<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


 X      Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
---     Act of 1934

                   For the fiscal year ended December 31, 2000

                                       Or

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


                        Commission file number: 333-89561


                            E-xact Transactions Ltd.
                            -------------------------
             (Exact name of Registrant as specified in its charter)

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<S>                                                      <C>
           Delaware                                               98-0212722
-------------------------------                           ----------------------------
(State or other jurisdiction of                           I.R.S. Employer I. D. Number
 incorporation or organization)

2410-555 West Hastings Street, Vancouver, B.C., Canada             V6B 4N6
-------------------------------------------------------            -------
(Address of principal executive offices)                             (zip code)
</TABLE>

Registrant's telephone number, including area code:    (604) 691-1670
                                                        -------------

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<S>                                                          <C>
Securities registered pursuant to Section 12(b) of the Act:   None.
                                                              -----
Securities registered pursuant to Section 12(g) of the Act:   Common Stock, $.001 Par Value
                                                              -----------------------------
</TABLE>

        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
                                              ---       ---

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be included
herein, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB: X .
                                     ---
        State issuer's revenues for its most recent fiscal year:  $241,504
                                                                  --------

        Shares of common stock, $.001 par value, outstanding as of April 5,
2001:8,502,000 shares. Aggregate market value of voting stock held by
non-affiliates of the registrant on April 5, 2001, $625,194.

        Documents incorporated by reference:  None.

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<S>                                                                 <C>
        Transitional Small Business Disclosure Format (check one):  Yes        No   X
                                                                        -----     -----
</TABLE>


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                            E-xact Transactions Ltd.
                                   FORM 10-KSB
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
Part I                                                                                Page
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<S>                                                                                <C>
        Item 1.  Description of Business.................................................3

        Item 2.  Description of Property................................................12

        Item 3.  Legal Proceedings......................................................12

        Item 4.  Submission of Matters to a Vote of Security Holders....................12


Part II
-------

        Item 5.  Market for Common Equity and Related Stockholder Matters...............12

        Item 6.  Management's Discussion and Analysis or Plan of Operation..............14

        Item 7.  Financial Statements...................................................19

        Item 8.  Changes in and Disagreements with Accountants on Accounting............20
                 and Financial Disclosure

Part III
-------

        Item 9.  Directors and Executive Officers; Compliance with Section 16(a)........20
                 of the Exchange Act

        Item 10. Executive Compensation.................................................23

        Item 11. Security Ownership of Certain Beneficial Owners and Management.........24

        Item 12. Certain Relationships and Related Transactions.........................26

Part IV
-------

        Item 13. Exhibits and Reports on Form 8-K.......................................29
</TABLE>

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                            E-xact Transactions Ltd.
                                   FORM 10-KSB
                           FORWARD-LOOKING STATEMENTS

        Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the, Securities Act of 1993 ("The Act") and Section
21E of the Securities Exchange Act of 1934. These statement often can be
identified by the use of terms such as "may," "will," "expect," "believes,"
"anticipate," "estimate," or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
These factors include adverse economic conditions, entry of new and stronger
competitors, inadequate capital, unexpected costs, failure to gain product
approval in United States or foreign countries and failure to capitalize upon
access to new markets. Additional risks and uncertainties that may affect
forward-looking statements about the Company's business and prospects include
the possibility that a competitor will develop a more comprehensive solution,
delays in market awareness of its products, possible delays in marketing
strategy, which could have an immediate and material adverse effect by placing
the Company behind its competitors. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

CORPORATE HISTORY

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

        The Company's principal office is located at 2410 - 555 West Hastings
Street, Vancouver, British Columbia, V6H 4N6 Canada. The Company's registered
agent in the U.S. is located at 1209 Orange Street, Wilmington, Delaware 19801
USA. The Company has one subsidiary which operates in Canada.

        The Company offers an electronic commerce, known as "e-commerce,"
software solution for real-time transaction processing which allows PC based
cash registers, PCs, point-of-sale terminals, computer systems and proprietary
product platforms to accept credit card payments and submit those payments to
various payment processing companies for authorization and settlement/deposit.
The Company has acquired and developed software and a network system to act as a
third party payment processor to conduct transaction processing with major banks
in North America. The Company is currently approved to conduct transaction
processing with major banks and credit unions in Canada and has a gateway with
Vital Processing Services, a U.S.-based credit card processing network, allowing
the Company to process financial transactions with many of the major banks in
the U.S.

        The Company was founded in 1998, by the Sutton Group Financial Services
Ltd. and DataDirect Holdings Inc. On September 1, 1998, each of Sutton Group and
DataDirect transferred to the Company their respective interests in certain
computer software designed by DataDirect, known as the Transaction Software

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and Processing System, in exchange for ninety-nine shares of common stock of the
Company each. The software system offered has real time credit card transaction
processing capabilities for other e-commerce providers.

        Version 2.0 provided the ability to move transactional data between the
Company's system and the Royal Bank of Canada, the largest bank in Canada in
terms of assets and the only financial institution with which it was certified
to process financial transactions at the time. Throughout the autumn of 1998,
the Company focused on further testing of its system and enhancing its
scaleablity. Testing was undertaken with six clients, each focused on a
different type of application, including an internet based storefront, a
physical point-of-sale location, a telephone based voice response system and a
billing system. In January 1999, the Company received certification from Shared
Network Systems, a firm that processes financial transactions for most other
banks and credit unions in Canada.

Version 3.0 of the Company's transaction processing component was released in
January 1999. The software allowed other computers to speak to the Company's
computers. Following this release, the Company introduced versions for various
computer operating systems including LINUX, UNIX and JAVA. In June 1999, the
Company released version 4.0 of its software system and it also established its
internet web site. Version 4.0 focused on providing transaction processing,
reporting and support services for e-commerce merchants. The Company has gained
two hundred and forty five additional clients since the previous year.. In
November, 1999 the Company recruited a CEO to build a management team in the US
marketplace. During 2000, US management recruited additional staff to design and
build specific technologies to create additional sales opportunities in the
North American transaction processing arena. In the fourth quarter of 2000, the
Company reassessed its postion in the US. It felt that the present US management
team was unable to achieve US market penetration and as a result, the Company
elected to change management and consolidate its operations in Vancouver, B.C.
All costs related to this closure were accrued and totaled approximately
$15,000.

Version 5.0 of the Company's transaction processing components and gateway
software was released in May of 2000 bringing added functionality and
consistency to all the components the company offers. The Company also completed
its second transaction product called Speedy Merchant. Speedy Merchant is a web
based service which provides on-line application and real-time credit and risk
scoring for the merchant account provider (normally a bank) . The merchant
account provider can use Speedy Merchant to automate its existing credit scoring
process, dramatically reducing the time it takes to to provision a new merchant
account for the applicant. The Company expects to provide the new service in the
second or third quarter of 2001.

NARRATIVE DESCRIPTION OF BUSINESS

        Due to the recent changes in the capital markets, especially in the
technology sector, the Company has changed the overall operating and management
structure in order to adapt to the current conditions. In November, 2000 Ted
Henderson resigned as CEO and President and Peter Fahlman was named as the
Company's new CEO and President. The Company's new management began the closure
of the corporate head office in Lakewood, Colorado and consolidated all
operations in its Vancouver office. Management felt it was a necessary step to
reduce costs as much as possible to ensure its continued operations, and as of
April, 2001, the Company had no US operating expenses. The Company continues to
focus on growth segments and on companies conducting business over the internet.
The Company can process transactions in U.S. and Canadian dollars through credit
card merchant accounts for Visa, MasterCard, American Express, Discover, Diners
Club, and JCB. The system is secured by sophisticated encryption technology in
addition to the existing industry standard electronic security such as
firewalls. In addition to the web-based transaction processing, the Company also
offers transaction processing via other applications for call centres, billing
systems and other enterprise programs.

        As of today's date, the Company has released its fifth version of the
software to run on various operating systems. The software does not require a
lengthy installation or integration process; users need only

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enable the software within their computer operating environment. Once activated,
merchants are ready to start accepting customer credit cards, provided they have
established a merchant account with a bank for funds settlement.

        The Company also provides merchants a variety of reports with the
transaction processing system, such as a full suite of accounting tools that
help customers manage their e-commerce activities such as detailed billing
statements, transaction search engine, web point of sale terminals and reporting
services.

        In order to leverage its marketing efforts, the Company offers its
e-commerce transaction processing solution to partners, which can offer it in
turn to their clients, as well as to merchants directly. The Company's partners
may receive a percentage of every transaction fee processed by shared customers
and may use the Company's comprehensive web tools and services for the benefit
of such partner's clients or e-merchants.

        A key advantage of the Company's transaction processing software is that
it can be easily integrated with most existing systems and is able to
communicate with most banks in North America. Additionally, the Company provides
the interface to match a customer's existing operations rather than requiring
them to meet and design their systems to the Company's pre-defined protocols.

PRODUCTS AND SERVICES

        The Company's product/service is a combination of an online service and
a suite of software that act as a real-time payment mechanism for e-commerce,
either over the internet or via a wide range of other electronic networks.

        How the system works utilizing the internet:
         When a customer makes a purchase using a credit card on the web site of
         a merchant whose e-commerce system incorporates the Company's
         transaction component, the payment information is first sent securely
         in encrypted format to a secure computer server. A firewall exists
         between the internet and web servers/transaction servers to safeguard
         against any unauthorized intruders.

         The encrypted payment information is then sent through another, much
         more extensive firewall to the Company's Gateway Server, from which it
         is sent onward to the banking network to be approved or declined. Once
         approved or declined, the information is returned back securely to the
         web site where only the customer can see the results. The information
         regarding each transaction is also forwarded from the Company's Gateway
         Server to a database to be logged as part of an audit trail. The entire
         process takes place almost instantaneously, typically in two to five
         seconds.

        The Company's transaction software and processing system
         The current processing system, released in May 2000, version 5.0, is a
         combination of custom software applications and processes that run on
         the Windows NT Server 4.0 operating system. The primary function of
         these applications/processes is to perform real-time credit card
         transaction processing through certified links with the Royal Bank of
         Canada and Shared Network Systems in Canada an Vital Processing Service
         in the United States.

        The Company's system has five components:
         Gateway Server
         Transaction Server
         Remote Transaction Component
         Audit Database
         Secure Web-based Merchant Tools

        THE GATEWAY SERVER facilitates real-time credit card processing with any
of the major chartered

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banks and credit unions in Canada. It currently participates directly with the
Royal Bank Merchant Host Network, and also communicates electronically with the
Shared Network Systems network. Through the Company's certified connection with
Shared Network Systems, the Gateway Server can process transactions to account
holders from any of the major banks in Canada. The Vital Processing System
enables the Gateway Server to process transactions with many of the banks in the
United States.

        THE TRANSACTION SERVER communicates with the Gateway Server and also
provides communications to the Remote Transaction Component. The Transaction
Server resides within the Company's network and is accessible on the internet
via the Remote Transaction Component.

        THE REMOTE TRANSACTION COMPONENT is a custom software component that can
be installed/ integrated in various computer environments to enable credit card
transaction processing on the Company's network. Merchants can download this
component from the Company's web site at www.e-xact.com in any of four formats,
depending upon which operating system the merchant uses.

        Once installed on the user's system, the Remote Transaction Component
will connect via the internet to the Company's Transaction Server and
subsequently the Gateway Server and the financial networks. The Company requires
that merchants have a specific electronic security system known as Secure Socket
Layer protocol operational on their site to provide the security necessary to
conduct transactions securely via the internet. Encryption is also part of the
component, ensuring that all transmissions between itself and the Transaction
Server are safe from other users on the internet. The current version of the
Remote Transaction Component processes transactions to all the major Canadian
banks and many of the banks in the United States.

        THE AUDIT DATABASE incorporates the added functionality of processing
with the additional Canadian Chartered banks. Every transaction is processed by
the Gateway and logged to the Audit Database to create an audit trail.

        THE SECURE WEB-BASED MERCHANT TOOLS are a group of reporting, auditing,
searching and processing functions available to merchants who have the proper
access credentials for the Company's system. The system can be accessed through
any popular web browser and data is delivered almost instantly. Added
functionality is available through specific tools such as the web based
point-of-sale terminal where merchants can process credit card transactions
directly to their merchant account from anywhere on the internet. Through the
Company's member services on the web site, merchants can track every sale for up
to three years, check statements for totals, deposits made and customer
spending, among other functions. Security systems limit access to this
information to the merchant authorized for each account.

        Dedicated transaction servers
         For merchants that require a transaction server that is only used by
         them, the Company can provide a dedicated server to centralize all
         financially based transactions within a single organization. The
         servers allow for local auditing and reporting of all transactions
         conducted through the specific server. Using the internet (or other
         communications medium), the merchant can interact directly with the
         Company's Gateway Server for a comprehensive electronic transaction
         processing solution, including complete maintenance and audit
         capabilities.

