<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 September 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 Toronto, Ontario               M2P 2G4
   ------------------------------------------------              ----------
      (Address of Principal Executive Office)                    (Zip Code)

                                 (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 - 58,357,764 shares outstanding as of
                              November 9, 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

<Table>
<S>       <C>                                                                         <C>
Part I.   Financial Information

          Item 1.  Financial Statements

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

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

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

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

                   e)  Notes to Consolidated Financial Statements .....................5

          Item 2.  Management's Discussion and Analysis of Financial Condition
                   and Results of Operations .........................................20

          Item 3.  Quantitative and Qualitative Disclosures About Market Risk ........37

Part II.  Other Information

          Item 1.  Legal Proceedings .................................................38

          Item 2.  Changes in Securities .............................................38

          Item 3.  Defaults Upon Senior Securities ...................................38

          Item 4.  Submission of Matters to a Vote of Security Holders ...............38

          Item 5.  Other Information .................................................38

          Item 6.  Exhibits and Report on Form 8-K ...................................39

Signatures ...........................................................................40
</Table>
<Page>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

(a)    CONSOLIDATED BALANCE SHEETS

           (in thousands of US dollars, except common shares amounts)

<Table>
<Caption>

                                                           SEPTEMBER 30        December 31,
                                                                   2001                2000
                                                            (UNAUDITED)
<S>                                                        <C>                 <C>

Assets

Current assets:
     Cash and cash equivalents (note 4)                    $    92,769         $    73,898
     Short-term investments (note 4)                            14,698              92,726
     Accounts receivable-trade net of
       allowance of $483 (December 31, 2000 - $52)              17,656               4,376
     Prepaid expenses and other receivables                      3,324               2,260
                                                           -------------------------------
                                                               128,447             173,260
Fixed assets                                                    16,965              11,297
Investments (notes 5 and 11)                                     6,583              12,196
Intangible and other assets (notes 7 and 11)                    19,898              90,563
                                                           -------------------------------
Total assets                                               $   171,893         $   287,316
                                                           ===============================

Liabilities and Shareholders' Equity

Current liabilities:
     Accounts payable                                      $     1,882         $     2,203
     Accrued liabilities                                        13,717              18,198
     Notes payable                                               3,572                   -
     Deferred revenue                                            3,178               1,887
     Deferred consideration                                      1,519               1,190
                                                           -------------------------------
                                                                23,868              23,478
Leasehold inducements                                              305                 375
Notes payable, net of current portion                            1,177                   -
Deferred consideration, net of current portion                   1,330               1,200

Shareholders' equity:
     Share capital (note 10):
         Authorized:
              Unlimited common shares
              Unlimited preferred shares
         Issued and outstanding:
              58,355,855 common shares
              (December 31, 2000 - 39,112,975)                 763,329             357,158
     Deferred stock-based compensation (note 6)                (29,634)            (14,946)
     Accumulated deficit                                      (588,449)            (79,949)
     Cumulative translation adjustment                             (33)                  -
                                                           -------------------------------
                                                               145,213             262,263
                                                           -------------------------------
Total liabilities and shareholders' equity                 $   171,893         $   287,316
                                                           ===============================
</Table>

          See accompanying notes to consolidated financial statements.


                                       1
<Page>

(b)    CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

             (in thousands of U.S. dollars except per share amounts)

<Table>
<Caption>
                                                                THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                   SEPTEMBER 30                   SEPTEMBER 30,
                                                                2001          2000             2001          2000
<S>                                                          <C>           <C>              <C>           <C>
Revenue:
     Product                                                 $     6,614   $     3,482      $    24,717   $     8,587
     Services                                                      3,427         2,632           13,251         4,606
                                                             --------------------------------------------------------
Total revenue                                                     10,041         6,114           37,968        13,193

Operating expenses:
     Cost of revenue                                               4,232         3,777           14,968         8,280
     Research and development                                      9,308         8,065           32,225        19,033
     Sales and marketing                                           9,751         3,632           29,374         9,396
     General and administrative                                    2,416         3,879           12,999        11,492
     Depreciation                                                  2,422         1,313            6,319         2,314
     Amortization of intangibles                                  26,964         7,917           78,209         9,267
     Stock-based compensation:                                                                                      -
         Cost of revenue                                            (171)           27              266            68
         Research and development                                  8,326           950           22,427         2,354
         Sales and marketing                                       2,804           335            8,148           829
         General and administrative                                2,757           243            6,643           603
     Restructuring costs (NOTE 11)                                     -             -            3,433             -
     Write-down of intangible and other assets (NOTE 11)         321,461             -          321,461             -
                                                             --------------------------------------------------------
     Total operating expenses                                    390,270        30,138          536,472        63,636
                                                             --------------------------------------------------------

Loss from operations                                            (380,229)      (24,024)        (498,504)      (50,443)
Interest income                                                    1,101         3,633            5,182         8,643
Equity in gain (loss) of affiliate                                  (420)          965           (1,178)          686

Loss before write-down of long-term investments                 (379,548)      (19,426)        (494,500)      (41,114)
Write-down of long-term investments (NOTE 11)                     (7,750)            -          (14,000)            -
                                                             --------------------------------------------------------
     Net loss for the period                                 $  (387,298)  $   (19,426)     $  (508,500)  $   (41,114)
                                                             --------------------------------------------------------

Other comprehensive income:
Unrealized holding gain (loss) on Cumulative
   translation adjustment                                           (170)            -              (33)            -
                                                             --------------------------------------------------------
                                                             $  (387,468)  $   (19,426)     $  (508,533)  $   (41,114)
                                                             ========================================================

Basic and diluted net loss per share                         $     (6.64)  $     (0.51)     $     (8.98)  $     (1.13)

Weighted-average number of shares used in computing
   basic and diluted loss per share (in thousands)
   (NOTE 10)                                                      58,317        37,961           56,624        36,246
                                                             --------------------------------------------------------
</Table>

          See accompanying notes to consolidated financial statements.


                                       2
<Page>

(c)    CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

            (in thousands of U.S. dollars, except share amounts)

<Table>
<Caption>
                                                                    THREE MONTHS ENDED               NINE MONTHS ENDED
                                                               SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                                                        2001            2000            2001            2000
<S>                                                            <C>             <C>             <C>             <C>
Cash flows from (used in) operating activities:
     Net loss for the period                                     $  (387,298)    $   (19,426)    $  (508,500)    $   (41,114)
     Depreciation and amortization                                    29,386           9,230          84,528           11581
     Stock-based compensation                                         13,716           1,555          37,484           4,103
     Other non-cash expenses                                             512            (171)            132             (65)
     Write-down of long-term investments (NOTE 11)                     7,750               -          14,000               -
     Write-down of intangible and other assets (NOTE 11)             321,461               -         321,461               -
     Equity in loss (gain) of affiliate                                  420            (965)          1,178            (686)
     Foreign exchange loss                                                 -             266              72             651
     Change in operating assets and liabilities:                                                           -
         Accounts receivable                                          (2,769)         (2,113)         (8,664)            (84)
         Prepaid expenses and other receivables                         (570)           (724)            (41)         (2,255)
         Accrued interest on short term investments                      706               -           1,872               -
         Accounts payable                                             (4,623)         (4,030)         (1,064)           (306)
         Accrued liabilities                                          (1,723)          1,765         (11,519)          5,233
         Deferred revenue                                             (2,441)         (1,322)           (852)         (2,238)
                                                               -------------------------------------------------------------
     Net cash flows used in operating activities                     (25,473)        (15,935)        (69,913)        (25,180)

Cash flows from (used in) financing activities:
     Principal repayment of notes payable                               (259)              -            (259)              -
     Issuance of common shares for cash                                   97             (36)            880         165,672
                                                               -------------------------------------------------------------
     Net cash flows from (used in) financing activities                 (162)            (36)            621         165,672

