<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 March 31, 2002.

                                       or

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

                        Commission File Number: 000-31146

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

                  Ontario                                Inapplicable
      -------------------------------                 -------------------
      (State or Other Jurisdiction of                  (I.R.S. Employer
      Incorporation or Organization)                  Identification No.)

      10 York Mills Road, Third Floor                       M2P 2G4
             Toronto, Ontario                             (Zip Code)
      -------------------------------------------------------------------
                    (Address of Principal Executive Office)

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

                                 Not Applicable
              -----------------------------------------------------
              (Former Name, Former Address, and Former Fiscal Year,
                         if Changed Since Last Report.)

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

     Common Shares, no par value - 59,638,245 shares outstanding as of May 10,
2002.
<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 ..................................16

         Item 3.  Quantitative and Qualitative Disclosures About Market
                  Risk .......................................................29

Part II.  Other Information

         Item 1.  Legal Proceedings ..........................................30

         Item 2.  Changes in Securities ......................................30

         Item 3.  Defaults Upon Senior Securities ............................30

         Item 4.  Submission of Matters to a Vote of Security Holders ........30

         Item 5.  Other Information ..........................................30

         Item 6.  Exhibits and Report on Form 8-K ............................31

Signatures ...................................................................32
</TABLE>
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

(a) CONSOLIDATED BALANCE SHEETS

724 SOLUTIONS INC.
Consolidated Balance Sheets
(In thousands of U.S. dollars)

March 31, 2002 and December 31, 2001

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                    2002          2001
--------------------------------------------------------------------------------------
                                                             (Unaudited)
<S>                                                          <C>             <C>

Assets

Current assets:
   Cash and cash equivalents (note 3)                          $  46,762     $  60,279
   Short-term investments (note 3)                                25,204        28,857
   Accounts receivable - trade, net of allowance
      of nil (2001 - nil)                                          6,324         8,335
   Prepaid expenses and other receivables                          2,335         2,630
--------------------------------------------------------------------------------------
                                                                  80,625       100,101

Fixed assets                                                       6,723        12,525
Investments                                                        5,347         5,347
Goodwill on business combinations (note 2(a))                      9,097         9,097
Other intangible assets (notes 2(a) and 4)                         7,604         8,760
--------------------------------------------------------------------------------------
                                                               $ 109,396     $ 135,830
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable                                            $   2,305     $   2,728
   Accrued liabilities                                            24,933        15,667
   Current portion of note payable                                 3,158         3,394
   Current portion of deferred consideration                       1,414         1,414
   Deferred revenue                                                1,855         1,386
--------------------------------------------------------------------------------------
                                                                  33,665        24,589

Leasehold inducements                                                264           284
Note payable                                                           -           296
Deferred consideration                                                 -         1,415

Shareholders' equity:
   Share capital (note 7):
      Authorized:
         Unlimited common shares
         Unlimited preferred shares
      Issued and outstanding:
         59,628,351 common shares
            (2001 - 58,375,761)                                  764,411       763,033
     Deferred stock-based compensation                           (11,039)      (19,582)
     Accumulated deficit                                        (677,821)     (634,153)
     Cumulative translation adjustment                               (84)          (52)
--------------------------------------------------------------------------------------
                                                                  75,467       109,246
--------------------------------------------------------------------------------------
                                                               $ 109,396     $ 135,830
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

(b) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

724 SOLUTIONS INC.
Consolidated Statements of Operations
(In thousands of U.S. dollars)

Three months ended March 31, 2002 and 2001
(Unaudited)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                    2002          2001
--------------------------------------------------------------------------------------
<S>                                                             <C>           <C>
Revenue:
   Product                                                      $  2,555      $  9,127
   Services                                                        1,958         4,722
--------------------------------------------------------------------------------------
                                                                   4,513        13,849

Operating expenses:
   Cost of revenue                                                 1,703         5,090
   Research and development                                        5,752        11,189
   Sales and marketing                                             6,376         9,029
   General and administrative                                      2,400         6,586
   Stock-based compensation:
      Cost of revenue                                                146           207
      Research and development                                     5,118         6,113
      Sales and marketing                                          1,805         2,529
      General and administrative                                   1,311         1,839
   Depreciation                                                    1,682         1,742
   Amortization of intangible assets                               1,153        23,870
   Restructuring costs (note 9)                                   16,987             -
   Write-down of fixed assets (note 9)                             4,134             -
--------------------------------------------------------------------------------------
                                                                  48,567        68,194
--------------------------------------------------------------------------------------

Loss from operations                                             (44,054)     $(54,345)

Interest income                                                      386         2,476

Equity in loss of affiliate                                            -          (278)
--------------------------------------------------------------------------------------

Loss before write-down of long-term investments                  (43,668)      (52,147)

Write-down of long-term investments                                    -        (6,250)
--------------------------------------------------------------------------------------
Loss for the period                                             $(43,668)     $(58,397)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

Basic and diluted loss per share                                $  (0.75)     $  (1.09)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

Weighted-average number of shares used in computing
   basic and diluted loss per share (in thousands)                58,583        53,581
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

(c) CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

724 SOLUTIONS INC.
Consolidated Statements of Shareholders' Equity
(In thousands of U.S. dollars, except per shares amounts)

Three months ended March 31, 2002 and 2001
(Unaudited)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                     Deferred
                                                                  stock-based
                                                                 compensation                    Cumulative           Total
                                           Common shares     related to stock     Accumulated   translation   shareholders'
                                     Number           Amount          options         deficit    adjustment          equity
---------------------------------------------------------------------------------------------------------------------------
<S>                              <C>             <C>              <C>            <C>               <C>         <C>