        Non-web based transactions
         The Company also works with clients to integrate transaction processing
         services with telephone-based electronic funds transfer and billing
         services that do not utilize the internet. Typically, these systems are
         closed networks that do not require the level of additional firewall
         security as is required for internet transactions which can be accessed
         by anyone in the world. The systems The Company has developed can be
         applied to virtually any type of electronic network.

        Financial transaction processing certification

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         Certification with transaction processing networks that handle the
         financial transactions that the Company's product/service is designed
         for is an integral and necessary part of the Company being able to
         offer its services. Banking and other financial networks operate under
         stringent regulation which requires that their computer networks be
         highly secured in order to protect privacy and to ensure the integrity
         of the network. Accordingly, any company that wants to offer a service
         that would access an existing banking or financial network must undergo
         a comprehensive process of review and testing prior to being approved
         to access to the network. Before an applicant company is permitted to
         go through this review, the bank or processing system must be satisfied
         that the company is capable of handling mission critical processes
         meeting its requirements, and that its system will operate correctly
         and securely.

STAGE OF DEVELOPMENT AND COSTS

        The Company's current Transaction Software and Processing System has
been in full operation since June of 1999. The system is fully operational and
approximately 6,600 transactions were processed per day through the Company's
systems for the year ended December 31, 2000. Since the software deployment in
September, 1998, the Company has processed approximately 3.9 million
transactions.

DEVELOPMENT PLANS

        The Company intends to continue to upgrade and enhance its combined
systems and software focusing on the following key areas.

Further development of the fraud protection and risk assessment aspects of the
system enabling merchants to more securely process online credit cards with the
aid of automated tools to lower the merchant's risk in accepting credit cards
online. The Company has expanded its basic fraud engine and developed new fraud
tools that will enable merchants to qualify transactions that exceed certain
thresholds that the merchant can set. These thresholds, or rules include:
         Maximum sales volumes for one day, five day and thirty day periods.
         Card purchasing limits for one day, five day and thirty day periods.
         Better Address Verification rules and criteria

        In addition, the Company is assessing and analyzing the inbound sign-up
process and plans to develop a more streamlined and automated procedure to help
merchants sign-up and engage its services. Specific design of a fully automated
online sign-up site allowing first time merchants to download all needed
components, information, and automatically pay for the Company's services is
intended to be deployed to dramatically reduce the cost and time of acquiring
new customers.
        The Company will continue its focus on development on all mission
critical aspects of the system. The recent release of version 5.2 has increased
stability in the entire system which has been delivering an average of 99.9%
uptime for the last 3 months beginning in December 2000. The release of version
5.2 software components gives the company functional consistency of all of its
software objects. This consistency makes the software and the entire system much
easier to support and therefore also reduce overall support costs. Additionally,
the Company plans to upgrade the security of it's network and database
encryption.

        The Company plans to continue to extend the connectivity capabilities of
its system and software in order that transactions can be processed anywhere in
the world. The Company is in the process of completing its certification with
First Data Corporation, a large transaction processing network in the U.S.
Management believes that this would expand the Company's position in the U.S.
marketplace by providing broader processing capabilities and allow service with
over 95% coverage of the U.S. banks.

        The Company plans to enhance the merchant account tools including
additional levels of password protection so that access would be restricted to
individuals granted appropriate authorizations, this would be

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managed through a user profile system. In order to do this the Company is in the
process of ugrading its database structure to accommodate the added
functionality and profile control. In addition, the Company continues to enhance
its reporting capabilities and is researching the development of moving the
audit data back to the merchant in real time as a value added data transaction.
The Company will continue its development efforts in moving data transactions
via emerging XML technology.


CONCENTRATION OF SALES

        For the year ended December 31, 2000 approximately 45 % ( 1999 - 62 %)
of the Company's revenues were obtained from two customers ( 1999- one
customer). Two customers accounted for 58% of accounts receivables at December
31, 2000(1999, 40% of the Company's total accounts receivables at December 31,
1999). In 2000 approximately 98% of processing/monthly fee revenues were derived
from Canadian sources and 2% was derived from US sources and in 1999 all revenue
was derived from Canadian sources.

THE MARKET FOR THE PRODUCT

        E-commerce
         The term "E-commerce" encompasses the use of the internet for
         marketing, advertising, trading, and selling goods and services. The
         ability to use the internet for marketing and advertising results from
         the power to communicate information through the internet to a large
         number of individuals, businesses as well as consumers. The ability to
         use the internet to consummate sales and other commercial transactions
         results from the power to conduct two-way communication from merchant
         to buyer and from buyer to merchant through the internet.

        Business and the internet
         In order to conduct business over the internet and accept payment by
         credit card, a merchant needs a merchant account. A merchant account is
         an identification number that identifies a business that is authorized
         to process credit card payments. A merchant account for online sales is
         different from a merchant account used in a traditional store.

        Transaction processing
         The internet has opened up new possibilities for processing many types
         of financial transactions.
         . Continued growth of internet commerce will depend in part on: (1) the
         ability of buyers and sellers to use familiar forms of payment online,
         such as credit and debit cards and checks, in a simple and secure
         manner; and (2) the availability of payment software and services that:

               securely transmit and store payment information with minimal
               interruption of a consumer's online experience;

               are convenient for merchants to install and maintain;

               connect merchants to major payment processors and financial
               institutions;

               facilitate familiar types of transactions from the physical world
               - (such as bill payment) on the internet; and

               provide common payment platforms for merchants selling goods and
               services both at physical points-of-sale and electronic
               storefronts.


MARKETING PLAN

        The Company's management has determined that the most effective means by
which to market its transaction processing product/service is in two primary
areas. The first is an automated, wider appeal approach to penetrate the
software developers community by making our software developer's kit available
free

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of charge with extensive documentation that developers can use to easily
integrate our technology into their specific solution without direct interaction
with the Company. The Company plans on increasing the visibility of its software
by making it available for download directly from the developer's communities'
websites The second approach is a direct sales effort through a number of
marketing channels rather than pursuing a mass marketing effort directly to
merchants. These channels have been identified as the primary sources which
merchants contact and through which they typically work in order to establish
their internet e-commerce systems. Firms within these channels become the
Company's partners.

        Partners in these market channels provide the Transaction Processing
Component to the merchant--typically, as if it is part of their own
product/service. For example, a financial institution or internet service
provider can provide the Transaction Processing Component to companies it works
with as part of its e-commerce services.

        Where it is necessary, as with financial institutions that become
partners, the Company establishes dedicated network connections in order to
ensure the integrity of the system and to maximize security. Non-internet based
applications may also require dedicated network connections.

        Application developers integrate the Company's payment capabilities into
their products, seamlessly providing merchants setting up their own e-commerce
web site with the ability to accept secure payments by credit card over the
internet.

        The Company will provide the partners with a reduced wholesale cost for
its services that partners can re-sell to their clients . Partners are required
to to administer the service to their customers and the Company will bill the
partner directly. The Company has two pricing structures, wholesale and retail.
Wholesale prices apply partners such as internet service providers, web
developers, application developers and financial institutions. Retail rates
apply to businesses selling products or services directly to consumers.

        The Company charges an activation fee for each customer that uses the
Company's services. This fee is charged only once per account. The monthly
service charge is to maintain the merchant account(s) with the Company's
servers. Included in this charge is access to the Company's member services that
feature tools such as internet point of sale terminals, transactional searching,
and reporting tools. The Company also charges a transaction fee for each
transaction that is processed by the Company on behalf of its customers.

        TARGET MARKET CHANNELS

         The Company considers internet service providers, web developers and
application developers as technical market channels since they understand
software, servers, connectivity and other aspects necessary for integrating the
Company's Transaction Processing Component. A key aspect of the Company's
marketing to these technical channels is the fact that its software is easy to
integrate. The Company provides an interface to communicate with the most common
operating systems such as JAVA, LINUX, UNIX and Windows. This reduces the
technical barrier and makes it easier for these companies to incorporate the
Company's transaction processing component with their existing software and
systems.

        A second key aspect of the Company's marketing to these channels is that
its Transaction Processing Component can be virtually transparent to end users
of products and services provided by the companies in these channels. The
Company can be identified only by a company logo. Internet service providers
present a dual market by providing the Company Transaction Processing Component
as part of e-commerce solutions that they sell to their customers and by using
the Company's system to handle their own transaction processing (accepting
payment for their internet access programs and other services).

        Web developers can provide the Company's Transaction Processing
Component as an integrated part of e-commerce solutions that they develop and
manage for clients. For each transaction processed through

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those e-commerce solutions, the web developer would be charged a wholesale fee
for the services.



        Application developers include both those that are developing software
designed for internet e-commerce and developers of other transaction processing
applications. An example of another transaction processing application would be
a computerized point-of-sale terminal, as where a customer visits a business,
makes a purchase, pays by credit card and the credit card information is entered
into the terminal or a personal computer by a cashier or sales agent. The
transaction is then sent via the internet through the Company to the bank for
approval. Although the approval process travels over the internet, the actual
point of sale may not have been conducted via the internet.

        Financial Institutions

        The Company has been able to take advantage of having first established
a relationship with the Royal Bank to secure additional other clients and to
develop relationships with other financial institutions, such as Shared Network
Services and, more recently, the Bank of Nova Scotia. Typically, these
relationships can provide many referrals of other direct clients.

        Direct Marketing to Merchants

        Direct marketing does not currently comprise a major portion of the
Company's marketing strategy, however, it is taking place via the Company's web
site and through word-of-mouth. The Company will continue to maintain its
website making it possible to download the Company's transaction processing
component from its web site at www.e-xact.com. . Typically, these downloads are
from companies with which the Company has had no direct prior contact. .

        In addition, most of the Company's current client base has made first
contact with the Company by way of word-of-mouth referrals. Among the Company's
approximately 245 current clients are the BC Children's Hospital, Dell Computer
Corporation , Sony Music Canada and Intrawest Resorts.
        In the third quarter of 2000, the Company completed a service agreement
with Dell Computer Corporation. The Company was to provide real time credit card
transaction processing for customer purchases made through Dell's Canadian call
centres and web storefront. The Company's software was integrated into Dell's
order fulfillment and shipping systems. This automation allowed Dell to operate
more efficiently by removing many manual steps in the fulfillment and shipping
procedures. The Company also granted Dell Ventures LP warrants to purchase
549,532 shares of the Company. The term of the warrant is for two years and will
terminate on the fifteenth day that the Company's common shares close trading at
a price equal to 200% of the warrant exercise price of $2.25 per share. The
warrants were valued at $320,000 and were recorded as an expense in 2000. The
valuation was based on an option pricing model assuming no dividends are paid,
full vesting on date of grant, a volatility factor of 43% and a weighted-average
annualized risk-free rate of 6.0%.



OPERATIONS

          In December , 2000 the Company closed its operations in Lakewood,
Colorado. Its main office and operations are located in Vancouver, B.C., Canada.

        The processing center for the Company is also located in Vancouver B.C.
This facility houses the Company's computer center for processing all
truncations over the Internet. Network servers providing connectivity to
processing systems and the Internet are securely maintained in two, physically
separated

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locations.
INTELLECTUAL PROPERTY

        Generally speaking, the Company relies on general trademark and
copyright law to protect its products. The Company has formally registered its
primary trademark, E-xact Transaction but has not yet been granted the trademark
protection and has not obtained any patent protection for any of its products.




COMPETITION

        The market for internet commerce software and services is relatively
new, intensely competitive, quickly evolving, and subject to rapid technological
change. Numerous companies are developing e-commerce and online financial
transaction technologies and systems. Key competitors include:



        CyberCash, Inc. of Reston, Virginia - CyberCash offers secure payment
transaction services that encrypt credit card information. Other offerings
include electronic cash payment software and electronic billing and payment
software. CyberCash's complete payment solutions, which span the traditional
retail market to the Internet, provide electronic commerce solutions for
merchants, as well as hardware and software providers and Internet service
providers.


        Authorize.Net Corporation of Provo, UT - Authorize.Net Corporation
develops, markets, and sells Authorize.Net, a line of products and services that
provide solutions for authorizing, processing, and managing credit card and
electronic check transactions over the internet. Authorize.Net's transaction
processing system sends them on to the financial institutions for processing.

        Internet Secure Inc. of Oakville, Ontario - Internet Secure is a
Canadian corporation which provides a secure, on-line, real-time credit card
processing system for internet merchants. Internet Secure demonstrated a secure,
on-line, real-time credit card processing system that has been approved by two
of the top six banks in Canada. Currently the company offers Canadian dollar
merchant status for Visa, MasterCard and AMEX and US dollar merchant status for
Visa and MasterCard approved and supported by Canadian and American Banks.

        Eliance Corporation of Minneapolis, Minnesota - Eliance focuses on
providing its customers with e-commerce solutions including merchant accounts,
POS software and transaction processing as well as order tracking and
fulfillment services.