Cash flows from (used in) investing activities:
     Purchase of fixed assets                                         (5,299)         (2,998)        (10,032)         (8,777)
     Sale (purchase) of short-term investments                        47,800        (147,952)         76,156        (158,062)
     Purchase of intangible and other assets                            (422)            (68)         (1,014)         (2,136)
     Net sale (purchase) of long-term investments                      1,137               -          (7,264)        (11,250)
     Acquisitions                                                          -          (2,065)         30,248          (4,988)
                                                               -------------------------------------------------------------
     Net cash flows from (used in) investing activities               43,216        (153,083)         88,094        (185,213)

Effect of change in exchange rates on cash held in a foreign             228            (266)             68            (651)
   currency                                                    -------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                  17,810        (169,320)         18,871         (45,372)

Cash and cash equivalents, beginning of period                        74,959         189,235          73,898          65,287
                                                               -------------------------------------------------------------
Cash and cash equivalents, end of period                         $    92,769     $    19,915     $    92,769     $    19,915
                                                               -------------------------------------------------------------

Supplemental disclosures of non-cash investing
   and financing activities:
     Net assets acquired from acquisitions                       $         -     $        82     $    24,025     $     1,837
                                                               -------------------------------------------------------------
     Common shares issued upon acquisitions                                -       1,041,616      17,119,869       2,045,210
                                                               -------------------------------------------------------------
</Table>

          See accompanying notes to consolidated financial statements.


                                       3
<Page>

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

             (In thousands of U.S. dollars, except number of shares

           NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000

<Table>
<Caption>
                                                                       Deferred
                                                                      stock-based
                                                                     compensation                    Cumulative       Total
                                                Common shares         related to      Accumulated    translation   shareholders'
                                             Number        Amount    stock 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                                  -             -            -         (41,117)            -        (41,117)
Deferred stock-based compensation                    -        14,613      (14,613)              -             -              -
Amortization of deferred stock-based
   compensation                                      -             -        4,103               -             -          4,103
Issuance for cash on exercise of options       713,494           458            -               -             -            458
Issuance of common shares                    8,945,210       257,246            -               -             -        257,246
-------------------------------------------------------------------------------------------------------------------------------
Balances, September  30, 2000               39,061,130     $ 357,079    $ (16,419)      $ (57,802)    $       -      $ 282,858
-------------------------------------------------------------------------------------------------------------------------------

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

Loss for the period                                  -             -            -        (508,500)            -       (508,500)
Cumulative translation adjustment                    -             -            -               -           (33)           (33)
Deferred stock-based compensation                    -        48,951      (46,301)              -             -          2,650
Amortization of deferred stock-based
   compensation                                      -             -       31,613               -             -         31,613
Issuance for cash on exercise of options       978,872           880            -               -             -            880
Issuance of common shares                   18,264,038       356,340            -               -             -        356,340
-------------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 2001                58,355,885     $ 763,329    $ (29,634)      $(588,449)    $     (33)     $ 145,213
-------------------------------------------------------------------------------------------------------------------------------
</Table>

          See accompanying notes to consolidated financial statements.


                                       4
<Page>

(e)    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

1.     BASIS OF PRESENTATION:

       The accompanying 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 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. Unless
       otherwise noted, 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 September 30, 2001 and for the three and
       nine month periods ended September 30, 2001 and September 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.     SIGNIFICANT ACCOUNTING POLICES:

       The following should be read in conjunction with the Company's other
       significant accounting polices included in the Company's audited annual
       consolidated financial statements for the year ended December 31, 2000.

       REVENUE RECOGNITION

       The Company recognizes product revenue in accordance section 3400 of the
       Canadian Institute of Chartered Accountants' ("CICA") handbook and have
       applied relevant U.S. accounting standards including the American
       Institute of Certified Public Accountants ("AICPA"), Statement of
       Position ("SOP") 97-2, "Software Revenue Recognition" and SOP 98-9
       "Modification of SOP 97-2, Software Recognition, With Respect to Certain
       Transactions", the SEC Staff Accountant Bulletin No.101 - "Revenue
       Recognition in Financial Statements".


                                       5
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

2.     SIGNIFICANT ACCOUNTING POLICES (CONTINUED):

       The Company recognizes product revenue when the Company has an executed
       license agreement with the customer, the software product has been
       delivered, the amount of the fees to be paid by the customer is fixed and
       determinable, and collection of these fees is deemed probable. The
       Company considers fees related to arrangements with payment terms
       extending beyond twelve months not to be fixed or determinable. If the
       fee is not fixed or determinable, revenue is recognized as the payments
       become due from the customer. If collectibility is not considered
       probable, revenue is recognized when the fee is collected.

       The Company enters into software license agreements that provide for
       future royalty/license payments to be made based on a per user fee. These
       arrangements often specify a quarterly minimum payment. Revenue from the
       minimum payments is recognized on a monthly basis. Revenue associated
       with user fees in excess of any minimum payments is recognized when the
       amount becomes determinable, generally on a quarterly basis.

       Typically, software license agreements are multiple element arrangements
       as they include consulting, related maintenance and implementation fees.
       Arrangements that include consulting services are evaluated to determine
       whether those services are essential to the functionality of other
       elements of the arrangements. When services are considered essential,
       license and service revenue under the arrangement are recognized as
       services are performed as discussed below. When services are not
       considered essential, the entire arrangement fee is allocated to each
       element in the arrangement based on the respective vendor specific
       objective evidence of fair value of each element. The revenue allocable
       to the software license is recognized when the product revenue criteria
       are met. The revenue allocable to the consulting services is recognized
       as the services are performed. In instances where vendor specific
       objective evidence exists for undelivered elements but does not exist for
       delivered elements of a software arrangement, the Company uses the
       residual method of accounting.

       Services revenue is recognized as the services are performed in
       accordance with SOP 97-2 and SOP 81-1 "Accounting for Performance of
       Construction-Type and Certain Production-Type Contracts". Maintenance and
       support revenues paid in advanced are non-refundable and are recognized
       rateably over the term of the agreement, which is typically 12 months.


                                       6
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

2.     SIGNIFICANT ACCOUNTING POLICES (CONTINUED):

       Hosting service arrangements typically include a software license, a
       one-time setup fee, and a monthly flat fee or a monthly fee based on the
       number of users. The Company recognizes license revenue when the criteria
       for product revenue are met and when the customers have the contractual
       right to take possession of the software at any time without significant
       penalty and it is feasible for the customer to either run the software on
       its own hardware or to contract with another party unrelated to the
       Company to host the software. When these conditions do not exist, the
       software license fee is recognized ratably over the term of the contract.
       The one-time setup fee is recognized over the term of the hosting
       arrangement, and the application hosting services revenue is recognized
       monthly as earned on a fixed fee or variable rate basis.

       The Company enters into arrangements with original equipment
       manufacturers ("OEM") and resellers. Under these arrangements, the
       Company grants the OEM or reseller rights to sell products which
       incorporate the Company's products for a specific period of time. The
       Company's primary obligation to the OEM and reseller is to deliver a
       product master and any bug fixes under warranty provisions in order to
       maintain the product master in accordance with published specifications.
       In some arrangements, the Company receives prepaid, non-refundable
       minimum license fees from OEM or reseller. As the Company's primary
       obligation to an OEM or reseller is fulfilled upon delivery of the
       product master, the Company recognizes the prepaid, non-refundable
       minimum license fees as revenue upon delivery of the product master and
       upon meeting all other product revenue recognition criteria.

