneration of the auditors.

  41,109,818 votes for;      192,819 votes against;       2,622 abstentions; and
       4,955 broker held non-voted shares.



ITEM 5.    OTHER INFORMATION

           None.

                                       24



<PAGE>


ITEM 6.   EXHIBITS AND REPORT ON FORM 8-K.

           (a)    EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER          NAME OF DOCUMENT
-------         ----------------
<C>             <S>
3.1(1)          Articles of the Registrant.
3.2(1)          By-laws of Registrant.
10.1(1)(2)      Technology License Agreement, dated as of April 30, 1998,
                between the Registrant and Bank of Montreal.
10.2(1)         Mutual Indemnity Agreement, dated April 30, 1998, between the
                Registrant and Bank of Montreal.
10.3(1)         Letter Agreement, dated November 27, 1998, between
                Bank of Montreal and the Registrant.
10.4(1)         Letter Agreement, dated November 27, 1998, between Bank
                of Montreal and the Registrant.
10.5(1)         Letter Agreement, dated July 26, 1999, between Bank of Montreal
                and the Registrant.
10.6(1)         Form of Registration Rights Agreement
10.7(1)(2)      Master Technology License Agreement, dated December 29, 1999,
                between Citicorp Strategic Technology Corporation and the
                Registrant.
10.8(1)         Support Agreement, dated December 29, 1999, among Citicorp
                Strategic Technology Corporation, 724 Solutions International
                SRL and the Registrant.
10.9(2)(3)      Licensed Affiliate Agreement between the Registrant and
                Citibank, N.A
10.10(3)        First Amended and Restated Agreement and Plan of Merger
                and Reorganization among the Registrant, Sapphire Merger Sub,
                Inc., Ezlogin.com. and Alexandre Balkanski, as Shareholders'
                Agent, dated as of May 9, 2000.
10.11(3)        Amendment to First Amended and Restated Agreement and
                Plan of Merger and Reorganization, among the Registrant,
                Sapphire Merger Sub, Inc., Ezlogin.com, Inc. and Alexandre
                Balkanski, as Shareholders' Agent, dated as of June 9, 2000.
10.12(4)        Agreement and Plan of Merger and Reorganization among
                724 Solutions Inc., the Registrant, Serpent Merger Sub, Inc.,
                Spyonit.com, Inc. and certain stockholders of Spyonit.com, Inc.,
                dated as of September 12, 2000.
10.13(4)        Agreement and Plan of Merger, dated as of November 29, 2000, by
                and among the Registrant, Saturn Merger Sub, Inc. and
                TANTAU Software, Inc.
10.14(4)        Form of Resale Restriction Agreement relating to former
                securityholders of TANTAU Software, Inc.
10.15(4)        Form of Indemnification and Escrow Agreement relating to former
                securityholders of TANTAU Software, Inc.
10.16.1(5)      Registrant's Canadian Stock Option Plan.
10.17.2(5)      Registrant's U.S.  Stock Option Plan.
10.17.3(5)      Registrant's 2000 Stock Option Plan.
10.17.4(6)      Registrant's TANTAU Software, Inc. Stock Option Plan.
10.18.1(5)      Employment Agreement of Gregory Wolfond.
10.18.2(5)      Employment Agreement of John Sims.
10.18.3(5)      Employment Agreement of Christopher Erickson.
10.18.4(5)      Employment Agreement of Karen Basian.
10.18.5(5)      Employment Agreement of Christopher Jarman.
</TABLE>
----------
(1)      Incorporated by reference to the Registrant's Registration Statement
         on Form F-1, File No.  333-90143.

(2)      Confidential treatment has been received with respect to certain
         portions of the Exhibit pursuant to Rule 406 under the Securities Act
         of 1933, as amended. Omitted portions have been filed separately with
         the Securities and Exchange Commission.

(3)      Incorporated by reference to the Registrant's Annual Report on
         Form 20-F, Filed on June 29, 2000.

(4)      Incorporated by reference to the Registrant's Registration Statement on
         Form F-4, File No.  333-52698.

(5)      Incorporated by reference to the Registrant's Form 10-K for the fiscal
         year ended December 31, 2000, filed March 29, 2001.

(6)      Filed herewith.

         (b)      REPORT ON FORM 8-K:

         We did not file any reports on Form 8-K during the three months ended
June 30, 2001.


                                       25


<PAGE>




                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>


   SIGNATURES                     TITLES                             DATE
   ----------                     ------                             ----

<S>                     <C>                                      <C>
/s/ JOHN SIMS
-------------------     Chief Executive Officer (principal       August 14, 2001
    John Sims           executive officer)


/s/ KAREN BASIAN
-------------------     Chief Financial Officer (principal       August 14, 2001
   Karen Basian         financial and accounting officer)


</TABLE>


                                       26