        E-Commerce Exchange of Irvine, California - E-Commerce Exchange is a
nationwide credit card processing company, specializing in merchant account,
credit card and electronic check transaction solutions for non-traditional
merchants within the internet, home-based, phone order/mail order industries.
E-Commerce Exchange focuses on serving traditionally hard-to-place businesses,
such as home-based or new merchants, business owners with credit problems, high
risk businesses, and others which are considered non-conventional by banks and
other credit card processors.

RESEARCH AND DEVELOPMENT EXPENDITURES

        The Company conducts research and development through internal research
projects. Costs are

                                      -11-
<PAGE>   12

incurred from time to time, in specific projects that employ existing
technologies for which feasibility has previously been established to develop
applications. Production costs for the development of the software used for
which technological feasibility has been established but before the product is
ready for sale, are capitalized when broad applications are identified within
its existing product lines. The Company incurred $742,767 of expenses relating
to research and development in 2000 compared to $193,765 in 1999.

EMPLOYEES

        As of December 31, 2000, the Company had 9 full-time employees. That
number includes one technical support, four programmers, two marketing, and two
senior management personnel.

ITEM 2. DESCRIPTION OF PROPERTY

        The Company maintains leased facilities in the locations listed below.




<TABLE>
<CAPTION>

           Function                                                            Current
           --------                  Location            Square   Term of      Annual
                                     --------             Feet     Lease     Lease Costs
                                                          ----     -----     -----------

<S>                       <C>                            <C>      <C>        <C>
    Canadian  Office      555 West Hastings Street,
                          Suite 2410 Vancouver, B.C.     1,300    10/31/02   Cdn $42,218
</TABLE>

          The facility in Vancouver British Columbia, Canada serves as the
Company's processing center with the lease expiring October 31, 2002. The
Company terminated its lease in Lakewood, CO, in December , 2000. The Company
has signed a promissory note to pay the landlord $4,000 in full and final
settlement of the lease in June 2001.

ITEM 3. LEGAL PROCEEDINGS

        There are no material legal proceedings pending to which the Company is
a party, or to which the property of the Company is subject.

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

        None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        On March 22, 2000 the Company completed an IPO of it common stock in
Canada on the facilities of the Canadian Venture Exchange ("CDNX"). The price to
the public in the initial public offering was $1.00 per share. The stock symbol
is EXZ.U

        The Company was a private company for all of 1999 and thus a public
quote for the Company's stock

                                      -12-
<PAGE>   13

does not exist for that year



<TABLE>
<CAPTION>
        Stock quotes for 2000 and 2001 (US Dollars)
        Date                     Open price          High         Low         Close     Quarterly volume
<S>                              <C>                <C>          <C>        <C>         <C>
        Mar. 31, 2000            $5.00              $5.00        $4.60      $4.70           56,600
        June 30, 2000             1.90               1.90         1.80       1.83          541,000
        Sept. 29, 2000            1.30               1.30         1.30       1.30          377,500
        Dec. 28, 2000             0.25               0.25         0.25       0.25          849,600
        Mar. 30, 2001             0.15               0.15         0.15       0.15          518,400
        Apr. 5 ,2001              0.16               0.16         0.15       0.15          120,000 (April 1-5,2001)
</TABLE>


        There were 63 shareholders of the Company as at April 5, 2001 holding in
aggregate 8,502,000 shares of which 62 registered shareholders hold in aggregate
5,867,960 shares and 2,634,040 shares are held by CDS & Co. in street form.

        The Company has never declared a dividend on its common stock and
intends for the foreseeable future, to retain all earnings, if any, for the
development of its business opportunities. The payment of future dividends will
be at the discretion of the Company's board of directors and will depend upon,
among other things, future earnings, capital requirements, financial condition
and general business conditions.

        The transfer agent for the Company's common stock is Pacific Corporate
Trust Company, 625 Howe Street, Suite 830 Vancouver, BC V6C3B8.


                                      -13-
<PAGE>   14


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

        The following discussion should be read together with the Company's
consolidated financial statements and accompanying notes included elsewhere.

                                 Exchange Rates

        All dollar amounts herein are stated in U.S. dollars except where
otherwise indicated. The following table reflects the rate of exchange for
Canadian dollars per U.S. $1.00 in effect at the end of the following periods
and the average rate of exchange during such periods, based on the Bank of
Canada average noon spot rate of exchange:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                                         YEAR ENDED DECEMBER 31
                               1998              1999                2000
<S>                        <C>               <C>                <C>
Rate at end of period:     Cdn. $1.5333      Cdn. $1.4433         Cdn$1.4979
Average rate for period:   Cdn. $1.4831      Cdn. $1.4858         Cdn$1.4851
---------------------------------------------------------------------------------
</TABLE>
On April 6, 2001, the Bank of Canada noon spot rate of exchange was U.S. $1.00 =
Cdn. $1.5613.


INTRODUCTION

        The Company was incorporated under the Company Act of British Columbia,
Canada on August 13, 1998. On July 29, 1999 the Company was reincorporated in
the state of Delaware, USA. The Company earns its revenue by charging its
customers a setup fee, a monthly membership fee and a transaction fee.
Transaction fees are based on the number of transactions processed in a month.
        The Company offers electronic commerce software services for real-time
transaction processing. The software allows PC based cash registers, PCs,
point-of-sale terminals, computer systems and proprietary product platforms to
accept credit card payments and to submit those payments to various payment
processing companies for pre-authorization and settlement/deposit. The Company
has acquired and developed software and a network system toast as a third party
payment processor to conduct transaction processing with major banks in North
American. The Company is currently approved to conduct transaction processing
with major banks and credit unions in Canada and the US.

During the year ended December 31, 2000, the Company released version 5.0 of its
software in Com, Java and Perl platforms. The Company's e-commerce solution is
functional across major operating environments and it requires minimal
investment of resources from a new customers to be fully integrated with
E-xact's services.

The Company determined that as of April 1, 2000 its functional currency was the
United States dollar ("US Dollars"). Previously the functional currency of the
Company was the Canadian dollar. The change in the Company's functional currency
was made as the majority of the Company's operating and financing transactions
are now denominated in the US dollar. Monetary assets and liabilities
denominated in other than the US dollar are translated using the exchange rates
prevailing at the balance sheet date. Revenues and expenses are translated using
average exchange rates prevailing during the period. Gains and losses on foreign
currency transactions are recorded in the consolidated statement of operations.
The Company has remeasured its assets, liabilities, revenues and expenses for
prior years using the historical exchange rate in existence at the date of the
transaction.

                                      -14-
<PAGE>   15

                 FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO
                      FISCAL YEAR ENDED DECEMBER 31, 1999
                    (ALL AMOUNTS ARE EXPRESSED IN US DOLLARS)


        REVENUES - The Company's revenue consists of setup fees and transactions
fees. In 2000 total revenues increased $144,713, or 151% from $95,791 in 1999 to
$240,504 in 2000. The revenues were derived primarily from transaction
processing fees and monthly service fees.
        The Company's customer base grew from 8 in 1999 to 245 in 2000, while
the cumulative number of transactions processed since deployment of the software
in September , 1998 was 3.9 million.

        GROSS MARGINS - The Company's gross profit margin in 2000 was
approximately 52% compared to 69% in 1999. The decrease in profit margin was due
to additional costs incurred in setting up the US market and without a
commensurate increase in revenue in that market.


        GENERAL AND ADMINISTRATIVE EXPENSES ( G&A ):
G&A expenses increased from approximately $468,000 in 1999 to approximately
$1,424,000 in 2000. The increase was due primarily to the establishment of a US
office in Colorado; legal expenses increased from $0 in 1999 to approximately
$125,000 in 2000. This increase was due to filing and reporting requirements as
a public issuer and trade mark protection; rent which increased from
approximately $36,000 in 1999 to approximately $111,000 in 2000; office and
miscellaneous expenses which increased from approximately $22,500 in 1999 to
approximately $178,000 in 2000, wages and salaries which increased from
approximately $62,000 in 1999 to approximately $448,000 in 2000;
telecommunication expenses which increased from approximately $9,000 in 1999 to
approximately $91,000 in 2000. These increases all related to the establishment
of the Colorado office. The Company expects G&A expenses for the year 2001 to be
substantially lower as a result of the closure of the US operations.

        SALES & MARKETING  ( S&M) :
S&M increased from approximately $57,000 in 1999 to approximately $1,101,000 in
2000. The increase includes a non-cash charge of $320,000 for warrants issued to
a customer in connection with a service agreement simultaneously signed with the
same customer group. The valuation of the warrants were based on Black-Scholes
option pricing model using a volatility factor of 43% and a weighted-average
risk free rate of 6.0%. Advertising and promotion increased from approximately
$8,000 in 1999 to approximately $126,000. The Company embarked on a advertising
campaign in the US during the year. Travel increased from approximately $13,000
in 1999 to approximately $199,200 in 2000. Travel expenses were incurred by
management and sales staff as the Company promoted its products at trade shows
and made presentations to a number of prospects. Marketing payroll increased
from approximately $37,000 in 1999 to approximately $411,500 in 2000. Additional
marketing and support staff were employed in 2000. The Company expects S&M
expenditures to be much lower in 2001 as a result of a substantial reduction in
staff . The Company will still maintain its visibility in the market place via
its website and networking contacts.


        RESEARCH AND DEVELOPMENT ( R&D) :

        R & D expenses consist of compensation expenses and consulting fees to
support the development of the Company's software and services. Production costs
for the development of the software for which the technological feasibility has
been established but before the product is ready for sale are expensed.
        R&D expenditures increased from approximately $194,000 in 1999 to
approximately $743,000 in 2000. Consulting fees increased from approximately
$125,000 in 1999 to approximately $322,000 in 2000, while programming expense
increased from approximately $58,000 in 1999 to approximately $358,000. The

                                      -15-
<PAGE>   16

Company originally had a US Gateway certification with Vital Processing.
Additional development expenses were incurred to further develop the Company's
software for more robust connectivity. In addition, VISA announced in the second
quarter of 2000 that it would require all processors to add additional
functionality to accommodate internet based transactions. As a result of these
additional requirements, the Company incurred more software development
expenses. The Company is also in the process of working with its second US
Gateway certification. Additional programming expenses were incurred to upgrade
all the Company's software primary components (COM, JAVA and PERL) to Version
5.0.


        OTHER INCOME (EXPENSES) -Interest income totaled approximately $19,000
in 2000 compared to $1,411 in 1999. Interest income was received on IPO funds
invested during the year. In addition, unrealized and realized exchange gain and
losses totaled approximately $38,000.

        INCOME TAXES - Owing to a tax loss incurred during the year, the Company
has a net tax recovery of approximately $59,000 representing the application of
the current year's loss to prior taxes incurred upon the re-domiciling of the
Company to Delaware, USA.

        NET LOSS - The Company incurred a net loss of $2,974,000 in 2000,
compared to a net loss of $771,000 in 1999. The increased losses are the result
of the Company's expansion in the US.

           In view of the deteriorating market conditions for e-commerce
companies, the Company closed its US operations in December, 2000. The Company
has consolidated its resources in its Vancouver, B.C. office. Operating expenses
were also significantly reduced in December, 2000.


      LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2000

CAPITAL AND DEBT FINANCING

        In March 2000 the Company completed its initial public offering in
Canada of 2,250,000 shares of the Company's common stock at an offering price of
$1.00 per share on the Canadian Venture Exchange. Additionally, the Agent was
issued 75,000 shares of the Company's common stock in the Canadian offering
along with warrants to purchase 225,000 shares of the Company's common stock at
a price of $1.00 for the first 12 months and at a price of $1.15 for the next 12
months. The estimated net cash proceeds to the Company from the initial public
offering was approximately $1,800,000 after payment of expenses. During the year
ended December 31, 2000 net cash proceeds of $54,945 were received on the
exercise of stock options and warrants.

        At December 31,2000 the Company had working capital deficiency of
approximately $747,000 compared to a deficiency of approximately $82,500 at
December 31, 1999. The decrease in working capital is associated with the
utilization of working capital to support losses from operations and the
expansion of the operations.

CASH FLOW

        During the year ended December 31, 2000, the Company used cash from
operations of approximately $2,369,000 compared to approximately $304,000 in
1999.

        Cash provided by financing activities was approximately $2,270,000 for
the year ended December 31, 2000 compared to approximately $669,000 the previous
year. The Company received net proceeds in the amounts of $1,870,000 from the
sale of equity securities during the year ended December 31, 2000.

                                      -16-
<PAGE>   17

          Cash used in investing activities, totaled approximately $196,000
during the year ended December 31, 2000 compared to approximately $62,900 in the
prior year. Computer equipment was purchased for new personnel and to expand
processing capabilities.