       The Company enters into sales agreements with certain customers from whom
       the Company acquires goods and services. In these instances, the Company
       recognizes revenue on products sold in accordance with Canadian Institute
       of Chartered Accountants' Handbook section 3830, "Non-Monetary
       Transactions" and the United States' Accounting Principles Board (APB)
       No. 29, "Accounting for Nonmonetary transactions", and Emerging Issues
       Task Force, or EITF, Issue No. 86-29, "Nonmonetary Transactions:
       Magnitude of Boot and Exceptions to the Use of Fair Value, Interpretation
       of Accounting Principles Board No. 29, Accounting for Nonmonetary
       Transactions". Transactions involving the exchange of monetary
       consideration representing 25% or greater of the fair value of the
       arrangement are considered to be monetary transactions. Monetary
       transactions and nonmonetary transactions that represent the culmination
       of an earnings process are recorded at the fair value of the products
       delivered or products and services received, whichever is more readily
       determinable, providing these fair values are determinable within
       reasonable limits. In determining the fair values of software
       arrangements, the Company considered the vendor specific objective
       evidence of fair value ("VSOE"), as defined in Statement of Position
       97-2, of the product delivered and the fair value of the asset received.
       For nonmonetary arrangements that do not represent the culmination of the
       earnings process, the exchange is recorded based on the carrying value of
       the products delivered, generally zero.


                                       7
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

2.     SIGNIFICANT ACCOUNTING POLICES (CONTINUED):

       Product and services revenues that have been prepaid but do not yet
       qualify for recognition as revenues under the Company's revenue
       recognition policy are reflected as deferred revenues on the Company's
       balance sheet.

3.     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.

       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.


                                       8
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

3.     ACQUISITIONS (CONTINUED):

       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>


                                       9
<PAGE>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

3.     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>
       --------------------------------------------------------------------------------------
                                                                   Nine months ended
                                                              September 30,     September 30,
                                                                   2001              2000
       --------------------------------------------------------------------------------------
                                                                (unaudited)       (unaudited)
       <S>                                                    <C>               <C>
       Revenue                                                $      38,172     $      19,767
       Pro forma loss for the period                               (518,727)         (159,553)
       Pro forma loss for the period per common share                 (9.00)            (2.99)
       --------------------------------------------------------------------------------------
</Table>

4.     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 held 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.


                                       10
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

4.     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>
       ---------------------------------------------------------------------------------
                                                      September 30,         December 31,
                                                               2001                 2000
       ---------------------------------------------------------------------------------
       <S>                                            <C>                   <C>
       Cash and cash equivalents:
           Cash                                         $    22,388          $     1,297
           Cash equivalents:
                Government T-Bills                           16,744               32,086
                Corporate bonds                              21,500               33,374
                Bearer Deposit Note                           4,999                    -
                Corporate commercial paper                   27,138                7,141
       ---------------------------------------------------------------------------------
                                                        $    92,769          $    73,898
       =================================================================================

       Short-term investments:
           Held-to-maturity:
                Corporate commercial paper              $    11,254          $    90,546
                Corporate bonds                               2,018                    -
                Government term deposits                          -                2,180
                Government T-Bills                              494                    -
                Cashable GIC                                    932                    -
       ---------------------------------------------------------------------------------
                                                        $    14,698          $    92,726
       =================================================================================
</Table>

5.     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 September 30, 2001, no sales between the parties have
       taken place.


                                       11
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

5.     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 of $7,621 and share consideration of 196,836 common
       shares of the Company valued at $1,937. This investment represents a
       shareholder interest of approximately 11% in Webhelp. The investment 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 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. No amounts have been paid or are
       payable to September 30, 2001 under the contingent consideration
       arrangement. As at September 30, 2001 184,533 of 820,150 common shares
       issued 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

       In the three months and nine months ended September 30, 2001, the Company
       wrote down $7,750 and $14,000 respectively as its long-term investments
       have experienced significant other than temporary declines in their
       values. Refer to note 11 "Charges".


                                       12
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

6.     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 nine months ended September 30, 2001 and relates to the Company's
       acquisition of TANTAU (note 3). 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.

7.     INTANGIBLE AND OTHER ASSETS:

<Table>
<Caption>
       --------------------------------------------------------------------------------
                                                     September 30,         December 31,
                                                              2001                 2000
       --------------------------------------------------------------------------------
       <S>                                           <C>                   <C>
       Goodwill                                         $   12,781           $   87,387
       Deferred acquisition costs                               --                9,385
       Acquired technology and other assets                 11,925               12,634
       --------------------------------------------------------------------------------
                                                            24,706              109,406

       Less accumulated amortization                         4,808               18,843
       --------------------------------------------------------------------------------
                                                        $   19,898           $   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. During the three month
       period ended September 30, 2001, the Company recorded an impairment
       charge of $321,461 related to intangible and other assets. See Note 11
       "Charges".


                                       13
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

8.     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                  Nine Months Ended
       ----------------------------------------------------------------------------------------------------------
                                              September 30,      September 30,     September 30,    September 30,
                                                        2001              2000              2001             2000
       ----------------------------------------------------------------------------------------------------------
       <S>                                    <C>                <C>               <C>              <C>
       Net revenue by geographic locations:
           North America                          $    8,773         $   6,114        $   27,008       $   13,193
           Europe                                        382                 -             6,054                -
           Asia Pacific                                  886                 -             4,906                -
       ----------------------------------------------------------------------------------------------------------
                                                  $   10,041         $   6,114        $   37,968       $   13,193
       ==========================================================================================================
</Table>

<Table>
<Caption>
       ----------------------------------------------------------------------------------------------------------
                                                      September 30, 2001               September 30, 2000
       ----------------------------------------------------------------------------------------------------------
                                                                 Intangible                          Intangible
                                                    Fixed         and other             Fixed         and other
                                                   assets            assets            assets            assets
       ----------------------------------------------------------------------------------------------------------
       <S>                                     <C>               <C>                <C>              <C>
       North America                           $   15,468        $   19,898         $   9,712        $   90,750
       Europe                                       1,366                 -                25                 -
       Asia Pacific                                   131                 -                39                 -
       ----------------------------------------------------------------------------------------------------------
                                               $   16,965        $   19,898         $   9,776        $   90,750
       ==========================================================================================================
</Table>

       For the nine months ended September 30, 2001, one customer accounted for
       11% of revenue. For the nine months ended September 30, 2000, four
       customers accounted for 41%, 20%, 18% and 16% of revenue, respectively.


                                       14
<PAGE>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

9.     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>
       -------------------------------------------------------------------------------------------------------
                                                                                     Nine Months Ended
       -------------------------------------------------------------------------------------------------------
                                                                            September 30,        September 30,
                                                                                     2001                 2000
       -------------------------------------------------------------------------------------------------------
       <S>                                                                  <C>                  <C>
       Related party balances:
           Accounts receivable, net of allowance
              for doubtful accounts of  nil (September 30, 2000-$92)            $       -           $    2,249
           Deferred revenue                                                             -                2,934
       -------------------------------------------------------------------------------------------------------
       Related party transactions:
           Net revenue:
                Product                                                         $       -           $    8,532
                Service                                                                 -                4,037
       -------------------------------------------------------------------------------------------------------
</Table>

10.    SHARE CAPITAL:

       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 September 30, 2001 and December 31, 2000, there were options
       outstanding to acquire 8,537,052 and 3,973,522 common shares of the
       Company, respectively.

       The Company has excluded from the calculation of diluted earning per
       share, all common shares potentially issuable upon the exercise of stock
       options and other potentially convertible instruments that could dilute
       basic per share in the future, because to do so would have been
       anti-dilutive.


