UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------

FORM 10-K

(x) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

For the fiscal year ended March 31, 2001; or

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

For the transition period from ____________ to _____________.

COMMISSION FILE NO. 333-94505

DELANO TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)

ONTARIO, CANADA 98-0206122
(Province or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

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302 TOWN CENTRE BOULEVARD L3R 0E8
MARKHAM, ONTARIO, CANADA (Zip code)
(Address of Registrant's principal executive offices)

Registrant's telephone number, including area code 905-947-2222

Securities registered pursuant to Section 12(b) NONE
of the Act:

Securities registered pursuant to Section 12(g) COMMON STOCK NO PAR VALUE
of the Act: (Title of Class)

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

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 contained, to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on May 18,
2001 as reported on the Nasdaq National Market, was approximately $25.1 million.
Shares of Common Stock held by each officer and director and by certain persons
who owned 5% or more of the Registrant's outstanding Common Stock on that date
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of Friday, May 18, 2001 Registrant had outstanding 37,285,857 shares of
Common Stock.

DELANO TECHNOLOGY CORPORATION

TABLE OF CONTENTS

ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED MARCH 31, 2001

PAGE
----

PART I
Item 1 Business.............................................................. 3
Item 2 Properties............................................................ 9
Item 3 Legal Proceedings..................................................... 9
Item 4 Submission Of Matters To A Vote Of Security Holders................... 10

PART II

Item 5 Market For Registrant's Common Equity And Related Stockholder
Matters............................................................... 10
Item 6 Selected Consolidated Financial Data.................................. 13
Item 7 Management's Discussion And Analysis Of Financial Condition
And Results Of Operations ............................................ 14
Item 7A Qualitative And Quantitative Market Risk.............................. 23
Item 8 Delano Technology Corporation Index To Consolidated
Financial Statements.................................................. 33
Item 9 Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.................................................. 52

PART III

Item 10 Directors And Executive Officers Of The Registrant.................... 53
Item 11 Executive Compensation................................................ 56
Item 12 Security Ownership Of Certain Beneficial Owners And Management........ 59
Item 13 Certain Relationships and Related Transactions........................ 60

PART IV

Item 14 Exhibits And Financial Statement Schedules............................ 62
Signatures ...................................................................... 63

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form-10K contains so-called forward-looking
statements including statements about our expectations, beliefs, intentions or
strategies for the future, which we indicate by words or phrases such as
"anticipate," "expect," "intend," "plan," "will," "we believe," and similar
language. We base all forward-looking statements on our current expectations and
these statements are subject to risks and uncertainties and to assumptions we
have made. Important factors that could cause our actual results to differ
materially from those expressed or implied by these forward-looking statements
include those listed under "Risk Factors" or described elsewhere in this Annual
Report on Form 10-K.

PART I

ITEM 1: BUSINESS

OVERVIEW

Delano Technology Corporation, a corporation formed under the laws of
Ontario, Canada in May 1998, develops and markets Customer Relationship
Management (CRM) software that incorporates advanced analytics with interaction
capabilities on a flexible and scalable technology platform. This technology
enables companies to understand, personalize and manage interactions with
customers across multiple communication channels. These interactions consist of
both inbound and outbound communications through e-mail, company websites, and
wireless devices. Companies can use Delano software applications to gain
in-depth customer knowledge by creating a unified view of the customer across
disparate data, and use the customer insight to initiate marketing campaigns,
and route, track, and respond to customer service inquiries. We focus our sales
efforts on businesses in the following industries: financial services, retail,
technology, telecommunications, and transportation and logistics, as well as
other organizations engaged in, or focused on, business-to-business or
business-to-customer commercial opportunities using the internet. We are also
increasing our activity with channel partners to further our penetration of
target industries. Our professional services group can assist our client's
internal IT personnel to implement our products.

DESCRIPTION OF BUSINESS

Delano's CRM solution is comprised of operational and analytical
applications and technology platforms that seamlessly integrate to provide a
unified view of customer interactions across an enterprise. This includes
applications for marketing automation, analytics and segmentation, customer
service and support, and a technology platform that combines interaction
capabilities with the analytic intelligence. We believe that our solution offers
the following specific client benefits:

Stronger Customer Relationships. Our CRM solution provides a tool to
assist an organization to understand its customer needs, and market to and
support them accordingly. For example, our products enable organizations to
analyze disparate customer data across multiple touch points in the enterprise.
The resulting analysis enables marketers to build customer relationships by
engaging in targeted, timely and relevant marketing campaigns that help to
convert prospects to customers and retain high value customers.