           During the fourth quarter of 2000, the Company took substantial steps
to reduce its operating losses. It closed its US operations, reduced its
personnel and curtailed its marketing budget. The Company expects continued
losses in 2001. The Company accrued all costs related to the closure which
totaled approximately $15,000 in 2000.

CAPITAL RESOURCES


           Management believes that the working capital deficiency as at
December 31, 2000 and future operating losses will be financed by additional
equity funding and loans from investors. However, there can be no assurance that
such financings will be successful, or they may be negotiated on terms which are
unfavourable or dilutive to existing stockholders. The Company's continuation as
a going concern is contingent upon achieving operating levels adequate to
support its cost structure, the continued support of its creditors and obtaining
adequate financial resources through a contemplated financing. The Company has
no plans to expand its personnel or purchase or lease any major capital
equipment in 2001. Additional staffing requirements will be supplemented with
part-time workers or consultants.

           In the event that cash flow from operations, if any, together with
he proceeds of any future financings, are insufficient to meet these expenses,
the Company will be required to re-evaluate its planned expenditures and
allocate its total resources in such manner as the board of directors and
management deems to be in the Company's best interest.

RECENT ACCOUNTING PRONOUNCEMENTS

           In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. The Financial Accounting Standards Board have subsequently delayed
implementation of the standard for the financial years beginning after June 15,
2000. The adoption of this pronouncement will not have a material effect on the
Company's consolidated financial position or results of operations .

         In December, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In October 2000, the SEC issued further guidance with
respect to adoption of specific issues addressed by SAB No. 101. The adoption of
SAB No. 101 did not have a material effect on the Company's consolidated
financial position or results of operations.


                                      -17-
<PAGE>   18



RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

                 In March 2000, the FASB issued Interpretation No. 44 ("FIN No.
44"), Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employee
for purposes of applying APB Opinion No. 5, (ii) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (iii) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (iv) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000 but
certain conclusions in this interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of certain of
the conclusions of FIN No. 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material effect on the
Company's financial position and results of operations. The adoption of the
remaining conclusions did not have a material effect on the financial position
or results of operations.




                                      -18-
<PAGE>   19


ITEM 7. FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                  <C>
        Independent Auditors' Report                                                    F-1

        Consolidated Balance Sheets - December 31, 2000 and December 31, 1999           F-2

        Consolidated Statements of Operations - For the years ended December 31,
        2000 and 1999 and period from inception August 13, 1998 to December 31,         F-3

        Consolidated Statements of (Capital Deficiency) Stockholders' Equity -
        For the years ended December 31, 2000 and 1999 and period
         from inception August 13, 1998 to December 31, 1998                            F-4

        Consolidated Statements of Cash Flows - For the years ended December 31,
        2000 and 1999 and period from inception August 13, 1998 to December 31,
        1998                                                                            F-5

        Notes to Consolidated Financial Statements                                      F-6
</TABLE>


                                      -19-
<PAGE>   20


                          INDEPENDENT AUDITORS' REPORT


To the Directors and Stockholders of
E-xact Transactions Ltd.

We have audited the consolidated balance sheets of E-xact Transactions Ltd. as
at December 31, 2000 and 1999 and the consolidated statements of operations,
capital deficiency and cash flows for each of the years in the two year period
ended December 31, 2000 and period from inception, August 13, 1998, to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the two year period ended December 31, 2000 and the period from
inception, August 13, 1998, to December 31, 1998 in accordance with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


/s/ Deloitte & Touche LLP


Chartered Accountants
Vancouver, British Columbia
March 16, 2001


                                      F-1
<PAGE>   21

                            E-XACT TRANSACTIONS LTD.
                           CONSOLIDATED BALANCE SHEETS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                 December 31,      December 31,
                                                                         2000              1999
                                                             ----------------- -----------------
<S>                                                           <C>              <C>
ASSETS

Current
   Cash ..................................................    $       10,476   $      304,668
   Accounts receivable (Note 3) ..........................            72,671           81,837
   Prepaid expenses and deposits .........................             5,356            4,334
                                                             ----------------- -----------------
Total current assets .......................................          88,503          390,839
Deferred share issue costs .................................             -            177,299
Capital assets (Note 4) ....................................         103,601           45,099
                                                             ----------------- -----------------
Total assets ...............................................  $      192,104   $      613,237
                                                             ================= =================

LIABILITIES

Current
   Accounts payable and accrued liabilities (Note 5) .....    $      541,163   $      370,758
   Income taxes payable ..................................            71,909          102,557
   Advances payable (Note 6) .............................           222,558              -
                                                             ----------------- -----------------
Total current liabilities ..................................         835,630          473,315
                                                             ----------------- -----------------

Continuing operations (Note 1)
Commitments (Note 10)

(CAPITAL DEFICIENCY) STOCKHOLDERS' EQUITY

Common stock, common shares issued and outstanding (Note 7)
   8,502,000 at December 31, 2000 and
   5,897,000 at December 31, 1999 ........................             8,502            5,897
Additional paid-in capital .................................       3,128,382          940,863
Accumulated deficit ........................................      (3,780,410)        (806,838)
                                                             ----------------- -----------------
Total (capital defiency) stockholders' equity ..............        (643,526)         139,922
                                                             ----------------- -----------------
Total (capital deficiency) stockholders' equity and
liabilities ................................................  $      192,104   $      613,237
                                                             ================= =================
</TABLE>

        See Accompanying Notes to the Consolidated Financial Statements.

                                      F-2
<PAGE>   22


                            E-XACT TRANSACTIONS LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                           From inception
                                                                               August 13,
                                                  Year ended    Year ended        1998 to
                                                December 31,  December 31,   December 31,
                                                        2000          1999           1998
                                               -------------- ------------ ---------------

<S>                                              <C>           <C>           <C>
Revenues
  Online transactions ......................     $   240,504   $   88,721    $   15,317
  Web development ..........................             -          7,070        14,311
                                               -------------- ------------ ---------------
Total revenues .............................         240,504       95,791        29,628
                                               -------------- ------------ ---------------

Cost of sales
  Cost of online transactions ..............         115,532       26,262         5,393
  Cost of web development ..................             -          3,183         6,919
                                               -------------- ------------ ---------------
Total cost of sales ........................         115,532       29,445        12,312
                                               -------------- ------------ ---------------

Expenses
  General and administrative expenses ......       1,423,701      467,780        27,038
  Sales and marketing (including $320,000 of
  non-cash warrant charges;
  1999 - $Nil;  1998 - $Nil) ...............       1,100,941       57,180        12,196
  Research and development .................         742,767      193,765        14,017
                                               -------------- ------------ ---------------
Total expenses .............................       3,267,409      718,725        53,251
                                               -------------- ------------ ---------------
Operating loss .............................      (3,142,437)    (652,379)      (35,935)
Other income (expense) .....................         110,140      (15,967)          -
                                               -------------- ------------ ---------------
Loss before income tax .....................      (3,032,297)    (668,346)      (35,935)
Income taxes (Note 11) .....................          58,725     (102,557)          -
                                               -------------- ------------ ---------------
Net loss ...................................     $(2,973,572)  $ (770,903)   $  (35,935)
                                               ============== ============ ===============

Basic and diluted loss per share ...........     $     (0.37)  $    (0.17)   $    (0.01)
                                               ============== ============ ===============

Weighted average number of common shares
  used to calculate loss per share .........       7,932,356    4,553,542     3,820,832
                                               ============== ============ ===============
</TABLE>

        See Accompanying Notes to the Consolidated Financial Statements.

                                      F-3
<PAGE>   23

                            E-XACT TRANSACTIONS LTD.
                 CONSOLIDATED STATEMENTS OF (CAPITAL DEFICIENCY)
                              STOCKHOLDERS' EQUITY
                      (EXPRESSED IN UNITED STATES DOLLARS)


<TABLE>
<CAPTION>
                                                                                                                  Total
                                                                                                                (Capital
                                                           Common Stock         Additional                     Deficiency)
                                                   --------------------------    Paid-in       Accumulated    Stockholders'
                                                      Shares        Amount       Capital         Deficit         Equity
                                                   ----------- -------------- ------------- ---------------- --------------

<S>                                                 <C>         <C>           <C>           <C>               <C>
Issuance of common stock for cash .................    42,000   $         1   $       -      $       -          $         1
Issuance of common stock for acquired
  software and intangibles ........................ 4,158,000        42,129           -              -               42,129
Net loss ..........................................       -             -             -          (35,935)           (35,935)
                                                   ----------- -------------- ------------- ---------------- --------------
Balance at December 31, 1998 ...................... 4,200,000        42,130           -          (35,935)             6,195
Reclassification on reincorporation (Note 7) ......       -         (37,930)       37,930            -                  -
Warrants issued for consulting fees (Note 7 (d)) ..       -             -          58,320            -               58,320
Issuance of common stock on private
  placement, net of offering costs
  of $20,698 and warrants issued
  for financing services of $142,123
  (Note 7 (d)) .................................... 1,697,000         1,697       844,613            -              846,310
Net loss ..........................................       -             -             -         (770,903)          (770,903)
                                                   ----------- -------------- ------------- ---------------- --------------
Balance at December 31, 1999 ...................... 5,897,000         5,897       940,863       (806,838)           139,922
Issuance of stock pursuant to exercise of
  warrants, January 2000 ..........................   225,000           225        74,334            -               74,559
Issuance of stock pursuant to IPO, net of
  cash offering of $509,435, stock issued
  to the Underwriter of $75,000, and
  warrants issued for financing services
  of $138,744 ..................................... 2,325,000         2,325     1,738,240            -            1,740,565
Exercise of stock options .........................    25,000            25        24,975            -               25,000
Warrants issued for compensation (Note 7 (d)) .....       -             -         320,000            -              320,000
Exercise of warrants ..............................    30,000            30        29,970            -               30,000
Net loss ..........................................       -             -             -       (2,973,572)        (2,973,572)
                                                   ----------- -------------- ------------- ---------------- --------------
Balance at December 31, 2000 ...................... 8,502,000   $     8,502   $ 3,128,382    $(3,780,410)       $  (643,526)
                                                   =========== ============== ============= ================ ==============
</TABLE>

        See Accompanying Notes to the Consolidated Financial Statements.

                                      F-4
<PAGE>   24

                            E-XACT TRANSACTIONS LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                                     From inception
                                                                                         August 13,
                                                           Year ended    Year ended         1998 to
                                                         December 31,  December 31,    December 31,
                                                                 2000          1999            1998
                                                         ------------------------------------------

<S>                                                      <C>             <C>            <C>
Operating activities:
Net loss ..............................................  $(2,973,572)    $(770,903)     $(35,935)
Item not affecting cash
  Amortization of capital assets, acquired
    software and other intangible assets ..............       58,328        36,014        27,721
  Loss on disposal of fixed assets ....................       78,671           -             -
  Warrants issued to customer .........................      320,000           -             -
  Warrants issued for financing fees ..................          -          58,320           -
Net change in operating assets and liabilities
Accounts receivable ...................................        9,166       (69,058)      (12,747)
Prepaid expenses and deposits .........................       (1,022)          -          (4,326)
Accounts payable and accrued liabilities ..............      170,405       345,887        22,529
Income taxes payable ..................................      (30,648)      102,557           -
Advances from stockholders ............................          -          (7,318)        7,299
                                                         ------------------------------------------

                                                          (2,368,672)     (304,501)        4,541
                                                         ------------------------------------------

Financing activities:
Proceeds on issuance of capital stock, net of
  offering costs ......................................    1,870,124       846,310             1
Deferred share issue costs ............................      177,299      (177,299)          -
Advances from shareholders ............................      222,558           -             -
                                                         ------------------------------------------

                                                           2,269,981       669,011             1
                                                         ------------------------------------------

Investing activities:
Purchase of capital assets ............................     (198,075)      (62,948)       (1,436)
Proceeds on disposal of fixed assets ..................        2,575           -             -
                                                         ------------------------------------------

                                                            (195,500)      (62,948)       (1,436)
                                                         ------------------------------------------
Net cash inflow .......................................     (294,191)      301,562         3,106
Cash, beginning of period .............................      304,668         3,106           -
                                                         ------------------------------------------
Cash, end of period ...................................  $    10,477     $ 304,668      $  3,106
                                                         ==========================================

Supplemental non-cash investing and financing cash flow
disclosures:

Common shares issued for acquired software
  and intangibles .....................................  $       -       $     -        $ 44,407
                                                         ==========================================
Warrants issued for financing services ................  $   138,744     $ 142,123      $    -
                                                         ==========================================
Warrants issued to customer ...........................  $   320,000     $     -        $    -
                                                         ==========================================
Common stock issued to underwriters ...................  $    75,000     $     -        $    -
                                                         ==========================================
</TABLE>

        See Accompanying Notes to the Consolidated Financial Statements.