Balances,
   December 31, 2000             39,112,975      $   357,158      $   (14,946)   $    (79,949)     $      -    $    262,263
Loss for the period                       -                -                -         (58,397)            -         (58,397)
Cumulative translation
   adjustment                             -                -                -               -           (88)            (88)
Deferred stock-based
   compensation                           -           53,280          (53,280)              -             -               -
Amortization of
   deferred stock-based
   compensation                           -                -            9,481               -             -           9,481
Issuance on
   exercise of options              364,187              618                -               -             -             618
Issuance of common
   shares                        18,264,018          356,410                -               -             -         356,410
---------------------------------------------------------------------------------------------------------------------------
Balances,
   March 31, 2001                57,741,180      $   767,466      $   (58,745)   $   (138,346)     $    (88)   $    570,287
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

Balances,
   December 31, 2001             58,375,761      $   763,033      $   (19,582)   $   (634,153)     $    (52)   $    109,246
Loss for the period                       -                -                -         (43,668)            -         (43,668)
Cumulative translation
   adjustment                             -                -                -               -           (32)            (32)
Deferred stock-based
   compensation                           -             (163)             163               -             -               -
Amortization of
   deferred stock-based
   compensation                           -                -            8,380               -             -           8,380
Issuance for cash on
   exercise of options              240,900              126                -               -             -             126
Issuance of common
   shares                         1,011,690            1,415                -               -             -           1,415
---------------------------------------------------------------------------------------------------------------------------
Balances,
   March 31, 2002                59,628,351      $   764,411      $   (11,039)   $   (677,821)     $    (84)   $     75,467
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

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

724 SOLUTIONS INC.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)

Three months ended March 31, 2002 and 2001
(Unaudited)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                     2002                 2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>

Cash flows from (used in) operating activities:
     Loss for the period                                                    $     (43,668)       $     (58,397)
     Items not affecting cash:
         Depreciation and amortization                                              2,835               25,612
         Stock-based compensation                                                   8,380               10,688
         Other non-cash expenses                                                     (264)                (432)
         Write-down of long-term investments                                            -                6,250
         Write-down of fixed assets                                                 4,134                    -
         Equity in loss of affiliate                                                    -                  278
         Foreign exchange loss                                                          -                  (18)
     Change in operating assets and liabilities:
         Accounts receivable                                                        2,011                1,465
         Prepaid expenses and other receivables                                       295                   10
         Accrued interest on short-term investments                                 1,204                1,503
         Accounts payable                                                            (423)                (426)
         Accrued liabilities                                                        9,266               (3,240)
         Deferred revenue                                                             469                  371
     --------------------------------------------------------------------------------------------------------------
     Net cash flows used in operating activities                                  (15,761)             (16,336)

Cash flows from (used in) financing activities:
     Principal repayment of note payable                                             (532)                   -
     Issuance of common shares                                                        126                  618
     --------------------------------------------------------------------------------------------------------------
     Net cash flows from (used in) financing activities                              (406)                 618

Cash flows from (used in) investing activities:
     Purchase of fixed assets                                                         201               (3,178)
     Sale of short-term investments, net                                            2,449               11,820
     Purchase of intangible and other assets                                            -                 (592)
     Purchase of long-term investments                                                  -               (7,621)
     Acquisitions, net of cash received                                                 -               30,248
     --------------------------------------------------------------------------------------------------------------
     Net cash flows from investing activities                                       2,650               30,677
-------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                                  (13,517)              14,959

Cash and cash equivalents, beginning of period                                     60,279               73,898

-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                    $      46,762        $      88,857
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Supplemental disclosure of cash flow information note (10)

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

(e) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

724 SOLUTIONS INC.
Notes to Consolidated Financial Statements
(In thousands of U.S. dollars, except per share amounts)

For the three and nine months ended September 30, 2001
(Unaudited)

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

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 in note 2, 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, 2001 that are included in the Company's Annual Report filed
     with the Canadian Securities Administrators on March 25, 2002 and with the
     Securities and Exchange Commission on Form 10-K filed on March 29, 2002.
     Certain comparative figures have been reclassified to conform to the
     current period's financial statement presentation.

     The information furnished for the three months ended March 31, 2002 and
     March 31, 2001 reflect, 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.


                                       5
<PAGE>

2.   SIGNIFICANT ACCOUNTING POLICES:

     The unaudited interim consolidated financial statements are based upon
     accounting principles consistent with those used and described in Company's
     audited financial statements for the year ended December 31, 2001, except
     for the following:

     (a)  Business combinations, goodwill and other intangible assets

          In September 2001, The Canadian Institute of Chartered Accountants
          ("CICA") issued Handbook Sections 1581, "Business Combinations", and
          3062, "Goodwill and Other Intangible Assets". The new standards
          require that the purchase method of accounting must be used for
          business combinations and require that goodwill no longer be amortized
          but instead be tested for impairment at least annually. The standards
          also specify criteria that intangible assets must meet to be
          recognized and reported apart from goodwill. The standards require
          that the value of the shares issued in a business combination be
          measured using the average share price for a reasonable period before
          and after the date the terms of the acquisition are agreed to and
          announced. The new standards are substantially consistent with U.S.
          GAAP.

          The Company has adopted these new standards as of January 1, 2002 and
          the Company has discontinued amortization of all existing goodwill.
          The Company has also evaluated existing intangible assets and has
          determined that reclassification in order to conform with the new
          criteria for recognition of intangible assets apart from goodwill is
          not required.