                                       15
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

11.    CHARGES:

       For the three and nine months ended September 30, 2001, the Company
       recorded charges for restructuring activities and the write-down of
       long-term investments, goodwill and other intangible assets. There were
       no such charges for the three and nine months ended September 30, 2000.
       The following table summarizes these charges:

<Table>
<Caption>
                                   SEPTEMBER 30, 2001            CUMULATIVE DRAWDOWN
                              ----------------------------      ----------------------        PROVISION
                               THREE MONTHS    NINE MONTHS        CASH        NON-CASH        BALANCE AT
                                   ENDED          ENDED         PAYMENTS       CHARGES    SEPTEMBER 30, 2001
                              ----------------------------      ----------------------    -------------------
<S>                            <C>             <C>              <C>          <C>          <C>
Restructuring charge:
   Severance                       $      -      $   2,259       $ 2,059     $       -              $     200
   Lease exit costs                       -          1,174             -             -                  1,174
                              -------------------------------------------------------------------------------
                                   $      -      $   3,433       $ 2,059     $       -              $   1,374
                              ===============================================================================

Write down of intangible and
    other assets:
    Acquired businesses
       Goodwill                    $ 299,872     $ 299,872       $     -     $ 299,872              $       -
       Acquired technology             5,252         5,252             -         5,252                      -
       Other                           9,609         9,609             -         9,609                      -
                              -------------------------------------------------------------------------------
                                     314,733       314,733             -       314,733                      -
    WAEF technology                    6,728         6,728             -         6,728                      -
                              -------------------------------------------------------------------------------
                                   $ 321,461     $ 321,461       $     -     $ 321,461              $       -
                              ===============================================================================
Write down of long-term
    investment                     $   7,750     $  14,000       $     -     $  14,000              $       -
                              -------------------------------------------------------------------------------
Total Charges                      $ 329,211     $ 338,894       $ 2,059     $ 335,461              $   1,374
                              ===============================================================================
</Table>

       RESTRUCTURING CHARGE:

       With the downturn in general economic conditions, the Company has been
       working to identify areas to reduce costs and leverage the
       infrastructure that it has obtained through acquisitions and growth by
       eliminating duplicate resources and positions, narrowing its focus to
       certain product markets and streamlining operating processes. As a result
       of this realignment, in the three months ended June 30, 2001 the Company
       recorded a restructuring charge of $3.4 million related to employee
       severance and lease costs for the closing of our facilities. In October
       2001, the Company announced a further reduction in its work force of
       approximately 350 positions and associated infrastructure costs as
       described in Note 12, "Subsequent Events".


                                       16
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

11.    CHARGES (CONTINUED):

       WRITE-DOWN OF INTANGIBLE AND OTHER ASSETS:

       (i) ACQUIRED BUSINESSES

       The Company performed an assessment of the carrying values of intangible
       and other assets recorded in connection with its various acquisitions.
       The assessment was performed because a number of factors indicated that
       impairments have arisen in the period ended September 30, 2001. The main
       indicators of impairment were the significant changes in valuations of
       companies in the technology sector, a reduction in the multiples used in
       valuing technology companies such as revenue multiples, significant
       negative industry and economic trends impacting both the Company's
       current operations and expected future growth rates, and decisions made
       by the Company related to the abandonment of certain acquired technology.
       Based on these factors, the Company concluded that a significant other
       than temporary impairment existed with respect to the Company's
       intangible assets, which primarily relates to the goodwill and acquired
       technology associated with the acquisitions of Ezlogin.com, Inc.,
       Spyonit.com, Inc. and TANTAU Software Inc.

       In quantifying the impairment charge, the Company compared the expected
       future cash flows of each acquisition, including terminal value, to the
       respective carrying value of the assets of the business. Variables in the
       cash flow include estimated revenue contribution to the Company's
       overall revenues and estimated costs. The cash flow periods used ranged
       between three and five years, consistent with the useful life of the
       related asset acquired. The discount rate ranged between 15 and 20
       percent and is based on the risk free rate, adjusted for risk factors of
       the acquired company.

       As a result of the Company's review, the Company determined that the
       carrying values of the acquired businesses were not fully recoverable.
       Accordingly, the Company recorded, in the three months ended September
       30, 2001, a $314,733 write down of intangible and other assets based on
       the amount by which the carrying amount of the intangible and other
       assets exceeded the fair value calculated as described in the preceding
       paragraph. The goodwill and intangible assets write-down relates to the
       goodwill and intangible assets that arose in the businesses acquisitions
       that the Company acquired primarily through the issuance of shares and
       replacement options which were valued, for accounting purposes, on the
       respective dates of the acquisition which was significantly higher than
       the Company's current trading price.


                                       17
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

11.    CHARGES (CONTINUED):

       (ii) ACQUIRED TECHNOLOGY

       For the three month period ended September 30, 2001, the Company
       performed a review of the carrying value of its "Web Application Event
       Framework" technology (WAEF) which it acquired from Webhelp Inc. on March
       26, 2001. During the course of the review, the Company considered its
       future use of WAEF in light of the restructuring of its business and the
       downturn in the economy and concluded that the WAEF technology was not
       expected to be part of the Company's future strategy. The Company
       currently does not have any intention to incorporate this technology into
       its business. As a result, the Company reduced the carrying value of this
       technology to nil and recorded a charge of $6,728.

       WRITE-DOWN OF LONG-TERM INVESTMENTS:

       In the three and nine months ended September 30, 2001, the Company
       performed a review of its long term investments. Due to adverse changes
       in operating market conditions, several of the Company's long term
       investments in other companies have experienced a significant other them
       temporary decline in their values. In order to determine the amount of
       the write-down, the Company assessed the fair market value of its
       investments and compared it to the investments' carrying value. The fair
       market value of these investments were based on a combination of the
       following: (i) if public, recent trading prices and trend in trading
       prices; (ii) values indicated by recent rounds of financing in the
       investee company; (iii) valuations performed by the investee company or
       venture capitalists if the invested company is seeking a round of
       financing and (iv) changes in the market value of the investment relative
       to industry indices. For the three months and nine months ended September
       30, 2001, the Company recorded $7,750 and $14,000 respectively as an
       other than temporary decline in value.


                                       18
<Page>

                               724 SOLUTIONS INC.
                   Notes to Consolidated Financial Statements

             For the three and nine months ended September 30, 2001
                                   (Unaudited)
            (In thousands of U.S. dollars, except per share amounts)

12.    SUBSEQUENT EVENTS

       In October 2001, the Company continued with its plan to restructure and
       realign its business which includes reduction of its worldwide work force
       reduction by approximately 350 employees, closure of redundant
       facilities, and write-off of unused fixed assets. Approximately 183
       employees were terminated in October 2001 with the remaining employees
       continuing their employment until January 31, 2002. The Company expects
       to incur a charge in the fourth quarter of 2001 of approximately $16.2
       million, consisting of severance and benefits costs, lease exit costs for
       the closing of redundant facilities, write-offs of fixed assets and stock
       compensation expenses related to the immediate recognition of deferred
       stock compensation for those employees whose stock options vest upon
       termination of employment. The following summarizes these charges.

<Table>
<Caption>
                                   CASH COSTS    NON-CASH COSTS    TOTAL PROVISION
                                   -----------------------------------------------
       <S>                         <C>           <C>               <C>
       Severance                      $ 6,117            $    -            $ 6,117
       Lease exit costs                 5,661                 -              5,661
       Stock compensation charge            -             1,352              1,352
       Fixed Assets write-down              -             3,059              3,059
                                   -----------------------------------------------
                                      $11,778            $4,411            $16,189
                                   ===============================================
</Table>


                                       19
<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 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, credit card,
payments and alerts solutions, 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, 724 Frameworks and solutions
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 services.

         Using our solutions, 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 and we have entered into key strategic customer relationships with two
leading mobile network operators, Nortel Networks and Aspire Technologies. With
corporate offices in Toronto, Canada and Austin, Texas, we have development and
sales offices around the world, including Australia, Barbados, Finland, Hong
Kong, Japan, the Netherlands, Switzerland, the United Kingdom and the United
States.

         Our consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles, which conform, in all
material respects, with U.S. generally accepted accounting principles.


                                       20
<PAGE>

RESTRUCTURING AND IMPAIRMENT CHARGES

RESTRUCTURING

         With the downturn in general economic conditions, we have been working
to identify areas to reduce costs and leverage the infrastructure that we have
obtained through our acquisitions and growth by eliminating duplicate resources
and positions, narrowing our focus to our product markets and streamlining our
operating processes. As a result of this realignment, in the three months ended
June 30, 2001 we recorded a restructuring charge of $3.4 million related to
employee severance and lease costs for the closing of our facilities. We expect
to incur a charge in the fourth quarter of 2001 of approximately $16.2 million,
consisting of severance and benefits costs, non-cancelable lease costs for the
closing of redundant facilities, write-offs of fixed assets and stock
compensation expenses related to the immediate recognition of deferred stock
compensation for those employees whose stock options vest upon termination of
employment. The cost realignment is critical to our plan to achieve operational
profitability. In the restructuring, we narrowed our product market focus, we
realigned our organization, developed a single product architecture and roadmap,
unified company network and infrastructure, integrated business processes and
purchasing and consolidated worldwide offices.