                                      F-5
<PAGE>   25


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

1.      CONTINUING OPERATIONS

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

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

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

        The Company incurred a net loss of $2,973,572 for the year ended
        December 31, 2000 and at December 31, 2000 had a working capital
        deficiency of $747,127 and capital deficiency of $643,526. The success
        of the Company's future operations is dependent upon attaining
        profitable operations, and upon its ability to raise additional
        financing. Management's plans include obtaining the continued support of
        creditors, raising additional financing and, ultimately, positioning the
        Company for profitable operations.

        These factors among others indicate that the Company may be unable to
        continue as a going concern for a reasonable period of time. The
        financial statements do not include any adjustments that might result
        from the outcome of this uncertainty. The Company's continuation as a
        going concern is dependent upon achieving operating levels adequate to
        support the Company's cost structure and obtaining adequate financial
        resources through a contemplated financing or otherwise. However, there
        can be no assurance that such financings will be successful.


2.      SIGNIFICANT ACCOUNTING POLICIES

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

        (a)    Basis of consolidation

               These consolidated financial statements include the assets,
               liabilities and operating results of the Company and its
               wholly-owned subsidiary.


                                      F-6
<PAGE>   26

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

2.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        (b)    Use of Estimates

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

        (c)    Foreign Currency Translation

               The Company determined that as of April 1, 2000 its functional
               currency was the United States dollar ("US Dollars"). Previously
               the functional currency of the Company was the Canadian dollar.
               The change in the Company's functional currency was made due to
               the expansion of US operations during the year. The majority of
               the Company's operating and financing transactions are now
               denominated in the US dollar. Monetary assets and liabilities
               denominated in other than the US dollar are translated using the
               exchange rates prevailing at the balance sheet date. Revenues and
               expenses are translated using average exchange rates prevailing
               during the period. Gains and losses on foreign currency
               transactions are recorded in the consolidated statement of
               operations. The Company has remeasured its assets, liabilities,
               revenues and expenses for prior years using the historical
               exchange rate in existence at the date of the transaction.

        (d)    Research and Development Costs

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

        (e)    Deferred Share Issue Costs

               Share issue costs incurred prior to the issuance of share capital
               are deferred and netted against the proceeds when the related
               shares are issued.

        (f)    Capital Assets and Amortization

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

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


                                      F-7
<PAGE>   27

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

2.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        (f)    Capital Assets and Amortization (continued)

               The Company periodically evaluates the recoverability of its
               capital assets whenever events or changes in circumstances
               indicate that the carrying amount of an asset may not be
               recoverable. An impairment loss would be recognized when
               estimates of future cash flows expected to result from the use of
               an asset and its eventual disposition are less than its carrying
               amount. No impairment in assets had been identified by the
               Company in the years ended December 31, 2000 and 1999 and initial
               period from inception, August 13, 1998, to December 31, 1999.

        (g)    Revenue Recognition

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

               (i)    Online Transactions

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

               (ii)   Web Development

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

        (h)    Stock-Based Compensation Plans

               As permitted under SFAS No. 123, Accounting for Stock-Based
               Compensation, the Company has accounted for employee and
               directors stock options in accordance with Accounting Principles
               Board ("APB") Opinion No. 25, Accounting for Stock Issued to
               Employees, and has made the pro forma disclosures required by
               SFAS No. 123 in Note 7 (c).

               SFAS No. 123, Accounting for Stock-Based Compensation, requires
               the use of the fair value based method of accounting for stock
               options. Under this method, compensation cost is measured at the
               grant date as the fair value of the options granted and is
               recognized over the vesting period. Where the Company issues
               options to individuals other than employees and directors
               deferred share-based compensation is recorded. These amounts are
               amortized as charges to operations, over the vesting period of
               the individual stock options.


                                      F-8
<PAGE>   28

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

2.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        (i)    Income Taxes

               The Company accounts for income taxes under the provisions of
               SFAS No. 109, Accounting for Income Taxes. This statement
               provides for a liability approach under which deferred income
               taxes are provided based upon enacted tax laws and rates
               applicable to the periods in which the taxes become payable.

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

        (j)    Basic and Diluted Loss Per Share

               Basic loss per share is computed by dividing net loss available
               to common stockholders by the weighted average number of common
               shares outstanding for the period.

        (k)    Comprehensive Income

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

        (l)    Business Segments

               SFAS No. 131, Disclosures about Segments of an Enterprises and
               Related Information, establishes standards for reporting,
               information about operating segments in annual financial
               statements. It also establishes standards for disclosures about
               products and services, geographic areas and major customers.
               Information related to SFAS No. 131 is contained in Note 12.

        (m)    Recent Accounting Pronouncements

               In June 1998, the FASB issued SFAS No. 133, Accounting for
               Derivative Instruments and Hedging Activities, which establishes
               accounting and reporting standards for derivative instruments and
               hedging activities SFAS 133 is effective for all fiscal quarters
               of all fiscal years beginning after June 15, 1999. The Financial
               Accounting Standards Board have subsequently delayed
               implementation of the standard for the financial years beginning
               after June 15, 2000. The adoption of this pronouncement will not
               have a material effect on the Company's consolidated financial
               position or results of operations.


                                      F-9
<PAGE>   29

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

2.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        (m)    Recent Accounting Pronouncements (continued)

               In December, 1999, the Securities and Exchange Commission ("SEC")
               issued Staff Accounting Bulletin ("SAB") No. 101, Revenue
               Recognition in Financial Statements. SAB No. 101 summarizes
               certain of the SEC's views in applying generally accepted
               accounting principles to revenue recognition in financial
               statements. In October 2000, the SEC issued further guidance with
               respect to adoption of specific issues addressed by SAB No. 101.
               The adoption of SAB No. 101 did not have a material effect on the
               Company's consolidated financial position or results of
               operations.

               In March 2000, the FASB issued Interpretation No. 44 ("FIN No.
               44"), Accounting for Certain Transactions Involving Stock
               Compensation - an interpretation of APB 25. FIN No. 44 clarifies
               (i) the definition of employee for purposes of applying APB
               Opinion No. 5, (ii) the criteria for determining whether a plan
               qualifies as a noncompensatory plan, (iii) the accounting
               consequences of various modifications to the terms of a
               previously fixed stock option or award, and (iv) the accounting
               for an exchange of stock compensation awards in a business
               combination. FIN No. 44 is effective July 1, 2000 but certain
               conclusions in this interpretation cover specific events that
               occur after either December 15, 1998, or January 12, 2000. The
               adoption of certain of the conclusions of FIN No. 44 covering
               events occurring during the period after December 15, 1998 or
               January 12, 2000 did not have a material effect on the Company's
               financial position and results of operations. The adoption of the
               remaining conclusions did not have a material effect on the
               financial position or results of operations.


3.      ACCOUNTS RECEIVABLE

        Accounts receivable are recorded net of a $65,581 allowance for doubtful
        accounts at December 31, 2000 (1999 - $3,400).


4.      CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                         December 31,
                                   --------------------------------------------------------
                                                      2000                        1999
                                   --------------------------------------------------------
                                                   Accumulated     Net Book     Net Book
                                        Cost      Amortization       Value        Value
                                   --------------------------------------------------------

<S>                                <C>            <C>           <C>            <C>
        Leasehold improvements ... $    4,940     $      494    $    4,446     $       -
        Computer software ........     87,251         72,907        14,344        12,892
        Computer equipment .......    119,165         34,354        84,811        32,207
                                   --------------------------------------------------------
                                   $  211,356     $  107,755    $  103,601     $  45,099
                                   ========================================================
</TABLE>


                                      F-10
<PAGE>   30

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

5.      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

<TABLE>
<CAPTION>
                                                                     December 31,
                                                            -------------------------------
                                                                   2000            1999
                                                            -------------------------------

<S>                                                            <C>             <C>
        Trade payables ...................................     $  498,149      $   205,096
        Financing costs payable ..........................             -           131,879
        Other accrued liabilities ........................         43,014           33,783
                                                            -------------------------------
                                                               $  541,163      $   370,758
                                                            ===============================
</TABLE>


6.      ADVANCES PAYABLE

        The advances payable from certain stockholders of the Company bear
        interest at prime plus one per cent and have no fixed terms of
        repayment. Subsequent to the year ended December 31, 2000, such advances
        were secured by certain assets of the Company.


7.      STOCKHOLDERS' EQUITY

        (a)    Authorized Stock

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

               The Company has authorized 50,000,000 common stock with a par
               value of $0.001 per share. As a result of the reincorporation and
               change to par value shares, $37,930 was reclassified during 1998
               from common stock to additional paid in capital.

        (b)    On September 2, 1999 the Company's common stock were split,
               twenty-one thousand-for-one. All per share amounts of prior
               periods have been adjusted to reflect the split.


                                      F-11
<PAGE>   31


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

7.      STOCKHOLDERS' EQUITY (CONTINUED)

        (c)    Stock-Based Compensation Plans

               During 1999, the Company established a Share Option Plan (the
               "option plan") which provides for options to be granted by the
               Company to its directors, officers, employees and consultants of
               the Company and affiliated companies. The Company has reserved a
               maximum of 1,695,400 common shares for issuance under the option
               plan. No options were granted prior to the establishment of the
               plan. At the date options are granted, the exercise price for an
               option shall not be less than the then market price of the common
               shares of the Company. Options granted are subject to certain
               vesting requirements.

               A summary of the status of the Company's stock option plan as of
               December 31, 2000 and 1999 and changes during the periods ending
               on those dates is presented below:

<TABLE>
<CAPTION>
                                                         2000                      1999
                                               -------------------------- -----------------------
                                                              Weighted-               Weighted-
                                                               Average                 Average
                                                   Common     Exercise      Common    Exercise
               Options                             Shares       Price       Shares      Price
               ---------------------------------------------------------- -----------------------

<S>                                               <C>        <C>          <C>       <C>
               Outstanding at beginning
                  of period ..............         650,000    $   1.00         -     $   -
                    Granted ............           900,500        1.34     650,000      1.00
                    Exercised ..........           (25,000)       1.00         -         -
                    Cancelled ..........          (980,000)       1.10         -         -
                                               -------------------------- -----------------------
               Outstanding at end of period        545,500    $   1.42     650,000   $  1.00
                                               ========================== =======================

               Exercisable at end of period        200,000    $   1.39       4,167   $  1.00
                                               ========================== =======================
</TABLE>

               The following table summarizes information about stock options
               outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                    Options Outstanding
               --------------------------------------------------------------------------------------------
                                                 Number                                        Number
                            Range of          Outstanding         Weighted-Average          Exercisable
                            Exercise        at December 31,           Remaining           at December 31,
                             Price               2000             Contractual Life             2000
               --------------------------------------------------------------------------------------------

<S>                     <C>                      <C>                 <C>                  <C>
                         $1.00 to $3.35            545,500             4 years              200,000
</TABLE>


                                      F-12
<PAGE>   32


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

7.      STOCKHOLDERS' EQUITY (CONTINUED)

        (c)    Stock-Based Compensation Plans (Continued)

               Under APB No. 25, because the exercise price of the Company's
               employee stock options generally equals the fair value of the
               underlying stock on the date of grant, no compensation expense is
               recognized.

               Statement of Financial Accounting Standards No. 123, Accounting
               for Stock-Based Compensation, issued in October 1995, requires
               the use of the fair value based method of accounting for stock
               options. Under this method, compensation cost is measured at the
               grant date as the fair value of the options granted and is
               recognized over the exercise period. During the periods ended
               December 31, 2000 and 1999, the Company issued no options to
               individuals other than employees and directors. SFAS 123, allows
               the Company to continue to measure the compensation cost of
               employee related stock options in accordance with APB 25. The
               Company has therefore adopted the disclosure-only provision of
               SFAS 123.

               Had compensation cost for the Company's share options granted to
               employees and directors been determined based on the
               Black-Scholes value at the grant dates for awards as prescribed
               by SFAS No. 123, pro forma net loss and net loss per share would
               have been as follows:

<TABLE>
<CAPTION>
                                                                Year Ended      Year Ended
                                                              December 31,    December 31,
                                                                      2000            1999
                                                             --------------  --------------

<S>                                                          <C>               <C>
               Net loss
                  As reported ............................   $ (2,973,572)     $ (770,903)
                  SFAS No. 123 pro forma adjustment ......       (429,209)         (9,271)
                                                             --------------  --------------
               Pro forma net loss .......................... $ (3,402,781)     $ (780,174)
                                                             ==============  ==============

               Loss per share, as reported ................. $      (0.37)     $    (0.17)
               SFAS No. 123 pro forma adjustment ...........        (0.05)              -
                                                             --------------  --------------
               Pro forma loss per share .................... $      (0.42)     $    (0.17)
                                                             ==============  ==============
</TABLE>

                                      F-13
<PAGE>   33


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

7.      STOCKHOLDERS' EQUITY (CONTINUED)

        (c)    Stock-Based Compensation Plans (continued)

               The weighted average Black-Scholes option pricing model value of
               options granted under the share option plan during the periods
               ended December 31, 2000 and 1999 were $1.04 and $0.17 per share,
               respectively. The fair value for these options was estimated at
               the date of grant using the following weighted average
               assumptions:

<TABLE>
<CAPTION>
                                                                  Year Ended     Year Ended
                                                                December 31,   December 31,
                                                                        2000           1999
                                                              ---------------  -------------
<S>                                                                 <C>          <C>
               Assumption
               Volatility factor of expected market price
                  of the Company's shares .................           109.0%           5.3%
               Dividend yield ...............................           0.0%           0.0%
               Weighted average expected life of stock
               options ......................................        5 years        3 years
               Risk free interest rate ......................          5.32%          6.55%
</TABLE>

        (d)    Warrants

               On August 2, 2000, under an arrangement with a customer, the
               Company granted warrants to purchase 549,532 shares of the
               Company. The term of the warrant was two years and will terminate
               earlier if not exercised on the fifteenth day that the Company's
               common shares close trading at a price equal to 200% of the
               warrant exercise price of $2.25 per share. The Company recorded a
               non-cash charge of $320,000. This amount was determined using an
               option pricing model assuming no dividends, full vesting on date
               of grant, a volatility of 43% and a weighted-average annualized
               risk-free rate of 6.0%.