          In connection with Section 3062's transitional goodwill impairment
          evaluation, the Company is required to assess whether goodwill is
          impaired as of January 1, 2002. The Company has up to six months to
          determine the fair value of its reporting units and compare that to
          the carrying amounts of its reporting units. To the extent a reporting
          unit's carrying amount exceeds its fair value, the Company must
          perform a second step to measure the amount of impairment in a manner
          similar to a purchase price allocation. This second step is to be
          completed no later than December 31, 2002. Under Canadian GAAP, any
          transitional impairment will be recognized as an effect of a change in
          accounting principle and will be charged to opening retained earnings
          as of January 1, 2002. Under U.S. GAAP, any transitional impairment
          will be charged to operations in the current period.


                                       6
<PAGE>

2.   SIGNIFICANT ACCOUNTING POLICES (CONTINUED):

     Effective January 1, 2002, the Company had unamortized goodwill of $9,097
     which is no longer being amortized. This change in accounting policy has
     not been applied retroactively and the amounts presented for prior periods
     have not been restated for this change. The impact of this change is as
     follows:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                                                    March 31,            March 31,
                                                                         2002                 2001
     ------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>

     Loss for the period                                         $    (43,668)        $    (58,397)
     Add amortization of goodwill                                           -               21,343

     ------------------------------------------------------------------------------------------------
     Loss before amortization of goodwill                        $    (43,668)        $    (37,054)
     ------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------

     Loss per share:
          Loss for the period                                    $      (0.75)        $      (1.09)
          Loss before amortization of goodwill                          (0.75)               (0.69)
     ------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------
</TABLE>


     (b)  Stock-based compensation and other stock-based payments:

          Effective January 1, 2002, the Company adopted the new CICA Handbook
          Section 3870, "Stock-based Compensation and Other Stock-based
          Payments", which requires that a fair value based method of accounting
          be applied to all stock-based payments to non-employees and to direct
          awards of stock to employees. The requirements of the new standard are
          consistent with the Company's accounting policies for these types of
          transactions and are disclosed in the Company's audited annual
          consolidated financial statements. The new section also requires the
          Company to select an accounting methodology for the accounting for
          stock-based awards, other than a direct award of stock, granted to
          employees. The Company's existing accounting policy as disclosed in
          the audited annual financial statements, which is the application of
          the intrinsic method for accounting for employee stock-based awards,
          is an acceptable methodology under the new handbook section. Section
          3870 also requires additional disclosures including pro forma earnings
          and pro forma earnings per share, which are provided in note 8.


                                       7
<PAGE>

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

     All short-term investments are classified as held-to-maturity because the
     Company has the positive intent and ability to hold the securities to
     maturity. Held-to-maturity securities are stated at amortized cost,
     adjusted for amortization of premiums and accretion discounts to maturity.
     The Company owns no short-term investments that are considered to be
     trading securities or available-for-sale securities. The components of cash
     and cash equivalents and short-term investments are summarized as follows:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                        March 31,         December 31,
                                                                             2002                 2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>

     Cash and cash equivalents:
         Cash                                                        $     11,385          $     6,922
         Cash equivalents:
              Bearers' deposit note                                        13,953                    -
              Corporate debt                                                    -               49,000
              Government treasury bills                                     4,027                4,357
              Corporate bonds                                               4,100                    -
              Corporate commercial paper                                   12,970                    -
              Term deposit                                                    327                    -
     ----------------------------------------------------------------------------------------------------
                                                                     $     46,762          $    60,279
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------

     Short-term investments:
         Held-to-maturity:
              Corporate commercial paper                             $          -          $       364
              Term deposit                                                  2,486                2,285
              Government bond                                              11,504                5,989
              Government treasury bills                                    10,214               19,119
              Corporate bond                                                1,000                1,100
     ----------------------------------------------------------------------------------------------------
                                                                     $     25,204          $    28,857
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>


     The Company has entered into letters of credit in the aggregate amount of
     $2,285 to guarantee payments under future contractual lease commitments.
     The letters of credit are secured by segregated instruments included in
     short-term investments on the consolidated balance sheet.


                                       8
<PAGE>

4.   GOODWILL AND OTHER INTANGIBLE ASSETS:

     Intangible assets acquired either individually or with a group of other
     assets are initially recognized and measured at cost. The cost of a group
     of intangible assets acquired in a transaction, including those acquired in
     a business combination that meet the specified criteria for recognition
     apart from goodwill, is allocated to the individual assets acquired based
     on their relative fair values.

     Intangible assets with finite useful lives are amortized over their useful
     lives. The amortization methods and estimated useful lives of intangible
     assets which consist of unpatented technology, are reviewed annually, and
     are currently being amortized on a straight line over one to five years.

     The following table sets out the Company's total purchased intangible
     assets which are subject to amortization:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                          Accumulated
                                                        Accumulated        impairment         Net book
     March 31, 2002                           Cost     amortization            charge            value
     ----------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>              <C>

     Technology                        $    28,663      $     9,080       $    11,979      $     7,604

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


<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                          Accumulated
                                                        Accumulated        impairment         Net book
     December 31, 2001                        Cost     amortization            charge            value
     ----------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>              <C>

     Technology                        $    28,663      $     7,924       $    11,979      $     8,760
     Customer relationships                  7,120            2,301             4,819                -

     ----------------------------------------------------------------------------------------------------
                                       $    35,783      $    10,225       $    16,798      $     8,760
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>


                                       9
<PAGE>

5.   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 revenue and assets is set forth below:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                            March 31,        March 31,
                                                                                 2002             2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>

     Net revenue by geographic locations:
         North America                                                    $     3,283      $     9,750
         Europe                                                                   770            2,185
         Asia Pacific                                                             460            1,914
     ----------------------------------------------------------------------------------------------------
                                                                          $     4,513      $    13,849
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                               March 31, 2002                   December 31, 2001
     ----------------------------------------------------------------------------------------------------
                                                           Goodwill                           Goodwill
                                                          and other                          and other
                                             Fixed       intangible             Fixed       intangible
                                            assets           assets            assets           assets
     ----------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>               <C>              <C>

     North America                      $    5,461      $    16,701       $    11,130      $    17,857
     Europe                                  1,154                -             1,272                -
     Asia Pacific                              108                -               123                -

     ----------------------------------------------------------------------------------------------------
                                        $    6,723      $    16,701       $    12,525      $    17,857
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>

     For the three months ended March 31, 2002, two customers accounted for 10%
     and 14% of revenue, respectively. For the three months ended March 31,
     2001, two customers accounted for 31% and 11% of revenue, respectively.