IMPAIRMENT CHARGES

         We performed an assessment of the carrying value of the remaining
intangible and other identifiable assets recorded in connection with our
acquisitions of TANTAU Software, Spyonit.com and Ezlogin.com. The assessments
were made because a number of factors indicated that impairment existed in the
period ended September 30, 2001, including changes in valuations of companies in
the technology sector, a reduction in the multiples used in valuing technology
companies such as revenue multiples, significant negative industry and economic
trends impacting our current operations and the expected future growth rates,
and our decisions related to the abandonment of certain acquired technology.
Based on these factors, we concluded that a significant other than temporary
impairment existed with respect to these assets and recorded a charge of $314.7
million for the three and nine months ended September 30, 2001.

         For the three month period ended September 30, 2001, we performed a
review of the carrying value of our "Web Application Event Framework" technology
(WAEF) which we acquired from Webhelp in March 2001. During the course of the
review, we considered our future use of WAEF in light of the restructuring of
our business and the downturn in the economy and concluded that the WAEF
technology was not expected to be a part of our future strategy. We currently do
not intend to incorporate this technology into our business. As a result, we
reduced the carrying value of this technology to zero and recorded a charge of
$6.7 million.

         In the three and nine months ended September 30, 2001, we reviewed the
carrying values of our long term investments. Due to adverse changes in
operating market conditions, several of our long term investments in other
companies have experienced a significant other than temporary decline in their
values. In order to determine the amount of the write down, we assessed the fair
market value of these investments and compared them to the investments'


                                       21
<PAGE>

carrying values. The fair market value of these investments was based on a
combination of the following:

o    if public, recent trading prices and trend in trading prices;

o    values indicated by recent rounds of financing in the investee company;

o    valuations performed by the investee company or venture capitalists if the
     investee company is seeking a round of financing; and

o    changes in the market value of the investment relative to industry indices.

         For the three months and nine months ended September 30, 2001, we
recorded $7.8 million and $14.0 million respectively as an other than temporary
decline in value.

TANTAU SOFTWARE 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. 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.

         For the three months ended September 30, 2001, we performed an
assessment of the carrying value of the remaining intangible and other
identifiable assets recorded in connection with our acquisitions, including
TANTAU. See "Restructuring and Impairment Charges" and "Results of Operation
-Write-down of Intangible and Other Assets".

SOURCES OF REVENUE

         Our revenue is primarily derived from the licensing of our products,
provision of related services, including installation, integration, training and
maintenance support, and our application hosting services. We recognize revenue
from our license agreements when all the following conditions are met:

o    We have an executed license agreement with the customer;

o    We have delivered the software product to the customer;

o    The amount of the fees to be paid by the customer is fixed and
     determinable; and

o    Collection of these fees is deemed probable.

         Typically, software license agreements are multiple element
arrangements as they include related maintenance and implementation fees.
Accordingly, the entire arrangement fee is


                                       22
<PAGE>

allocated to each element in the arrangement based on the respective vendor
specific objective evidence of fair value of each element.

         Services revenue is recognized as the services are performed.
Maintenance and support revenues paid in advance are non-refundable and are
recognized rateably over the term of the agreement, which is typically 12
months. Application hosting services revenue is recognized monthly as earned on
a fixed fee or variable rate basis, calculated according to the number of users.
Product and services revenues that have been prepaid but do not yet qualify for
recognition as revenues under our revenue recognition policy are reflected as
deferred revenues on our balance sheet.

PRODUCT REVENUE

         Currently, product revenue consists of the following:

     o   fixed fee licenses in which our customers pay us a fixed annual fee and
         we are required to deliver additional technology that we develop during
         the term of the agreement. These fees have been recognized using the
         subscription method of accounting, commencing with the delivery of the
         first product in the contract. Our agreements with Bank of Montreal and
         Bank of America use this model.

     o   variable license fees based on a per user fee with specified quarterly
         minimum payments. We typically provide discounts and/or maximum
         quarterly payments to our customers based on the number of their
         customers using our applications. We recognize revenue from these
         contracts on a quarterly basis as the amount is determined. Our revenue
         under this model will vary with the number of our customer's end-users.
         To date, we have not received revenues from user fees in excess of any
         minimum payments. However, over time, we expect these fees to become a
         significant portion of our revenues once our customers rollout services
         based upon our solution to a substantial number of their customers.

     o   variable license fees 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 when we meet the
         four revenue recognition criteria listed above. 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.

     o   one-time license fee for a fixed number or copies of unlimited use of
         the software, in exchange for a license with a perpetual term. We
         typically recognize the upfront fees in the period the contract is
         executed or shortly thereafter, provided that we have vendor specific
         objective evidence of fair value and our revenue recognition criteria
         are met.


                                       23
<PAGE>

     o   reseller arrangements in which 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 fees when we have met our revenue
         recognition criteria.

SERVICE REVENUE

         IMPLEMENTATION AND CUSTOMER SERVICE FEES

         Revenue from implementation and customer services include 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

         For some of our customers, we 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
rateably over the term of the hosting arrangement, and the monthly fees are
recognized on a monthly basis.

         For a more detailed description of revenue recognition polices, refer
to note 2 of our consolidated financial statements.


                                       24
<PAGE>

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000

REVENUE

         PRODUCT REVENUE

         In the three and nine month periods ended September 30, 2001, product
revenue increased to $6.6 million and $24.7 million, respectively, from $3.5
million and $8.6 million in the comparative three and nine month periods of
2000. Product revenue increased in 2001 compared to 2000 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 credit cards, alerts, payments 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.

         In the third quarter of 2001, we announced a broadened focus and a move
into the mobile operator market as a strategic extension of our core competency
of enabling secure mobile transactions. We believe that this move is an
important part of our growth and our business plan moving forward.

         SERVICE REVENUE

         Service revenue increased to $3.4 million and $13.3 million for the
three and nine month periods ended September 30, 2001, respectively, compared to
$2.6 million and $4.6 million in the same periods of 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, credit card, payments
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.

         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 licenses paid for third-party software
used with our products.

         Cost of revenue was $4.2 million and $15.0 million for the three and
nine month periods ended September 30, 2001, respectively, compared to $3.8
million and $8.3 million in the same periods of 2000. The increase is mainly due
to the fact that in 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 nine month periods ended September 30, 2001 was 42% and 39% of


                                       25
<PAGE>

revenue, respectively, compared to 62% and 63% for the three and nine month
periods ended September 30, 2000, respectively. 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 continue to utilize the infrastructure that we have built and
leverage the experience that we have gained in enabling our customers to deploy
our products. In addition, as part of our restructuring efforts and realigning
of our business, we have decreased the number of professional services personnel
and narrowed the scope of our product offerings. By focusing our smaller number
of employees on our core competencies such as banking and brokerage customers
and mobile network operators we are seeking to decrease cost of revenues, in
absolute dollars, in the next three months.

         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 $9.3 million and
$32.2 million in the three and nine month periods ended September 30, 2001,
respectively, from $8.1 million and $19.0 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 acquisitions of Ezlogin, Spyonit and TANTAU. This
increase also resulted from our investment in our mobile commerce services
platform. R&D expense, as a percentage of revenue, was 93% and 85% in the three
and nine month periods ended September 30, 2001, respectively, compared to 132%
and 144% in the same periods in 2000.

         The goals of our restructuring and realignment of our business in 2001,
were to have a more streamlined, integrated and focused product road map and
reduce duplication in the R&D process. We have begun to see benefits in our
restructuring materialize in the third quarter of fiscal 2001 as R&D expenses
decreased in absolute dollars from the second quarter of 2001, when the
restructuring initiative began. We anticipate that this trend will continue
during the next three months with the additional reduction in R&D personnel and
non-discretionary R&D expenditures announced in October 2001. We will also
continue to evaluate our R&D expenditure needs based on new product architecture
and services and the current market environment.