               On July 28, 1999, and amended January 18, 2000 and February 15,
               2000, the Company entered into an agreement with Bolder Venture
               Partners ("BVP") to have BVP complete a financing plan which will
               include an initial private placement (b), an Initial Public
               Offering ("IPO") (c), and a Follow-On Placement. In partial
               consideration of BVP's services, the Company will issue BVP
               warrants to purchase 1,232,136 shares exercisable for a five year
               term from July 28, 1999. 225,000 of the Warrants were exercised
               at $0.25 per share on January 18, 2000. As these Warrants became
               exercisable on August 28, 1999, the Company has recorded the fair
               value of these warrants of $58,320 as a corporate finance fee in
               the year ended December 31, 1999. The remaining Warrants became
               exercisable or will be exercisable as follows:

               (i)     557,136 of the Warrants became exercisable as of October
                       14, 1999 at a price of $1.00 per share;



<PAGE>   34


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

7.      STOCKHOLDERS' EQUITY (CONTINUED)

        (d)    Warrants (continued)

               (ii)    225,000 of the Warrants were exercisable upon completion
                       of the IPO as of March 22, 2000 at a price per share
                       equal to the IPO price (estimated to be $1.00 per
                       share); and

               (iii)   225,000 of the Warrants will be exercisable immediately
                       upon completion of the Follow-On Placement of not less
                       than $3,000,000, at a price equal to the Follow-On
                       private placement price.

               The exercise price of all warrants increase by 15% in each of the
               second, third, fourth and fifth years of the term of the
               Warrants.

               The 225,000 Warrants exercised January 18, 2000 were not
               contingent on obtaining financing and therefore have been
               accounted for as a compensatory finance fee equal to the fair
               market value of the shares on August 28, 1999 less the option
               price which amounted to $58,320. The remaining tranches will be
               accounted for in a similar manner except any difference between
               the fair value and the option price will be offset against share
               capital as receiving the warrants is contingent on raising the
               applicable capital. On October 14, 1999, 557,136 Warrants became
               exercisable on completion of a private placement. These warrants
               had a fair value of $142,123 and were recorded as an additional
               cost of raising the applicable capital. Under the agreement, BVP
               agreed to serve as corporate and financial advisors to the
               Company for a period of twelve months, commencing July 1, 1999 at
               a rate of $10,000 per month.

               On March 22, 2000 the second tranche of 225,000 warrants vested
               upon completion of the initial public offering.

        (e)    Initial Public Offering

               On March 22, 2000, the Company successfully completed its initial
               public offering in Canada of 2,250,000 shares of the Company's
               common stock at an offering price of $1.00 per share on the
               Canadian Venture Exchange ("CDNX").

               In connection with the Company's Initial Public Offering (the
               "IPO"), the Company granted to Canaccord Capital Corporation and
               Haywood Securities Inc. (the "Agents"), an aggregate of 225,000
               share purchase warrants (the "Agents' Warrants") entitling the
               Agents up to 225,000 shares of the Company's common stock at any
               time up to the close of business on the first anniversary of the
               Company's listing on the CDNX at a price of $1.00 per share.
               30,000 of these Agents' Warrants were exercised in September
               2000, leaving an aggregate of 195,000 Agents' warrants
               outstanding.


                                      F-15
<PAGE>   35


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

7.      STOCKHOLDERS' EQUITY (CONTINUED)

        (e)    Initial Public Offering (continued)

               The Company incurred cash costs of $509,435 in connection with
               the initial public offering. In addition, the Company recorded
               non-cash share issue costs of $138,744 and $75,000 relating to
               the issuance of Warrants and common stock as a result of the
               offering. The Company received net proceeds from the initial
               public offering of $1,740,565.


8.      FINANCIAL INSTRUMENTS

        (a)    Fair Value

               The carrying values of cash, accounts receivable, deposits,
               accounts payable and accrued liabilities income taxes payable and
               advances payable, as reflected in the balance sheet, approximate
               their respective fair values as at December 31, 2000 and 1999
               because of the demand or short-term maturity of these
               instruments.

        (b)    Credit Risk and Economic Dependence

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

               The Company is subject to credit risk as it earns revenue from a
               limited number of customers. During the year ended December 31,
               2000 - $75,973 (year ended December 31, 1999 - $58,418; initial
               period from inception, August 13, 1998 to December 31, 1998 -
               $15,236) of revenue was derived from a single customer. As at
               December 31, 2000 accounts receivable included $45,398 (1999 -
               $33,128) due from a single customer.

        (c)    Foreign Exchange Risk

               During the year ended December 31, 2000, the majority of the
               Company's operations were conducted in the United States of
               America.

               The Company also undertakes certain transactions in Canadian
               dollars and as such is subject to risk due to fluctuations in
               exchange rates. The Company does not use derivative instruments
               to reduce exposure to foreign exchange risk.



                                      F-16
<PAGE>   36


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

9.      RELATED PARTY TRANSACTIONS

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

        (a)    During the year ended December 31, 2000 the Company paid
               consulting fees of $118,196 (year ended December 31, 1999 -
               $181,784; initial period from inception, August 31, 1998 to
               December 31, 1998 - $Nil) to a corporate stockholder for
               research, development and computer services;

        (b)    As at December 31, 2000 accounts payable and accrued liabilities
               include $58,649 (1999 - $62,846) due to a corporate stockholder
               for operating costs paid on its behalf; and

        (c)    During the year ended December 31, 2000, the Company incurred
               interest of $1,973 (year ended December 31, 1999 - $Nil; initial
               period from inception, August 31, 1998 to December 31, 1998 -
               $Nil) on advances from a certain stockholder of the Company.


10.     COMMITMENTS

        Future minimum operating lease payment for premises and equipment leases
        for the years ended December 31, are due as follows:

<TABLE>
<S>                                                                           <C>
        2001 ................................................................  $      29,618
        2002 ................................................................         25,407
        2003 ................................................................          3,507
        2004 ................................................................            877
                                                                              ----------------
                                                                               $      59,409
                                                                              ================
</TABLE>


11.     INCOME TAXES

        Income tax expense for the periods ended December 31, 2000, 1999 and
        1998 was as follows:

<TABLE>
<CAPTION>
                                                                              From inception
                                                                                  August 13,
                                              Year Ended        Year Ended           1998 to
                                            December 31,      December 31,      December 31,
                                                    2000              1999              1998
                                         ----------------  ----------------  ----------------

<S>                                        <C>               <C>               <C>
        Current ........................   $    (58,725)     $     102,557     $           -
        Deferred (recovery) ............              -                  -                 -
                                         ----------------  ----------------  ----------------
                                           $    (58,725)     $     102,557     $           -
                                         ================  ================  ================
</TABLE>


                                      F-17
<PAGE>   37

                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

11.     INCOME TAXES (CONTINUED)

        The reported income tax provision differs from the amount computed by
        applying the statutory rate to the loss before income taxes. The reasons
        for this difference and the related tax effects are as follows:

<TABLE>
<CAPTION>
                                                                                     From inception
                                                                                         August 13,
                                                          Year Ended     Year Ended         1998 to
                                                        December 31,   December 31,    December 31,
                                                                2000           1999            1998
                                                     ----------------  -------------  --------------

<S>                                                   <C>              <C>               <C>
        Statutory tax rate ......................                35%            35%             45%
        Expected income tax (recovery) ..........     $  (1,061,304)   $  (232,866)      $ (16,171)
        Foreign tax rate differences and other ..            57,975        (48,185)            -
        Losses producing no current tax benefit             782,030        148,054          16,171
        Non-deductible expenses .................           162,574            -               -
        Benefit of prior year losses
        (recognized) ............................               -          (16,172)            -
        Foreign taxes on redomocile of Company ..               -          251,726             -
                                                     ----------------  -------------  --------------
                                                      $   (58,725)     $   102,557       $     -
                                                     ================  =============  ==============
</TABLE>

        On July 28, 1999, the Company was reincorporated in the State of
        Delaware. This event resulted in a deemed tax year end and a taxable
        gain for Canadian tax purposes, based on the excess of the fair market
        value of the Company's assets over their related tax cost. Accordingly,
        a provision for the Canadian taxes on the estimated taxable gain has
        been recorded, which has been partially eliminated by the use of
        available current tax losses in Canada.

        Deferred income taxes result principally from temporary differences in
        the recognition of certain revenue and expense items for financial and
        income tax reporting purposes. Significant components of the company's
        deferred tax assets and liabilities as of December 31, 2000 and 1999 are
        as follows:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                ------------------------------
                                                                          2000           1999
                                                                ---------------  -------------

<S>                                                              <C>             <C>
        Deferred income tax assets ...........................
        Book tax base difference in assets ...................   $    170,936    $    69,436
        Net operating tax loss carry forwards ................        930,084        148,054
        Valuation allowance for deferred income tax asset ....     (1,101,020)      (217,490)
                                                                ---------------  -------------
        Net deferred income tax assets .......................             -              -
                                                                ---------------  -------------
        Deferred income tax liabilities ......................   $         -     $        -
                                                                ===============  =============
</TABLE>

        Due to the uncertainty surrounding realization of the deferred income
        tax assets, the Company has 100% valuation allowance against its future
        income tax assets.

                                      F-18
<PAGE>   38


                            E-XACT TRANSACTIONS LTD.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (EXPRESSED IN UNITED STATES DOLLARS)

11.     INCOME TAXES (CONTINUED)

        As of December 31, 2000, the Company has U.S. and Canadian tax loss
        carry forwards of approximately $2.4 million, which expire between 2007
        and 2019, available to reduce future years' income for tax purposes.


12.     SEGMENTED INFORMATION

        The Company operates in one segment - electronic commerce services.

        The Company attributes revenue among geographical areas based on the
        location of the customers. During the year ended December 31, 2000, 98%
        of revenues were derived in Canada (year ended December 31, 1999 -
        100%). Long-lived assets include capital assets and are located in
        Canada.

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

                                      F-19
<PAGE>   39


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

        Not applicable.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT

        The directors and executive officers of the Company are listed below.
Directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified. Executive officers are elected by the Board of Directors and hold
office until their successors are elected and qualified. The Board of Directors
have established a compensation(a) and an audit (b) committee and the following
are members of the respective committees.

<TABLE>
<CAPTION>

          Name                        Age      Positions
          ----                        ---      ---------
<S>                                   <C>     <C>
          Ted Henderson                39      President , Chief Executive Officer and
                                               Director (resigned November 10, 2000)

          Peter Fahlman                36      President and Chief Executive Officer
                                               (appointed November 11, 2000) and Director


          Lance Tracey(a)(b)           54      Director

          Dieter Heidrich(a)           61      Director
          Cliff Mah                    35      Director ( resigned  May 17, 2000)
          Paul MacNeill(b)             46      Director
          John Rose
          Edmund Shung                 55      Director ( appointed May 17, 2000)

                                       46      Chief Financial Officer
</TABLE>



BIOGRAPHICAL INFORMATION

        Peter Fahlman - Mr. Fahlman, has been President of the Company since
November 11, 2000 and director since September, 1998. Mr. Fahlman was previously
the Vice President of Business Development from September , 1998 to November 11,
2000. Mr Fahlman was a partner in Data Direct Consulting Services, an internet
software development company, since November, 1997; prior to that he was
President of Prophase Development Corp., an online print services company, from
May 1996 to December 1997; prior to that he was a consultant to Cybernet
Technologies, from September 1995 to April 1996; prior to that he was a partner
in Hyper Sound Recording, a high-tech music retail operation located in Vernon,
British Columbia from May 1989 to January 1996.