                                       10
<PAGE>

6.   RELATED PARTY TRANSACTIONS:

     In the first quarter of 2001, the Company transacted with certain
     shareholders who owned in excess of 10% of the outstanding common shares of
     the Company. Subsequent to the first quarter of 2001, these shareholders
     ceased to own in excess of 10% 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>
     ----------------------------------------------------------------------------------------------------
                                                                        March 31,            March 31,
                                                                             2002                 2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>

     Related party balances:
         Accounts receivable - trade, net of allowance                     $    -          $     2,038
         Deferred revenue                                                       -                  456

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

     Related party transactions:
         Revenue:
              Product                                                      $    -          $     1,716
              Service                                                           -                1,332

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


7.   SHARE CAPITAL:

     (a)  Stock options:

          At March 31, 2002 and December 31, 2001, there were options
          outstanding to acquire 4,257,954 and 7,144,314 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.


                                       11
<PAGE>

7.   SHARE CAPITAL (CONTINUED):

     (b)  Stock option exchange program:

          In January 2002, the Company completed a voluntary stock option
          exchange program that was offered to a majority of its employees,
          excluding directors, executive officers and other selected senior
          personnel. This new program offered eligible employees the opportunity
          to exchange, on a one-for-one basis, certain stock options, with
          strike prices greater than U.S. $3.00 and Cdn. $4.75, for an equal
          number of new options to be granted on or after August 29, 2002. This
          program resulted in 1,403,928 options being tendered, accepted and
          cancelled (1,031,416, 57,212 and 315,000 were granted under the 2000
          Stock Options Plan, the Canadian Stock Option Plan and the TANTAU
          plan, respectively).

          The new options will be granted under the terms of the Company's 2000
          Stock Option Plan and will have an exercise price equal to the market
          price of the Company's common shares on the grant date. The new
          options will be exercisable for a period of 10 years from the grant
          date and will vest 25% immediately upon grant and 25% on each
          subsequent anniversary of the date of grant.

          In connection with the program, the Company also offered a special
          grant of options to purchase an aggregate of 2,603,000 common shares
          to its directors, most of its officers and selected senior personnel,
          none of whom are eligible to participate in the voluntary stock option
          exchange program. The options are expected to be granted on or after
          August 29, 2002 and will have terms identical to the above-mentioned
          options to be granted to eligible employees, except that they will
          vest immediately.


                                       12
<PAGE>

8.   PRO FORMA DISCLOSURE FOR STOCK-BASED COMPENSATION AND OTHER STOCK-BASED
     PAYMENTS:

     In addition to the disclosures relating to the Company's outstanding stock
     options presented in note 9(b) of the audited annual financial statements,
     the new Canadian standard as described in note 2(b) requires the disclosure
     of pro forma net earnings and earnings per share information as if the
     Company had accounted for employee stock options under the fair value
     method. The Company has elected to disclose pro forma net loss and pro
     forma net loss per share as if the Company had accounted for its stock
     options issued from inception under the fair value method. A summary of the
     pro forma disclosure and the impact on the consolidated statement of
     operations is presented in the table below.

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                        March 31,            March 31,
                                                                             2002                 2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>

     Loss for the period                                             $    (43,688)        $    (58,397)
     Compensation expense related
       to the fair value of stock options                                  (2,839)              (2,131)

     ----------------------------------------------------------------------------------------------------
     Pro forma loss for the period                                   $    (46,527)        $    (60,528)
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------

     Pro forma loss per share:
         Basic and diluted                                           $      (0.79)        $      (1.13)

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


     The fair value of each option granted in the period ended March 31, 2002
     has been estimated at the date of grant using the Black-Scholes option
     pricing model with the following assumptions used: dividend yield of zero,
     expected volatility of 240%, risk-free rate of return of 4.64% and an
     expected life of the option of five years. The fair value of each option
     granted prior to January 1, 2002, has been estimated at the date of grant
     using the Black-Scholes option pricing model with the assumptions disclosed
     in note 15(b) of the annual consolidated financial statements.

     The Company has assumed no forfeiture rate, as adjustments for actual
     forfeitures are made in the period they occur. The weighted average grant
     date fair value of options issued in three months ended March 31, 2002 was
     $ 1.86 (2001 - $ 18.48).


                                       13
<PAGE>

9.   RESTRUCTURING AND WRITE-DOWN OF FIXED ASSETS:

     In January 2002, the Company continued with its plan to restructure and
     realign its business, which included a reduction of its worldwide work
     force by approximately 98 people, the additional closure of redundant
     facilities and the write-down of unused fixed assets and inventory.

     In January 2002, the Company formalized an arrangement with Computer
     Sciences Corporation ("CSC"), located in Austin, Texas in which CSC will be
     providing application hosting services to the Company in order to support
     the Company's current hosting agreements until such time as such agreements
     are assigned to CSC. The initial term of the agreement is three years. In
     addition, CSC will license and resell 724 Solutions products to the
     financial services industry, at prices consistent with the Company's other
     resellers. 724 Solutions technology will be integrated with CSC's Hogan
     Systems and CAMS II (Card and Merchant System II) software products. CSC
     will also provide systems integration services, acting as the prime
     integrator for CSC clients.