         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.

         Sales and marketing (S&M) expenses were $9.8 million and $29.4 million
for the three and nine month periods ended September 30, 2001, respectively,
compared to $3.6 million and $9.4 million in the same periods in 2000. These
costs increased primarily because in 2001, with the acquisition of TANTAU, we
had additional sales personnel to manage our relationships with


                                       26
<PAGE>

our major customers and strategic alliances 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. S&M expenses, as a percentage of revenues,
increased to 97% and 77% for the three and nine month periods in 2001,
respectively, from 59% and 71% in 2000.

         We have reduced the number of our worldwide sales and marketing
personnel and discretionary marketing programs as part of our restructuring
efforts in 2001 and in reaction to the downturn in economic conditions in our
target markets. We expect to see S&M expenses decrease in absolute dollars in
the next three months. We will continue to monitor our pace of marketing
expenditures to help ensure that they remain aligned with the core opportunities
that we have targeted as well as prevailing market conditions.

         GENERAL AND ADMINISTRATIVE

         General and administrative (G&A) expenses include salaries and benefits
for corporate personnel and other general and administrative expenses such as,
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 $2.4 million for the third quarter of
2001, from $3.9 million in the same quarter in 2000. The decrease is mainly due
to the fact in June 2001, all G&A expenditures were examined and plans were put
in place to reduce these costs. For the nine month period ended September 30,
2001, G&A expenses increased to $13.0 million from $11.5 million in the same
period of 2000. The increase in G&A expenses reflected expenditures incurred in
the first two quarters of 2001, primarily related to the enhancement of our
international infrastructure necessary to support our growing business as a
result of acquiring TANTAU. G&A expenses as a percentage of revenues decreased
to 24% and 34% for the three and nine month periods ended September 30, 2001,
respectively, from 63% and 87% in the same periods of 2000.

          We expect that our G&A expense will remain at current levels, in the
next three months as we believe that we have the infrastructure required to
support our business in the current market environment.

          DEPRECIATION AND AMORTIZATION

          Depreciation expense increased to $2.4 million and $6.3 million in the
three and nine month periods ended September 30, 2001, respectively, compared to
$1.3 million and $2.3 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 used for
research and development and computer hardware purchased for our hosting
facilities accounted for the remainder of the increase. We expect that
depreciation expense will be stable or lower in the next three months as we have
made significant reductions in our capital expenditure budget.


                                       27
<PAGE>

          Amortization expense increased to $27.0 million and $78.2 million in
the three and nine month periods ending September 30, 2001, from $7.9 million
and $9.3 million in corresponding period in 2000. The increase was mainly due to
the goodwill and acquired intangibles from our acquisitions of Ezlogin, Spyonit
and TANTAU. As a result of the write-down of our intangible and other assets in
the three month period ended September 30, 2001, as described in Note 11 of our
consolidated financial statements, we have approximately $10.2 million and $9.7
million as the carrying value of acquired technology and goodwill respectively.
Acquired technology will be amortized over a period of two years, while goodwill
will be amortized only in the fourth quarter of 2001 with its carrying value at
December 31, 2001 assessed for impairment only, rather than being amortized, on
a prospective basis starting January 1, 2002. This treatment is according to FAS
No. 142 which we are required to adopt on January 1, 2002. See "Recent
Accounting Polices and Regulations".

          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 3 of our consolidated financial statements) and
compensation expense relating to the contingent consideration incurred as part
of our acquisition of YRLess. Stock-based compensation increased to $13.7
million and $37.5 million in the three and nine month periods ending September
30, 2001, from $1.6 million and $3.9 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 is being amortized over a maximum period of two
years, starting January 17, 2001.

          Some of our employees who were terminated in October 2001 were issued
stock options for which we recorded a deferred stock compensation amount.
Because some of these employees have options that vest immediately upon
termination, we expect to expense the unamortized portion of the deferred stock
compensation amount of $1.4 million as non-cash stock compensation expense in
the fourth quarter of 2001.

          A large percentage of our outstanding options have exercise prices
that are significantly higher than the current prices at which our common shares
trade on the Nasdaq National Market and The Toronto Stock Exchange. Although we
have not yet approved a program, we are evaluating strategies to deal with this
issue, including additional grants and ways to effectively reduce the original
exercise price of the said options. Depending on the strategy approved, we may
be required to write-off the related unamortized portion of the deferred stock
based compensation as a one time non-cash stock compensation expense.

          The employee terminations and any applicable stock option strategies
will result in a reduction in the deferred stock compensation amount as at
September 30, 2001 and accordingly, starting January 1, 2002 we would expect to
see a reduced amount recorded for stock compensation expense.


                                       28
<PAGE>

          RESTRUCTURING COSTS

          In the three months ended June 30, 2001 we adopted a restructuring
plan and incurred a restructuring charge of $3.4 million relating to severance
costs and lease exit costs. Most of the severance cost related to this
restructuring has been paid by September 2001. Included in our "Accrued
Liabilities" is approximately $1.3 million in restructuring reserve relating to
unpaid severance costs and lease exit costs. In October 2001, in continuation of
our restructuring plan which was initiated in June 2001, we announced an
additional worldwide workforce reduction, consolidation of excess facilities,
and restructuring of certain business functions. We expect to record $16.2
million in restructuring charge in the fourth quarter of 2001. For additional
information regarding the restructuring plan, see "Restructuring and Impairment
Charges" and "Liquidity and Capital Resources".

WRITE-DOWN OF INTANGIBLE AND OTHER ASSETS

         ACQUIRED BUSINESSES

         We performed an assessment of the carrying values of intangible and
other assets recorded in connection with our various acquisitions. The
assessment was performed because a number of factors indicated that impairments
have arisen in the period ended September 30, 2001. The main indicators of
impairment were the significant changes in valuations of companies in the
technology sector, a reduction in the multiples used in valuing technology
companies such as revenue multiples, significant negative industry and economic
trends impacting both our current operations and expected future growth rates,
and our decisions related to the abandonment of certain acquired technology.
Based on these factors, we concluded that a significant other than temporary
impairment existed with respect to our intangible assets, which primarily
relates to the goodwill and acquired technology associated with the acquisitions
of, Ezlogin, Spyonit and TANTAU.

         In quantifying the impairment charge, we compared the expected future
cash flows of each acquisition, including terminal value, to the respective
carrying value of the assets of the business. Variables in the cash flow include
estimated revenue contribution to our overall revenue and estimated costs. The
cash flow periods used ranged between three and five years, consistent with the
useful life of the related asset acquired. The discount rate ranged between 15
and 20 percent and is based on the risk free rate, adjusted for risk factors of
the acquired company.

         As a result of our review, we determined that the carrying values of
the acquired businesses were not fully recoverable. Accordingly, we recorded, in
the three months ended September 30, 2001, a $314.7 million write down of
intangible and other assets based on the amount by which the carrying amount of
the intangible and other assets exceeded the fair value calculated as described
in the preceding paragraph. The goodwill and intangible assets write-down
primarily relates to the goodwill and intangible assets that arose in the
businesses acquisitions that we acquired primarily through the issuance of
shares and replacement options which were valued, for accounting purposes, on
the respective dates of the acquisition which was significantly higher than the
our current trading price.


                                       29
<PAGE>

         ACQUIRED TECHNOLOGY

         For the three month period ended September 30, 2001, we recorded a $6.7
million charge as a reduction in the carrying value of our "Web Application
Event Framework" technology (WAEF) which we acquired from Webhelp Inc. March
2001. See "Restructuring and Impairment Charges".

         WRITE-DOWN OF LONG-TERM INVESTMENTS

         For the three months and nine months ended September 30, 2001, we
recorded $7.8 million and $14.0 million respectively as an other than temporary
decline in value of our long-term investments. See "Restructuring and Impairment
Charges".