        Lance Tracey - Secretary and a director of the Company since September
1, 1998; President of Code

                                      -20-
<PAGE>   40

Marketing Ltd. since January 1990; President and Director of Sutton Group Realty
Services Inc. from January 1986 to present.

        Dieter Heidrich - Managing Director of Opus Capital, LLP, a Boulder,
Colorado venture capital company, since October 1993 and a Director of the
Company since September 1, 1998. Prior to that he was a general partner with
Weiss, Peck, and Greer Venture Partners from October 1986 to October 1993


        Paul C. MacNeill - Partner with Campney & Murphy, Barristers and
Solicitors, of Vancouver B.C., since 1981 and a Director of the Company since
September 1, 1999.

        John T. Rose - Mr. Rose is currently an active investor in nine
internet, software and communications companies. He also serves on the board of
FatPipeU, a nation wide broadband skills training company based in Irvine,
California.Mr. Rose was formerly the Senior Vice-President and General Manager
for Compaq Computer Corporation's enterprise business with the responsibility
for twelve operating divisions and approximately $14 billion in revenue . Prior
to that appointment, he was the Group General Manager for Compaq's Desktop and
Consumer Businesses. Mr Rose led the acquisitions of both Tandem Computers and
Digital Equipment Corporation. Mr. Rose has been a director of the Company since
May 17, 2000.

        Edmund Shung - Chief Financial Officer of the Company since November,
1998. Mr. Shung is currently a part-time independent contractor to the Company.
Mr. Shung devotes 25% of his time to the Company and has served the Company in
this capacity since November 1998. In June, 2000 Mr. Shung was appointed CFO and
Secretary of Sourcesmith Industries Ltd. Mr. Shung has also been the Controller
of Sutton Group Financial Services Ltd., a technology based real estate
franchise company, from December 1995 to present. Prior to that he was President
of Totemcolor Film Labs Ltd., a photo processing facility, from October, 1991 to
November, 1995.

        Ted Henderson - Mr. Henderson was the Company's President, Chief
Executive Officer and a director from October 4, 1999 to November 10, 2000.
Prior to that he was Vice President of Business Development from February 1999
to September 1999; General Manager from October 1997 to February 1998, and a
director of Corporate Development from October, 1996 to October, 1997 at
Centrobe (an EDS company), a provider of end-to-end electronic business
solutions. Prior to that he was Director of Business Operations at Echostar
Communications Corporation from April, 1995 to September, 1996, a publicly held
digital broadcast satellite communications manufacturing, distribution, and
service provider. Prior to that he was Senior Vice President and Chief Financial
Officer at Key Investments, Inc.(a Key Corp company), from September, 1992 to
March, 1995, a financial services company.

        Cliff Mah - Mr. Mah was a director of the Company from September 1, 1999
to May 17, 2000. Partner with Bolder Venture Partners, LLC, a venture capital
company, since June 1999. Prior to joining Bolder Venture Partners, he was an
investment banker at Canaccord from November 1998 to May 1999 and at C.M. Oliver
and Company from October 1996 to November 1998. Prior to that he became, through
two leverage buy-outs, the President and controlling shareholder of Canadian
Neon Ltd., a Vancouver based manufacturing company, in 1992 and Northwest Signs
Ltd., a Seattle, Washington based manufacturing company, in 1993. Mr. Mah
resigned as director of the Company on May 17, 2000.


Other Associations

        During the past five years, the principals of the Company have served as
principals of the following reporting issuers during the periods and in the
capacities noted below:

                                      -21-
<PAGE>   41

<TABLE>
<CAPTION>
                                                             SYMBOL/
PRINCIPAL          REPORTING ISSUER                          EXCHANGE     CAPACITY                     PERIOD

                 -------------------------------------------            -----------------------      -------------------
<S>                <C>                                      <C>          <C>                          <C>
Lance Tracey       Sutton Group Financial Services Ltd.      SUG/TSE      Director                     01/87 - present
                   ID Internet Direct Ltd.                   LKC/CDNX     Director and Officer         01/93 - 11/99
                   dba Telecom Corp.                         Dba/CDNX     Director                     07/92 - 01/96
                   Sourcesmith Industries Ltd.               SSM/CDNX     Director                     06/00 - present


Paul C. MacNeill   America Mineral Fields Inc.                            Director                     03/98 - present
                   Anaconda Uranium Corp.                    ANU/CDNX     Director                     12/97 - present
                   Axion Communications Inc.                 AXN/CDNX     Director                     08/96 - present
                   Consolidated Firstfund Capital Corp.      FFP/CDNX     Secretary                    09/92 - 06/95
                   Diagem International Resource Corp.       DGM/CDNX     Director                     12/97 - present
                   Jordex Resources Inc.                                  Secretary                    04/98 04/2000
                   Minefinders Corporation Inc.                           Director                     05/95 - present
                   Minefinders Corporation Inc.                           Secretary                    07/95 - present
                   Prospex Mining Inc.                                    Director                     10/93 - 06/99
                   Unique Broadband Systems Inc.                          Director                     07/97 - 01/01
                   Unique Broadband Systems Inc.                          Secretary                    07/97 - 08/97
                   Vision Gate Ventures Limited              VGV/CDNX     Director                     12/99-  present

Edmund Shung       Sutton Group Financial Services Ltd.      SUG/TSE      Secretary                    10/98 - present
                   Sutton Group Financial Services Ltd.      SUG/TSE      CFO                          10/00 - present
                   Sourcesmith Industries Ltd.               SSM/CDNX     Secretary/CFO                06/00 - present
</TABLE>


                                      -22-
<PAGE>   42


ITEM 10.       EXECUTIVE COMPENSATION

        The following table sets forth information regarding compensation paid
during the past three fiscal years to the Company's Chief Executive Officer:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 Long Term
                             Annual Compensation                      Awards                Compensation Payouts
                    ---------------------------------  ----------------------------------  ----------------------

      (a)             (b)       (c)            (d)       (e)       (f)          (g)         (h)        (i)
                                                                             Securities
                                                        Other   Restricted   Underyling     LTIP     All Other
Name and Principal   Year                               Annual     Stock     Option/SAR's  Payouts  Compensation
Position             ----    Salary ($)     Bonus ($)  Comp ($) Awards ($)      ($)        -------  ------------
--------                     ----------     ---------  -------- ----------   ------------

<S>                 <C>     <C>             <C>          <C>       <C>         <C>        <C>        <C>
Ted Henderson(1)     2000    US  $96,249     $17,700      $0        $0          $0         $0         $0
  President and
  CEO                1999        $27,699       $0         $0        $0          $0         $0         $0
                     1998        $0            $0         $0        $0          $0         $0         $0

Peter Fahlman(2)     2000    Cdn.$94,720       $0         $0        $0          $0         $0         $0
  Interim
  President and      1999        $7,500        $0         $0        $0          $0         $0         $0
     CEO             1998        $0            $0         $0        $0          $0         $0         $0

Edmund Shung
    CFO              2000        $0            $0         $0        $0          $0         $0         $0
                     1999        $0            $0         $0        $0          $0         $0         $0
</TABLE>

-------
(1)     Mr. Henderson joined the Company on October 4, 1999 and resigned as
        President and CEO on November 10, 2000. On November 15, 2000 Mr.
        Henderson was paid $4,583.33 and on February 15, 2001 he was paid an
        additional amount of $4,583.33.
(2)     Mr. Fahlman has served as the acting Chief Executive Officer while the
        Company conducted a search for permanent chief executive officer. Mr.
        Fahlman served in this capacity from August 13, 1998 to October 4, 1999,
        at which time he was replaced by Mr. Henderson. Mr. Fahlman did not
        receive any compensation for his service as CEO. Mr. Fahlman was
        appointed President and CEO on November 11, 2000.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

       Prior to the adoption of the Stock Option Plan described below, no stock
options were ever granted to or exercised by executive officers of the Company.

       On October 14, 1999, the Board of Directors adopted a stock option plan
(the "Plan"), which provides for incentive stock options and non-statutory
options to be granted to officers, employees, directors and consultants to the
Company. The exercise price of each stock option granted shall not be less than
the average closing price of the common stock of the Company listed on the CDNX
for the ten trading days preceding the date the stock options are granted. The
options granted pursuant to the Plan shall vest according to the terms set forth
in each particular grant. A period of at least two years of continuous service
by the optionee to the Company is required before the stock option shall be 100%
vested. The term of the options cannot exceed five years. Options to purchase up
to 1,695,400 shares of the Company's common stock may be granted under the Plan.
During 2000, 900,500 options were granted to employees. As of April 5, 2001,
520,500 stock options remained unexercised (subject to the vesting rules). The
balance of the options which were previously granted were cancelled after 30
days upon termination of employment of the grantee.


                                      -23-
<PAGE>   43


       In the fiscal year ending December 31, 2000, stock options were granted
as follows:

<TABLE>
<CAPTION>
                             NUMBER OF        % OF TOTAL
                              SHARES        OPTIONS GRANTED
                            UNDERLYING      TO EMPLOYEES IN       EXERCISE          EXPIRATION
           NAME           OPTIONS GRANTED     FISCAL YEAR           PRICE              DATE
    -------------------- ------------------ ----------------- ------------------ ------------------

<S>                         <C>                   <C>           <C>                <C>
    John Rose               75,000(1)             8.3%           US$3.35/share        5/16/05
</TABLE>

(1)     1/3 vest immediately, another 1/3 vests on May 17, 2001 and the balance
        vests on May 17, 2002.


            AGGREGATED OPTION/SAR EXERCISES FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
       (a)                 (b)               (c)                     (d)                                (e)

                                                                                                Value of Unexercised
                         Shares                        Number of Securities Underlying          In-the Money Options/
                  Acquired on Exercise      Value    Unexercised Options/SARs at FY-End(#)       SARs at FY-End (#)
                  --------------------     Realized       Exercisable/Unexercisable          Exercisable/Unexercisable(1)
                                           --------       -------------------------          ----------------------------

<S>                       <C>               <C>                  <C>                                  <C>
Peter Fahlman
President & CEO
Unexercisable                                                                                           $0
Exercisable                -0-               -0-                   41,666(1)                            $0
</TABLE>

-------
The year-end value represents the difference between the option exercise prices
US $1.00 and the current market value of US $0.15 resulting in no value being
assigned to the options. The market price as at December 29, 2000 was US$0.25

      Compensation of Directors. The directors of the Company are not
      currently compensated for serving as directors, each director has been
      granted an option to purchase 75,000 shares of Common Stock at $1.00 per
      share. 25,000 shares vested on January 12, 2000 and 25,000 will on each
      anniversary date through 2002. Outside director's travel expenses are
      reimbursed by the Company. Mr. Henderson and Mr. Fahlman receive
      compensation as officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of April 5, 2001 the number of
shares of the Company's Common Stock beneficially owned by (a) owners of more
than five percent of the Company's outstanding Common Stock who are known to the
Company and (b) the Directors of the Company, individually, and the Executive
Officers and Directors of the Company as a group, and (c) the percentage of
ownership of the outstanding Common Stock represented by such shares. The
security holders listed below are deemed to be the beneficial owners of shares
of Common Stock underlying options and warrants which are exercisable within 60
days from the above date.