     A continuity of the Company's restructuring provision, including the impact
     of the above is as follows:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                          Cumulative drawdown
     ----------------------------------------------------------------------------------------------------
                                                  Additions to
                                                     provision
                                                       for the
                                                         three
                                                        months
                                   Provision at          ended                            Provision at
                                   December 31,      March 31,         Cash     Non-cash     March 31,
                                           2001           2002     payments      charges          2002
     ----------------------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>          <C>          <C>

     Restructuring charge:
         Severance                   $    2,331    $     3,691   $   (4,186)  $        -   $     1,836
         Lease exit costs                 6,593          4,801       (1,727)           -         9,667
         Hosting                              -          5,747       (1,051)           -         4,696
         Write-down of inventory              -          2,748            -       (2,748)            -
         ------------------------------------------------------------------------------------------------
                                          8,924         16,987       (6,964)      (2,748)       16,199

     Write-down of fixed assets               -          4,134            -       (4,134)            -

     ----------------------------------------------------------------------------------------------------
                                     $    8,924    $    21,121   $   (6,964)  $   (6,882)  $    16,199
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>


                                       14
<PAGE>

10.  SUPPLEMENTAL CASH FLOW DISCLOSURE:

     The following presents the supplemental disclosure of cash flow:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                        March 31,            March 31,
                                                                             2002                 2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>

     Supplemental disclosure of non-cash
       financing and investing activities:
         Net assets acquired from business
            acquisitions less cash acquired                              $      -         $     (6,223)
         Common shares and replacement common
            shares purchase options issued:
              Upon acquisition of TANTAU Software Inc.                          -              398,349
         Common shares issued upon settlement of
            contingent consideration                                        1,415                1,330

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


11.  STATEMENT OF COMPREHENSIVE LOSS:

     Comprehensive loss generally encompasses all changes in shareholders'
     equity except those arising from transactions with shareholders.

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                       March 31,             March 31,
                                                                            2002                  2001
     ----------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>

     Loss for the period                                             $    (43,668)        $    (58,397)
     Other comprehensive loss, net of income taxes:
         Unrealized holding losses arising during the year                      -               (3,500)
     Cumulative translation adjustment                                        (32)                 (88)

     ----------------------------------------------------------------------------------------------------
     Comprehensive loss based on U.S. GAAP                           $    (43,700)        $    (61,985)
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>


                                       15
<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,
2001 and the accompanying notes included in our annual report filed with the
Canadian Securities Administrators on March 25, 2002 and our annual report on
Form 10-K, which was filed with the Securities and Exchange Commission on March
29, 2002, 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 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 payments
and applications. In 2001, we extended our solutions to the mobile operator
market, leveraging our Alerts Solutions, 724 Frameworks and Secure Payment
Solutions. 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 provider, Computer Sciences
Corporation.

     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
and mobile network operators. With our corporate office in Toronto, Canada, we
have development and sales offices around the world, including Australia, Hong
Kong, Germany, the United Kingdom and the United States.

DEVELOPMENTS IN 2002

RESTRUCTURING AND OTHER CHARGES

     In January 2002 we continued our cost reduction initiative which began in
2001. The additional cost realignment is critical to our plan to achieve
operational profitability. This restructuring included a reduction of our
worldwide work force by approximately 98 people, the additional closures of
redundant facilities, write-down of inventory assets that are no longer part


                                       16
<PAGE>

of our future strategy and write-down of additional unused fixed assets. In
addition, as part of our reorganization, in January 2002, we formalized our plan
to form an alliance with Computer Sciences Corporation ("CSC"), located in
Austin, Texas. CSC will be providing us with application hosting services in
order to support our current hosting agreements until such time as such
agreements are assigned to CSC. As a result of these transactions, we recorded
$17.0 million in restructuring charges and $4.1 million relating to the
write-down of redundant fixed assets.

STOCK OPTION EXCHANGE PROGRAM

     In January 2002, in recognition that a large percentage of our outstanding
options had 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, we initiated a voluntary stock option exchange program
that was offered to a majority of our employees, excluding directors, executive
officers and selected senior personnel. Approximately 1.4 million options were
tendered, accepted and cancelled under this program. Exchanged options are
expected to be granted under this program in or about August 2002. In connection
with this program we announced a special grant of options for those who are
ineligible to participate in the option exchange program. We recorded
approximately $1.4 million in stock compensation expense related to the
immediate recognition of deferred stock-based compensation for those employees
who chose to tender their options. The stock option exchange program was
designed to comply with Canadian and US accounting standards such that the
program is not expected to result in additional compensation charges or variable
award accounting.

CRITICAL ACCOUNTING POLICIES

     We periodically review our financial reporting and disclosure practices and
accounting policies to ensure that our financial reporting and disclosure system
provide accurate and transparent information relative to current economic and
business environment. As part of the process, we have reviewed our selection,
application and communication of critical accounting polices and financial
disclosures. We note that we have determined that our critical accounting
policies relating to our core ongoing business activities are primarily those
that relate to revenue recognition. Other important accounting polices are
described in Note 2 to our interim quarterly financial statements for the
quarter ended March 31, 2002, which is set forth in this report, and Note 2 to
our audited annual consolidated financial statements, which is set forth in our
annual report on form 10-K, which we encourage you to read.

REVENUE RECOGNITION

SOURCES OF REVENUE

     We derive revenue 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;


                                       17
<PAGE>

     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 allocated to each element in the arrangement based on
the respective vendor specific objective evidence of value (VSOE) of each
element. Contracts for which we do not have sufficient VSOE, we use the residual
method to record revenues. Under this method, as long as we have VSOE for all
undelivered elements which are typically, services and maintenance, we can
record the remaining value of the contract as license revenue after allocating
full value to the undelivered elements.