         INTEREST INCOME

         Interest income decreased to $1.1 million and $5.2 million in the three
and nine month periods ended September 30, 2001, compared to $3.6 million and
$8.6 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 compared to the year ended December 31, 2000.

         EQUITY IN LOSS OF AFFILIATE

         We owned 24.9% of the equity of Maptuit, as of September 30, 2001. Our
investment in Maptuit is accounted for using the equity method. Our share in the
net loss of Maptuit increased to $420,000 and $1.2 million for the three and
nine month periods ending September 30, 2001, respectively, compared to a net
gain of $965,000 and $686,000 in the comparative periods of 2000. The net gains
recorded in 2000 were attributable to dilution gains recorded as a result of
Maptuit financings in 2000.

         NET LOSS

         We recorded a net loss of $387.3 million and $508.5 million for the
three and nine month periods ended September 30, 2001, compared to net losses of
$19.4 million and $41.1 million for the same periods in 2000. Our net loss
increased as we recorded significant non-cash charges for impairment in value of
our intangible and other assets and other than temporary decline in value of our
long-term investments 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 expand our
market share, prior to our adoption of restructuring plan, in the first six
months of fiscal 2001. In addition, we incurred restructuring costs related to
the realignment our operations to eliminate duplicate resources.

         In June 2001, we began our restructuring initiative with the aim to
significantly reduce complexity in our business and process in addition to
streamlining our investment in strategic product development. We have
experienced operational savings as a result of our June 2001 restructuring. With
the further restructuring and the realignment of our business that we planned
beginning in October 2001, we expect to further reduce duplication in process
and excess


                                       30
<PAGE>

facilities and infrastructure resulting in a more streamlined organization with
more efficient process and integrated infrastructure.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities was $25.5 million and $69.9
million for the three and nine month periods ended September 30, 2001,
respectively, compared to $15.9 million and $25.2 million in the same periods
last year. Net cash used in operating activities in the third quarter of 2001
consisted mainly of our net loss of $387.3 million, offset by the write-down of
our intangible and other assets of $321.5 million, write-down of long-term
investments of $7.8 million due to an other than temporary decline in value,
depreciation and amortization expenses of $29.4 million and stock-based
compensation expense of $13.7 million.

         Cash provided (used) by financing activities was ($162,000) and
$621,000 in the three and nine month periods ended September 30, 2001,
respectively, compared to ($36,000) and $165.7 million in the same periods in
2000. The funds of $165.7 million 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 and repayment of a portion
of the principal on our loan from Comdisco.

         Cash used in investing activities, before the sale of short-term
investments, was $4.6 million for the quarter ended September 30, 2001, compared
to $5.1 million for the same period in 2000. For the nine month period ended
September 30, 2001, our cash flows from investing activities, before the sale of
short-term investments, amounted to $11.9 million, compared to a use of cash of
$27.2 million in the same period in 2000. The reason for the increase in the
nine months ended September 30, 2001 compared to September 30, 2000 was because
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 nine months of
2001; the amounts were not reinvested as the funds were used in operations.

         As a result of the continuation of the restructuring and realignment of
our business initiative, that we announced in October 2001, we expect to incur
costs which will result in a cash outflow from operating activities relating to
our worldwide work force reduction of approximately 350 employees, including
severance and fringe benefits; lease exit costs for the facilities that we plan
on closing around the world, and write-off of unused fixed assets. Approximately
183 employees were terminated in October 2001 with the remaining employees
continuing their employment until January 31, 2002. The following table
summarizes the anticipated charges:

<TABLE>
<CAPTION>

                             CASH COSTS      NON-CASH COSTS    TOTAL PROVISION
                             ---------------------------------------------------
<S>                          <C>             <C>               <C>
 Severance                    $ 6,117           $   -               $ 6,117
 Lease exit costs               5,661               -                 5,661
 Stock compensation charge        -               1,352               1,352
 Fixed Assets write-down          -               3,059               3,059
                             ---------------------------------------------------
                              $11,778           $ 4,411             $16,189
                             ---------------------------------------------------
</TABLE>


                                       31
<PAGE>

         We have initiatives in place to reduce capital expenditure costs, as we
plan on using and redeploying, where possible, our existing fixed assets. In
addition, in the fourth quarter of fiscal 2001, we have commitments to make
minimum lease payments relating to facilities and leased equipment that will be
in use of $2.2 million; some of these commitments have terms that extend until
the year 2008. In February 2000, TANTAU borrowed $5.0 million under a note and
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, we have made $259,000 in principal payments.
As at September 30, 2001 we have a commitment to pay $5.1 million in principal
and interest payments.

         Due to the operational savings that we expect to achieve as a result of
our restructuring, based on our projected operating expenses for the first
quarter of 2002 of $12 million to $12.5 million, 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 acquired
in business


                                       32
<PAGE>

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 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 estimated
cost reductions; our future ability to fund our investments and become
profitable; our development of new products and relationships in the mobile
network and financial services marketplace; our plans to operate in the mobile
operator


                                       33
<PAGE>

market; the rate at which consumers will adopt wireless applications; our
ability to increase our customer base; the services that we or our customers
will introduce and the benefits that end users will receive from these services;
our plans to use or not to use certain types of technologies in the future; our
future cost of revenue, gross margins and net losses; our future restructuring,
research and development, sales and marketing, general and administrative,
stock-based compensation, depreciation and amortization expenses; our future
interest income; the value of our goodwill and other intangible assets; 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. These risks include the risks
described in our SEC filings, including 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 encourage you to
carefully review these risks in order to evaluate an investment in our
securities. Some of the key risks that could cause actual results to differ
materially from those projected or anticipated also include the risks discussed
below. We do not undertake any obligation to update this forward-looking
information, except as required under applicable law.

         GENERAL INDUSTRY, ECONOMIC AND MARKET CONDITIONS. Our future revenues
and operating results are dependent to a large extent upon general economic
conditions, conditions in the wireless market and within that market our primary
target markets of financial institutions and mobile network operators. As
economic activity slowed in these markets during 2001, particularly in the
second quarter, our sales cycle began to lengthen significantly as potential
customers began to reduce their spending commitments, including their
willingness to make investments in new wireless services. Moreover, adoption of
wireless services has not proceeded as rapidly as previously anticipated. As a
result of these factors, our revenues began to decline in the second quarter of
2001. If general economic conditions continue to be adverse, if the economies in
which our target customers are located enter into a recession, or if demand for
our solutions does not expand, our ability to increase our customer base may be
limited, and our revenue may decrease further.

         ENTERING NEW MARKETS. We have recently made mobile network operators a
primary focus of our activities. We have limited experience in marketing our
services to, and working with, these customers. In order to encourage these
potential customers to adopt and implement our solutions, we may incur higher
costs than we have in the past, and we may not be able to attract a large number
of these customers. Mobile network operators may not be successful in rolling
out our services, and subscribers to these services may not seek to use them.
Any developments of this kind could limit our ability to sell our solutions to
companies in this industry, may increase our expenses and may damage our
reputation.

         INTERNATIONAL MARKETS. Since December 31, 2000, we have begun to
recognize revenues from our sales in international markets. We recognized net
revenue of $6.1 million and $4.9 million from sales in Europe and Asia Pacific
during the first nine months of 2001. In the past, in deriving our revenue
forecasts, we have expected that sales in these regions would be a major factor
in our growth, particularly since the use of wireless networks and wireless
devices have


                                       34
<PAGE>

generally proceeded more rapidly there. However, in recent months, some key
countries in these regions, have experienced decreasing economic activity, and
our sales to these regions declined in the third quarter of 2001. Accordingly,
our sales to these regions during 2001 may not be indicative of future trends,
and may not expand significantly during the next several quarters.