                                      -24-
<PAGE>   44


<TABLE>
<CAPTION>

                                                       AMOUNT AND NATURE
                                                         OF BENEFICIAL         PERCENT OF
      NAME AND ADDRESS OF BENEFICIAL OWNER                 OWNERSHIP             CLASS

<S>                                                           <C>                   <C>
Peter Fahlman, President and CEO and a                         785,833(1)            7.61%
Director855 55A Street
Delta, B.C., V4M 3M3

Paul MacNeill, Director                                          50,000(2)            .48%
  1111 West Georgia Street, Suite 2100
 Vancouver, BC V6J 5B3

Lance Tracey, Director                                         639,713(3)            6.19%
555 West Hastings Street, Suite 1610
 Vancouver, BC V6H 4N6

Dieter Heidrich, Director                                      525,640(4)            5.09%
230 Green Rock Drive
Boulder, CO 80302

Robert Roker                                                   720,833(5)            6.98%
555 West Hastings Street, Suite 1610
 Vancouver, BC V6H 4N6

Brian Archer                                                   370,833(6)            3.59%
555 West Hastings Street, Suite 1610
 Vancouver, BC V6H 4N6

Scott Shaw                                                     552,563(7)            5.35%
555 West Hastings St, Suite 1628
 Vancouver, BC V6B 4N6

Daryl Yurek                                                    536,122(8)            5.19%
1327 Spruce Street, Suite 300
Boulder, CO 80302

Acacia Management Services                                     700,000(9)            6.77%
Kuttellgasse 4 CH-8001
Zurich, Switzerland

John Rose, Director                                            225,000(10)           2.18%
13826 Vintage Centre Drive
Houston, TX, 77069

Edmund Shung, CFO                                               12,000(11)            .12%
555 West Hastings Street, Suite 1628
Vancouver, B.C., V6B 4N6
</TABLE>

                                      -25-
<PAGE>   45

<TABLE>
<S>                                                           <C>                     <C>
All Directors and Executive Officers as a group               2,234,019(12)           21.62%
</TABLE>

------------------------
(1)  Includes 45,833 options exercisable presently or within 60 days. 40,000 of
     these shares are held in the name of Michelle Fahlman, Mr. Fahlman's wife.
     The remaining shares are beneficially owned through a 40% ownership by Mr.
     Fahlman of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
     Company.
(2)  Includes 50,000 options exercisable presently or within 60 days .
(3)  Includes 50,000 options exercisable presently or within 60 days, 20,000
     shares held in the name of Mr. Tracey's wife and 210,613 shares represented
     by a 12.035% ownership interest of Sutton Group Financial Services
     controlled by his wife. The remaining shares are beneficially owned through
     Mr. Tracey's ownership of 20.52% of Sutton group Financial Services Ltd.,
     which owns 1,750,000 shares of the Company.
(4)  Includes 50,000 options exercisable presently or within 60 days, 45,450 of
     the shares are held jointly by Mr. Heidrich and his wife. 80,000 share are
     held by Heidrich Family LLP . 160,000 shares are owned by Opus Capital
     Fund, LLC of which Mr. Heidrich is a general partner and manager of the
     fund giving beneficial ownership to Mr. Heidrich. 190,190 shares are held
     by Opus Capital LLC.
(5)  Includes 20,833 options exercisable presently or within 60 days. The
     remaining shares are beneficially owned through a 40% ownership by Mr.
     Roker of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
     Company.
(6)  Includes 20,833 options exercisable presently or within 60 days. The
     remaining shares are beneficially owned through a 20% ownership by Mr.
     Archer of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
     Company.
(7)  Mr. Shaw owns 19.54% of Sutton Group Financial Services, Ltd. which owns
     1,750,000 of the Company's common stock giving Mr. Shaw beneficial
     ownership to these shares and 210,613 shares represented by a 12.035%
     ownership interest of Sutton Group Financial Services controlled by his
     wife.
(8)  Includes 66,840 shares and 469,282 warrants held both by Bolder Venture
     Partners, LLC of which Mr. Yurek is a 60% partner.
(9)  These shares were transferred by Sutton Group Financial Services Ltd. and
     DataDirect Holdings Inc. in January 2000.
(10) Includes 25,000 options exercisable presently or within 60 days.
(11) Includes 5,000 options exercisable presently or within 60 days.
(12) Includes 225,833 options exercisable presently or within 60 days.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has entered into transactions with its officers and
directors, and with principal shareholders listed in Item 11 or affiliated
entities as described below.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.

         On November 10, 2000 Mr. Henderson resigned as President, CEO and
Director of the Company.

         Peter Fahlman -On November 26, 1999 the Company and Mr. Fahlman, the
current President and CEO and a director of the Company and formerly the Vice
President of Business Development , entered into an employment agreement
commencing on November 26, 1999. Under the terms of the

                                      -26-
<PAGE>   46

agreement, the Company will pay to Mr. Fahlman the sum of Cdn. $7,500 per month.
Effective November 16, 2001 Mr. Fahlman's salary was increased to CAD $ 9,860
per month. Mr. Fahlman continues to hold incentive stock options to acquire
50,000 shares of the Company's common stock at a price of US $1.00 per share for
a period of five years. The options vest over a thirty-six month period as
follows: 1/36 of the options will vest in upon signing of the agreement and 1/36
of the options will vest each month thereafter. The options vest immediately if
Mr. Fahlman is terminated for good reason or is terminated without cause. In his
capacity as a director of the Company, Mr. Fahlman was subsequently granted
stock options to acquire an additional 25,000 common shares at $1.00 per share
which stock options vested immediately.




Other Employment Agreements

         The Company has entered into employment agreements with two other
employees with a range of salary levels and benefits. The employment agreements
have no fixed term. The two employees are paid CAD$7,500 per month. The
employees under these agreements have received each incentive stock options to
purchase 50,000 shares of the Company's common stock at exercise prices of US
$1.00 per share. Certain of the employment agreements also contain twelve month
non-competition and confidentiality provisions, and provide for the immediate
vesting of all stock options and six months severance pay in the event the
agreement is terminated by the employee as a result of a failure by the Company
to pay an amount due to the employee under the agreement, or if the agreement is
terminated by the Company without cause.

         The Company and executives of the Company have entered into
confidentiality agreements that include non-confidential and non-disclosure
provisions with respect to confidential information obtained by the executives
in the course of their employment with the Company.

RELATED PARTIES

Consulting Agreement

         The Company is party to a consulting agreement (the "Consulting
Agreement") with Bolder Venture Partners L.L.C. ("Bolder") made July 28, 1999
and amended on February 15, 2000. Bolder Venture Partners is a limited liability
company incorporated under the laws of the State of Colorado and is owned 10% by
Cliff Mah, a director of the Company and is owned 60% by Daryl Yurek.

         Under the terms of the Consulting Agreement, Bolder agrees to provide
consulting services to the officers of the Company relating to matters of
corporate development, strategic planning, raising of capital and other
financial matters, and to assist with certain private placements and public
offerings of the Company's securities, including this offering. In consideration
of these services, the Company agreed to pay Bolder Venture Partners a monthly
retainer of US $10,000, and purchase warrants to acquire up to 1,232,136 shares
of the Company's common stock for a period of five years from July 28, 1999. The
remaining warrants will be exercisable as follows:

        -       225,000 of the warrants at US $0.25 per share on July 28, 1999
                were exercised;
        -       557,136 at US $1.00 per share as amended on February 15, 2000;
        -       225,000 at US $1.00 per share upon completion of this offering;
                and


                                      -27-
<PAGE>   47

        -       225,000 at a price per share equal to the price per share under
                a future private placement of not less than US $3,000,000, if
                such a private placement is made.

         The exercise price of all of the Warrants referred to herein will
increase by 15% in each of the second, third, fourth and fifth year of the term
of the share purchase warrants until exercised. The term of the Consulting
Agreement ends on June 30, 2000.




DataDirect Consulting Services Inc.
During the year, the Company paid computer consulting fees of $118,196 (1999 -
$181,784) to DataDirect Consulting Services Inc., a wholly owned subsidiary of
DataDirect Holdings Inc. DataDirect Holdings Inc. is owned 40% by Mr. Fahlman
and 40% by Robert Roker and 20% by Mr. Brian Archer.

Sutton Group Financial Services Ltd.
         The Company has had accounts payables and accrued liabilities of
$58,649 (1999-$62,846) due to Sutton Group Financial Services Ltd. for operating
costs paid by Sutton on behalf of the Company. Sutton Group is 20.52%
beneficially owned by Lance Tracy and 19.54% beneficially owned by Scott Shaw.

                                      -28-
<PAGE>   48


                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS. The following Exhibits are filed herewith or have been
previously filed with the Securities and Exchange Commission and are
incorporated by reference herein:

<TABLE>
<CAPTION>
EXHIBIT NUMBER   DESCRIPTION OF EXHIBIT
---------------  --------------------------------------------------------------------------
<S>              <C>
3.1              Certificate of Domestication of E-xact Transactions Ltd.*
3.2              Certificate of Incorporation of E-xact Transactions Ltd.*
3.3              Bylaws*
10.1             Amended Sponsorship Agreement dated January, 2000 between E-xact
                 Transactions Ltd., Inc. and Canaccord Capital Corporation*
10.2             Lease dated April 22, 1999 between Harbour Centre Complex Limited as
                 attorney-in-fact for Lord Realty Holdings Limited and Privest Properties
                 Ltd. (Landlord) and E-xact Transactions Ltd.*
10.3             Stock Option Plan*
10.4             Letter Agreement dated September 16, 1999 between E-xact Transactions Ltd.
                 And Ted Henderson.*
10.5             Letter Agreement dated July 28, 1999 between E-xact Transactions Ltd. And
                 Bolder Venture Partners, LLC.*
10.6             Management Agreement dated April 15, 1999 between DataDirect Holdings, Inc.
                 and Peter Fahlman, and Robert Roker, and E-xact Transactions Ltd.*
10.7             Form of Employment Agreement executed between E-xact Transactions Ltd. and
                 each of Peter Fahlman, Robert Roker and Brian Archer**
10.8             Confidentiality Agreement dated December 10, 1999 between E-xact
                 Transactions Ltd. and Ted Henderson**
10.9             Amended Letter Agreement dated January 18, 2000 between E-xact Transactions
                 Ltd. and Bolder Venture Partners, LLC.***
10.1             Agency Agreement Amendment dated January 19, 2000 between E-xact
                 Transactions Ltd. and Canaccord Capital Corporation.***
10.11            Sublease Agreement dated December 14, 1999 between E-xact Transactions Ltd.
                 and Kinder Morgan, Inc.***
23.1             Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>

--------------------
        *       Filed with Registration Statement on Form SB-2 filed October 22,
                1999.
        **      Filed with Registration Statement on Amendment No. 1 to Form
                SB-2 filed December 22, 1999.
        ***     Filed with Registration Statement Amendment No. 2 to Form SB-2
                filed February 8, 2000.
        ****    Filed with Registration Statement Amendment No. 3 to Form SB-2
                filed February 11,2000.

        b) Reports on Form 8-K. During the last quarter of the period covered by
        this report, the Company filed reports on Form 8-K as listed below.
                Form 8-K filed on December 6, 2000 : RE: News release on
                appointment of Peter Fahlman as President and CEO and
                resignation of Ted Henderson as President and CEO.

                                      -29-
<PAGE>   49


                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                 E-xact Transaction Ltd.

Date: April 16, 2001                             By:  /s/ Peter Fahlman
--------------------                                ---------------------------
                                                    Peter Fahlman
                                                    President and CEO

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

<TABLE>
<CAPTION>
        Signatures                              Title                            Date
        ----------                              -----                            ----

<S>                                           <C>                         <C>
 /s/ Peter Fahlman                             President and               April 16, 2001
---------------------------------              Director
Peter Fahlman

 /s/ Edmund Shung                              Chief Financial Officer     April 16, 2001
---------------------------------
Edmund Shung

 /s/ Lance Tracey                              Director                    April 16, 2001
---------------------------------
Lance Tracey


 /s/ Dieter Heidrich                           Director                    April 16, 2001
---------------------------------
Dieter Heidrich

 /s/  John Rose                                Director                    April 16, 2001
-----------------------------------------------
John Rose

 /s/ Paul MacNeill                             Director                    April 16, 2001
---------------------------------
Paul MacNeill
</TABLE>

                                      -30-
<PAGE>   50


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER   DESCRIPTION OF EXHIBIT
---------------  --------------------------------------------------------------------------
<S>              <C>
3.1              Certificate of Domestication of E-xact Transactions Ltd.*
3.2              Certificate of Incorporation of E-xact Transactions Ltd.*
3.3              Bylaws*
10.1             Amended Sponsorship Agreement dated January, 2000 between E-xact
                 Transactions Ltd., Inc. and Canaccord Capital Corporation*
10.2             Lease dated April 22, 1999 between Harbour Centre Complex Limited as
                 attorney-in-fact for Lord Realty Holdings Limited and Privest Properties
                 Ltd. (Landlord) and E-xact Transactions Ltd.*
10.3             Stock Option Plan*
10.4             Letter Agreement dated September 16, 1999 between E-xact Transactions Ltd.
                 And Ted Henderson.*
10.5             Letter Agreement dated July 28, 1999 between E-xact Transactions Ltd. And
                 Bolder Venture Partners, LLC.*
10.6             Management Agreement dated April 15, 1999 between DataDirect Holdings, Inc.
                 and Peter Fahlman, and Robert Roker, and E-xact Transactions Ltd.*
10.7             Form of Employment Agreement executed between E-xact Transactions Ltd. and
                 each of Peter Fahlman, Robert Roker and Brian Archer**
10.8             Confidentiality Agreement dated December 10, 1999 between E-xact
                 Transactions Ltd. and Ted Henderson**
10.9             Amended Letter Agreement dated January 18, 2000 between E-xact Transactions
                 Ltd. and Bolder Venture Partners, LLC.***
10.1             Agency Agreement Amendment dated January 19, 2000 between E-xact
                 Transactions Ltd. and Canaccord Capital Corporation.***
10.11            Sublease Agreement dated December 14, 1999 between E-xact Transactions Ltd.
                 and Kinder Morgan, Inc.***
23.1             Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>

--------------------
        *       Filed with Registration Statement on Form SB-2 filed October 22,
                1999.
        **      Filed with Registration Statement on Amendment No. 1 to Form
                SB-2 filed December 22, 1999.
        ***     Filed with Registration Statement Amendment No. 2 to Form SB-2
                filed February 8, 2000.
        ****    Filed with Registration Statement Amendment No. 3 to Form SB-2
                filed February 11,2000.