PRODUCT REVENUE

Currently, product revenue consists of the following:

     o    Subscription Arrangements - 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
          earlier agreements used this model.

     o    Fixed License Fee - 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.

     o    Variable License Fee Arrangement - 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    Fixed License Fee with Future Royalty Payments - these license
          arrangements consist 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
          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


                                       18
<PAGE>

          excess of any minimum payments will be recognized on a monthly basis
          when the amount is determined.

     o    Reseller Arrangements - 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.

     We anticipate that future revenues will include solution sales in addition
to our current software and services models. The key distinguishing factors
between what we would consider to be a solutions sale versus a software and
services sale are the increased dollar values for services compared to software
and the nature of the services contracted, being customized code and more
complex interfaces as opposed to installation services. In addition, we may
maintain a large amount of risk related to the success of our solutions sales
agreements. These risks may be in the form of significant commitments to refunds
and/or penalties on the services and/or license components should the system not
perform according to expectations. Recognition of revenue from such contracts
will primarily be based on the percentage of work completed method based either
on inputs or on outputs, depending upon the terms of the specific contracts. We
expect that revenue will be deferred until we achieve contractually defined
milestones or until customer acceptance has occurred, as the case may be for
such contracts. Accordingly, there will likely be an increase in the time
between when the contract is signed and when we record the revenue.

     Due to the down-turn in the economy, our customers have been and continue
to be reluctant to make large commitments in up front license fees and as such,
our revenues from license and maintenance arrangements have been and are
expected to be lower until the economy recovers and our customers begin to
increase their levels of capital expenditures. The lack of a sufficient quantity
of customer transactions will make it difficult for us to establish VSOE for
license sales of new products and to maintain VSOE for license sales of products
for which we historically sold. As a result, we expect that in the future, for
contracts for which we do not have sufficient VSOE, we will be using the
residual method to record revenues. Under this method, for arrangements where we
have established VSOE for all undelivered elements, which are typically,
services and maintenance, we will record the remaining value of the contract as
license revenue after allocating full value to the undelivered elements.

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


                                       19
<PAGE>

associated with the variable fee license model, any maintenance payments will be
recognized on a monthly basis as earned.

HOSTING FEES

     Through our relationship with CSC, 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 (c) of our annual audited consolidated financial statements for the year
ended December 31, 2001.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001

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

REVENUE

PRODUCT REVENUE

     In the three months ended March 31, 2002, product revenue decreased to
$2.6 million from $9.1 million for the same period in 2001. Due to poor economic
conditions, we experienced reluctance in our customers' willingness to make
large upfront commitments on license fees. We expect product revenue to be lower
than in prior periods until the economy recovers and our customers begin to
increase their level of capital expenditures.

SERVICE REVENUE

     Service revenue decreased to $2.0 million for the three months ended March
31, 2002 compared to $4.7 million in 2001. The decrease in service revenue is
due to the reduced number of projects our customers were implementing and
continuing of general weakness in the economy.


                                       20
<PAGE>

OPERATING EXPENSES

COST OF REVENUE

     Cost of revenue (COR) 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 $1.7 million for the three months ended March 31, 2002
compared to $5.1 million for 2001. The main reason for the decrease is because
in 2002, as a result of our restructuring efforts and realigning of our
business, we employed fewer professional services personnel than we did in 2001.
Cost of revenue as percentage of revenues was 38% for the three months ended
March 31, 2002, compared to 37% for the same period in 2001. We continue to
utilize the infrastructure that we have built and leveraged the experience that
we have gained in enabling our customers to deploy our products.

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) decreased to $5.8 million for the three
months ended March 31, 2002 compared to $11.2 million in 2001. The decrease in
this expense is a result of our 2001 restructuring initiative in which we
reduced our R&D headcount and developed a more streamlined, integrated and
focused product road map and reduced duplication in the R&D process. We will
also continue to evaluate our R&D expenditure needs based on our new product
architecture and services and the current market environment. R&D expense, as a
percentage of revenue, was 127% for the first quarter of 2002 compared to 81%
for the same period in 2001. The increase in these percentages is primarily a
result of our reduced revenue in the first quarter of 2002 compared to 2001.

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 $6.4 million for the first quarter
of 2002 compared to $9.0 million in 2001. The decrease is a result of the
reduced number of our worldwide sales and marketing personnel and reduced
spending on discretionary marketing programs as part of our restructuring
efforts in 2001 and in January 2002, in reaction to the downturn in economic
conditions in our target markets. We will continue to monitor our pace of
marketing expenditures to help ensure that they remain aligned with the
opportunities that we have targeted as well as prevailing market conditions. S&M
expenses, as a percentage of revenues, increased to 141% from 65% in these
period, respectively. The increase in these


                                       21
<PAGE>

percentages is primarily a result of our reduced revenue in the first quarter of
2002 compared to 2001.

GENERAL AND ADMINISTRATIVE

     General and administrative (G&A) expenses include salaries and benefits for
corporate personnel and other general and administrative expenses such as
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 first quarter of 2002,
from $6.6 million in 2001. The decrease in G&A expenses reflected our efforts in
our restructuring initiatives to reduce complexity in our business and to make
our infrastructure efficient in order to support our business in the current
market environment. G&A expenses as a percentage of revenues increased to 53%
for the three months ended March 31, 2002 from 48% for 2001. The increase in
these percentages is a result of our reduced revenue in the first quarter of
2002 compared to 2001.