         LIQUIDITY. In order to help ensure that we would have sufficient
capital to take advantage of our core business opportunities, we have taken
significant actions since the second quarter of 2001 to reduce our operating
expenses. However, most of our operating expenses, such as employee compensation
and lease payments for facilities and equipment, are relatively stable, and
these expense levels are based in part on our expectations regarding future
revenues. As a result, any shortfall in our revenues relative to our
expectations could cause significant changes in our operating results from
quarter to quarter. Accordingly, if the cost-cutting actions that we have taken
are insufficient, we may not have sufficient capital to fund our operations, and
additional capital may not be available on acceptable terms, if at all. Any of
these outcomes could adversely impact our ability to respond to competitive
pressures or could prevent us from conducting all or a portion of our planned
operations. We may need to undertake additional measures to reduce our operating
expenses in the future.

         INVESTMENTS IN OTHER COMPANIES. For the three months and nine months
ended September 30, 2001, we recorded $7.8 million and $14.0 million,
respectively, as an other than temporary decline in value in our long-term
investments. Particularly if the economic environment worsens, we may need to
record additional write-downs of these investments in the future. Any
write-downs of this kind could cause our losses to increase.

         Because of the continuing volatility in the financial markets, as well
as other factors, we expect to limit the extent to which we invest in other
companies during the next few fiscal quarters, and possibly longer. As a result,
we may not take advantage of investment opportunities that could provide
significant financial benefits to our company, or that could provide us with the
opportunity to build relationships with major companies in our industry and
target markets.

         INVESTMENTS IN NEW TECHNOLOGIES. During fiscal 2001, we have made
significant investments in new technologies, to help expedite customer adoption
of our solutions, including interactive voice response technology, technologies
relating to short messaging services and technology to allow mobile applications
to be executed with real-time interaction. In accordance with our accounting
policy, we review the carrying value of these technologies, considering key
factors such as our estimate of customer demand for these technologies and the
technologies' fit with our product strategy. For the three month period ended
September 30, 2001, we recorded a charge of $6.7 million relating to our
decision not to use our acquired "Web Application Event Framework" technology.
In the future, if there are any circumstances in which there is a decline in the
carrying value of our other new technologies, for example, if we decide not to
pursue these technologies if we determine that customer demand for them is not
substantial, we may need to record additional charges.

         RECEIVABLES. As our sales to international customers increase, a
greater portion of our receivables are derived from companies in foreign
countries. Due to varying economic conditions and business practices in these
countries, our collections cycle from these customers


                                       35
<PAGE>

may be longer than our past experience. As adverse economic conditions persist,
there is a greater risk that our customers will have difficulties in paying us
in accordance with the terms of their contracts, and our risk of bad debt may
increase substantially in future fiscal periods.

         HOSTING SERVICES. In order to enable our customers to implement our
platform rapidly, we provide secure hosting services for our software products.
To date, we have been dependent upon Exodus Communications to provide most of
these services. If Exodus becomes unable to deliver these services, or other
circumstances occur that affect Exodus or its computer systems, our hosting
services may be substantially impaired and we will need to obtain services from
a new provider on an expedited basis. In September 2001, Exodus filed a
voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court for
the State of Delaware. To date, no disruption of the services provided to us by
Exodus has occurred. However, if any of these circumstances occur and cause us
to fail to deliver our hosting services, we may lose customers, our reputation
may suffer, and our ability to attract new customers may be damaged.

         EMPLOYEES. Our ability to execute our business successfully depends in
large part upon our ability to have a sufficient number of qualified employees
to achieve our goals. However, if our workforce is not properly sized to meet
our operating needs, our ability to achieve and maintain profitability is likely
to suffer. As indicated in this report, we are substantially reducing the number
of our employees. This will mean that we will use a smaller number of employees
to conduct some of the operations that were previously performed by a larger
workforce, which may cause disruption of our business. In addition, the morale
of our current employees may decrease, reducing their performance. Our ability
to attract potential new employees in the future may suffer if our reputation
suffers as a result of these staffing reductions.

         GROSS MARGINS. We believe that certain factors in the current market
may contribute to the risk that our gross margins will decrease in future fiscal
quarters. While we are currently not experiencing material price reduction
pressure from our customers, as the weakening economy affects our customers'
budget for wireless spending, we may have to lower our prices, in order to
accommodate our customers. If we are not successful in reducing our costs of
sales in response to the pricing pressure, we will experience a decrease in our
gross margins. In addition, due to the difficulties in achieving sales in the
current economic environment, we will have less control over the portion of our
sales consisting of licenses, which generally has a higher gross margin than
services. Accordingly our current gross margin may decrease.

         NASDAQ LISTING. Our common shares trade on the Nasdaq National Market,
which has a number of compliance requirements for continued listing. One of
these requirements is that the market price of our common shares must be at
least US$1.00 for a specified period of time. While we believe that we are
currently in compliance with all of Nasdaq's listing requirements, we may not
continue to be in the future, particularly if the market price for our common
shares decreases to a price of less than US$1.00. If we are delisted from the
Nasdaq National Market at any time in the future, we believe that our common
shares may be able to move to trade in the U.S. on the Nasdaq SmallCap Market
and if that fails, onto the Over-the-Counter-Bulletin-Board. In addition, we
currently believe that we will be able to maintain our listing on the Toronto
Stock Exchange at least for the foreseeable future. If we are delisted from the
Nasdaq National Market, there would likely be a reduction in the liquidity of
our common shares and a further adverse effect on their trading price. Lack of
liquidity would also make it more difficult


                                       36
<PAGE>

for us to raise capital in the future, effect acquisitions or other strategic
transactions, or to retain our personnel.

         LITIGATION. As noted in Part II, Item 1-Legal Proceedings, we and
certain of our present and former officers and directors were named as
defendants in a series of purported class actions relating to our initial public
offering. Litigation may be time consuming, expensive, and distracting from the
conduct of our business, and the outcome of litigation may be difficult to
predict. The adverse resolution of any of these proceedings could have a
material adverse effect on our business, results of operations, and financial
condition.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         IMPACT OF INTEREST RATE EXPOSURE

         As of September 30, 2001, we had approximately $107.5 million in cash,
cash equivalents and short-term investments, of which $14.7 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 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 September 30, 2001, we incurred
unrealized foreign currency gains relating to the translation of our non-US
denominated monetary assets and liabilities of approximately $340,000. 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.


                                       37
<Page>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Beginning in June 2001, a number of substantially identical class
action complaints alleging violations of the federal securities laws were filed
in the United States District Court for the Southern District of New York naming
724 Solutions Inc., certain of our officers and directors, and certain
underwriters of our initial public offering (Credit Suisse First Boston,
FleetBoston Robertson Stephens and Thomas Weisel Partners) as defendants. The
complaints have been consolidated into a single action. The complaints allege,
among other things, that we and the underwriters of our initial public offering
violated the securities laws by failing to disclose certain compensation
arrangements allegedly used by the underwriters in the offering's registration
statement, such as undisclosed commissions or stock stabilization practices.
Similar complaints have been filed against over 180 other issuers that have had
initial public offerings since 1998 and all such actions have been included in a
single coordinated proceeding. We intend to defend these actions vigorously.
However, due to the inherent uncertainties of litigation, we cannot accurately
predict the ultimate outcome of the litigation.

ITEM 2.  CHANGES IN SECURITIES
         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         None.

ITEM 5.  OTHER INFORMATION
         None.


                                       38
<Page>

ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K

         (a)  EXHIBITS:

<Table>
<Caption>
EXHIBIT
NUMBER        NAME OF DOCUMENT
-------------------------------------------------------------------------------
<S>           <C>
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.


                                       39
<Page>

     (6)      Incorporated by reference to the Registrant's Form 10-Q for the
              six months ended June 30, 2001, filed August 14, 2001.

         (b)  REPORT ON FORM 8-K:

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


                                       40
<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.


    SIGNATURES                       TITLES                           DATE
    ----------                       ------                           ----
/s/ John Sims         Chief Executive Officer (principal       November 13, 2001
----------------      executive officer)
John Sims


/s/ Karen Basian      Chief Financial Officer (principal       November 13, 2001
----------------      financial and accounting officer)
Karen Basian