DEPRECIATION AND AMORTIZATION

     Depreciation expense remained at $1.7 million in the first quarter of 2002,
compared to $1.7 million in 2001. We expect that depreciation expense will be
stable or lower in 2002 as we have made significant reductions in our capital
expenditure budget and have decommissioned redundant assets.

     Amortization expense decreased to $1.2 million for the three months ended
March 31, 2002, compared to $23.9 million in 2001. The decrease is attributable
to lower amortization as a result of the write-down of intangible and other
assets in fiscal 2001 and our adoption SFAS No.142 and CICA Handbook section
3062, which require goodwill to be assessed for impairment only, rather than
being amortized, on a prospective basis starting January 1, 2002. The
amortization in 2002 represents the amortization of acquired technology, which
will be amortized over a period of two years. See "Recent Accounting
Principles".

STOCK-BASED COMPENSATION

     Stock-based compensation represents amortization of deferred stock-based
compensation that we recorded as a result of assuming, through the acquisition
of TANTAU, stock option plans that included unvested options and common shares.
This stock based compensation is being amortized on a straight-line basis over
the remaining vesting period of these options, which will be January 2003. In
addition, included in stock-based compensation is the immediate recognition of
stock compensation expense for those terminated employees who have options that
vest immediately upon their termination, and immediate recognition of the
unamortized portion of the deferred stock compensation for those employees who
tendered their options as part of our stock option exchange initiative in
January 2002.

     Stock-based compensation decreased to $8.4 million for quarter ended March
31, 2002 from $10.7 million in the same period of 2001. Stock-based compensation
expense decreased because a significant portion of our deferred stock based
compensation was recognized in the last three quarters of 2001 as a result of
our June and October 2001 employee terminations.


                                       22
<PAGE>

RESTRUCTURING COSTS

     With the downturn in general economic conditions, in 2001 we began to work
to identify areas to reduce costs by eliminating duplicate resources and
positions, narrowing our product offerings and streamlining our operating
processes. We continued with this restructuring in January 2002. As a result, in
the first quarter of 2002, we recorded a restructuring charge of $17.0 million
relating to fees to be paid to CSC to assume the obligation to provide services
under our contracts, employee severance, lease costs for the closing of several
of our offices and the write-down of inventory assets that are no longer a part
of our current business strategy. In addition, we recorded $4.1 million relating
to the decommissioning of our redundant fixed assets and $3.2 million relating
to the immediate recognition of deferred stock based compensation expenses
relating to employees whose stock options vested upon termination of their
employment. Included in our "Accrued Liabilities" is approximately $16.2 million
in restructuring reserve relating to unpaid severance costs, lease exit costs
and expected fees to be paid to CSC. See note 9 to our interim consolidated
financial statements.

WRITE-DOWN OF FIXED ASSETS

     For the three months ended March 31, 2002, we recorded a charge of $4.1
million related to the write-down of fixed assets that are redundant as a result
of our restructuring.

INTEREST INCOME

     Interest income decreased to $386,000 for the three months ended March 31,
2002, compared to $2.5 million in the same period of 2001. 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. Interest income decreased in the first quarter of 2002 compared to 2001
because we have reduced holdings of cash and cash equivalent balances and
short-term investments. We anticipate that we will receive reduced rates of
interest, versus a year ago, on these assets during the current year compared to
the year ended December 31, 2001.

EQUITY IN LOSS OF AFFILIATE

     We own 24.9% of the equity of Maptuit, as at March 31, 2002. We account for
our investment in Maptuit using the equity method, which requires us to adjust
our original cost of investment for our share of post-acquisition income and
losses, less dividends only to the extent that the carrying value of the
investment is no less than zero. As at December 31, 2001, the carrying value of
Maptuit was zero, therefore we did not record additional losses of Maptuit for
the first quarter of 2002, compared to a loss of $278,000 for the first quarter
of 2001.

NET LOSS

     Our net loss decreased to $43.7 million for the three months ended March
31, 2002 compared to $58.4 million for the same period in 2001. Our net loss
decreased in the first quarter of 2002, notwithstanding our decreased revenue
and our recording of restructuring charges and write-down of fixed assets, which
did not occur in the first quarter of 2001. This reduction in our net loss
resulted principally from our restructuring efforts, which substantially reduced
our operating expenses, and our reduced amortization expenses, due to the fact
that we no longer amortize good will under SFAS No. 142 and CICA Handbook
section 3062. If SFAS No. 142 and CICA Handbook section 3062 had been adopted
for the period ended March 31, 2001, the loss would have been $37.0 million. We
expect that the future cost savings due to our


                                       23
<PAGE>

restructuring in January 2002 will result in further reductions in salary,
benefits and infrastructure costs.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities was $15.7 million for the quarter
ended March 31, 2002, compared to $16.3 million in 2001. Net cash used in
operating activities in 2002 consisted mainly of our net loss of $43.7 million,
offset by depreciation and amortization of $2.8 million, stock-based
compensation expense of $8.4 million, write-down of fixed assets of $4.1
million, and a cash in flow from working capital of $12.8 million.

     As at March 31, 2002, we had commitments to make $14.6 million in minimum
lease payments, until the year 2008, relating to our facilities and equipment
rentals. As a result of our restructuring initiative, we have vacated some of
our premises. Accordingly, we have plans in place to renegotiate these leases
and/or sublease these premises to reduce our future commitments, however, we
cannot provide any assurances that such plans will be successful.

     Cash used by financing activities was $406,000 for the quarter ended March
31, 2002, compared to an inflow of $618,000 for the same period in 2001. The
decrease resulted from the fact that in the first quarter of 2002, we were
obligated to make principal payments on our loan and we received reduced
proceeds from the exercise of stock options. As at March 31, 2002 we are
obligated to pay approximately $3.2 million in principal and interest related to
this loan, with the final payment on February 1, 2003.

     Cash used in investing activities, before the sale of short-term
investments and acquisitions, was $201,000 for the quarter ended March 31, 2002,
compared to an out flow of $11.4 million in the same period in 2001. The main
reason for the decrease is due to the fact that we have significantly reduced
our capital assets budget and because we have limited the extent to which we
invest in other companies.

     Due to the operational savings that we expect to achieve as a result of our
restructuring, we expect that cash from operations, interest income and our
existing cash and cash equivalents and short-term investments 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 PRINCIPLES

US GAAP

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No.141, "Business
Combinations". SFAS No.141 requires that all business combinations be accounted
for under the purchase method of business combination initiated after June 30,
2001 for which the date of acquisition is July 1, 2001 or later. Use of the
pooling-of-interests method is no longer permitted. In July 2001, the FASB
issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
requires that all goodwill no longer be amortized to earnings, but instead be
periodically reviewed for


                                       24
<PAGE>

impairment. SFAS No.142 must be adopted with fiscal years beginning after
December 15, 2001. As of March 31, 2002, we had approximately $9.1 million as
the carrying value of goodwill, which we will periodically review in accordance
with these provisions.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed Of",
and develops a single accounting method under which long-lived assets that are
to be disposed of by sale are measured at the lower of book value or fair value
less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 an its provisions are to be applied prospectively. We are
currently assessing the impact of SFAS no. 144 on our financial position and
results of operations.

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; our plans to
operate in the mobile operator 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; the impact of entering new markets; 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; our future
capital expenditures and capital requirements; our expected date of stock option
issuance in connection with our stock option initiatives; and the anticipated
impact of changes in applicable accounting rules.

     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


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<PAGE>

mobile network operators. As economic activity slowed in these markets during
2001, our customers deferred their spending on our products and 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 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 an
important 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. 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 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 beginning 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 year ended December 31, 2001 we
realized a loss of $4.6 million on sales of our long-term investments and
recorded a loss provision of $10.0 million against these investments as they
have experienced a significant other than temporary decline in their value.
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.


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<PAGE>

     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 quarter ended March 31, 2002,
we recorded a charge of $2.7 million relating to our decision not to use certain
inventory that we purchased to resell to our customers. 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 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 January 2002, we formalized our plan to transfer the
management of our application hosting services to Computer Sciences Corporation
("CSC"). We will be dependent on CSC to provide secure hosting services for our
software products. If the transition of our hosting service to CSC is not
successful and/or CSC becomes unable to deliver these services, or other
circumstances occur that affect CSC or its computer systems, our hosting
services may be substantially impaired. 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


                                       27
<PAGE>

affects our customers' budget for wireless spending, we may have to lower our
prices, in order to accommodate our customers. In addition, due to the downturn
in the economy, many of our customers are reluctant to make a commitment to pay
a large upfront license fee, which could also cause our revenues to decrease.
With a greater portion of services revenue mix in the short-term, if we are not
successful in reducing our costs of sales in response to the pricing pressure
and any reduced upfront commitment, 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 margins may decrease.

     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.


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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

IMPACT OF INTEREST RATE EXPOSURE

     As of March 31, 2002, we had approximately $72.0 million in cash, cash
equivalents and short-term investments, of which $25.2 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 March 31, 2002, we incurred unrealized
foreign currency gains relating to the translation of our non-US denominated
monetary assets and liabilities of approximately $40,000. In the future, we may
seek to minimize this risk by hedging our known exposures, such as salaries,
rent and other payments. We will account for any arrangements of this kind
according to Financial Accounting Standard 133.


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<PAGE>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Company has been named in several class actions filed in federal court
in the Southern District of New York between approximately June 13, 2001 and
June 28, 2001 (collectively the "IPO Allocation Litigation"). The IPO Allocation
Litigation was filed on behalf of purported classes of plaintiffs who acquired
the Company's common shares during certain periods. In addition to the actions
against Company, similar actions have been filed against over 300 other issuers
that have had initial public offerings since 1998. On or about April 19, 2002,
the plaintiffs filed an amended complaint as against the Company.

     The amended complaint in the IPO Allocation Litigation names as defendants,
in addition to the Company, some or all of the current or former directors and
officers of the Company (the "Individual Defendants") and certain underwriters
of the Company's initial public offering of securities (the "Underwriter
Defendants"). In general, the amended complaint alleges that the Underwriter
Defendants: (1) allocated shares of the Company's offering of equity securities
to certain of their customers, in exchange for which these customers agreed to
pay the Underwriter Defendants extra commissions on transactions in other
securities; and (2) allocated shares of the Company's initial public offering to
certain of the Underwriter Defendants' customers, in exchange for which the
customers agreed to purchase additional common shares of the Company in the
after-market at certain pre-determined prices. The amended complaint also
alleges that the Company and the Individual Defendants failed to disclose these
facts and that the Company and the Individual Defendants were aware of, or
disregarded, the Underwriter Defendants' conduct.

     The Company intends to vigorously defend itself and the Individual
Defendants against these claims. However, due to the inherent uncertainties of
litigation, and because the IPO Litigation is at a preliminary stage, we cannot
accurately predict the ultimate outcome IPO Allocation 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.


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<PAGE>

ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K

         (a) EXHIBITS:

         None.

         (b) REPORT ON FORM 8-K:

         None.


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                                   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 J. Sims          Chief Executive Officer (principal       May 15, 2002
---------------------     executive officer)
John J. Sims

/s/ Karen Basian          Chief Financial Officer (principal       May 15, 2002
---------------------     financial and accounting officer)
Karen Basian


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