Faster Corporate Decision Making. Our products also assist our clients
to respond to large volumes of inbound e-mail and web-based communications, and
route inquiries to the appropriate representatives for action. Additionally, as
Delano's solution utilizes a web-based interface, it makes it easier to define
and analyze customer information, which means that marketers can react, adapt,
and execute campaigns faster than traditional methods.

Scalability and Flexibility. We have designed our products to support
large numbers of simultaneous customer interactions. The open architecture
(based on industry standards) of our underlying technology platform delivers the
flexibility and extensibility to seamlessly integrate with and leverage
disparate technology systems and data, and the scalability to grow with an
organization's business needs.

Increased Revenue Opportunities. We believe our products help our
clients increase their revenues by driving profitable relationships across the
customer lifecycle, implementing customer interaction programs that build
barriers to switching and extend the customer relationship. For example, clients
can generate revenue through marketing campaigns and lead tracking and
management, thereby increasing their customer acquisition at a lower cost of
execution. Our service applications including electronic surveys, personalized
newsletters, in-bound e-mail support, live chat and web

collaboration and shared knowledge base functionality, can lead to increased
revenues by increasing customer loyalty and retention.

Reduced Operating Costs. We believe our products can help our clients
lower operating costs. Our solution assists clients to automate large volumes of
customer interactions automatically, increasing productivity, which results in
lower costs than can be achieved using traditional methods. Delano enables
clients to potentially increase productivity while ensuring consistency across
marketing campaigns, by creating custom campaigns for different customer
segments and saving the templates for future use. Delano's solution is based on
open standards, and as a result, is able to integrate with an organization's
existing technology investments--including disparate data and legacy systems--to
reduce the total cost of ownership.

RECENT BUSINESS ACQUISITIONS

On September 26, 2000 we acquired Continuity Solutions, Inc. pursuant
to a transaction where Continuity became our wholly owned subsidiary. Continuity
is a provider of integrated multi-channel eCRM solutions, consisting of licensed
and ASP offerings. Continuity is headquartered in San Francisco, California and
had 15 employees as of the date of the acquisition.

In connection with the acquisition, we issued approximately 1.4 million
shares of Delano common stock, no par value, and assumed options and warrants to
acquire approximately 150,000 shares of Delano common stock. The transaction was
accounted for using the purchase method of accounting.

On October 13, 2000, we acquired Digital Archaeology Corporation ("DA")
pursuant to a transaction where DA became our wholly owned subsidiary. DA is a
provider of analytics for e-business. The company's solutions provide
enterprises with a view of customer and trading partner behavior and preferences
across traditional and e-commerce channels. DA was a privately held company
based in Kansas City and had 68 employees as of the date of the acquisition.

In connection with the acquisition, we issued approximately 4.6 million
of the Company's common stock, no par value, and paid $17.4 million in cash, in
exchange for all of the outstanding shares of capital stock of DA, and each
outstanding option or right to purchase DA common stock was assumed by the
Company and became a right to purchase 0.53 of the Company's common shares. The
transaction was accounted for using the purchase method of accounting.

PRODUCTS

Delano is a CRM software company that provides an enterprise with a
flexible way to build, understand and intelligently manage customer
interactions. Our CRM solution incorporates applications that fit within the
operational and analytical CRM categories, and are built on and leverage the
inherent qualities of our CRM infrastructure platform.

CRM INFRASTRUCTURE

Delano's CRM infrastructure solution is a technology platform made up
of the Delano Interaction Server, the Delano Analytics Server, the Delano
Knowledge Management Server, the Delano Rules Server, and component packs that
increase Delano's integration with third party systems and data. Delano's
technology platform provide the foundation for building diverse customer facing,
interaction-based and analytical applications.

Delano Interaction Server

Delano's Interaction Server enables companies to develop and deploy
interaction-based applications. Delano's operational CRM applications leverage
the inherent qualities of this technology platform, providing the flexibility to
integrate with existing systems, ease of customization, reduced time to market,
and increased return on investment. This interaction platform consists of the
following:

- The Delano Interaction Server is an application server
designed to manage thousands of diverse interaction-based
applications simultaneously. The Interaction Server runs on
the Windows, Solaris, Unix, IBM AIX and HP-UX operating
systems. It includes an application repository to manage the
storage and version control of interaction-based applications.
The Interaction Server also manages and controls the quantity
of applications or interactions covered by the client's
license. The Interaction Server communicates directly with
e-mail, web, database and directory servers. Multiple
Interaction Servers can operate effectively within a client's
enterprise.

- The Delano Interaction Builder is a graphical application
builder environment, designed to enable our clients to develop
interaction-based applications simply and quickly. The Builder
uses a "drag-and-drop" style interface that allows our clients
to define and outline a business process by arranging
application components in a flowchart-style environment. The
application components serve as the building blocks of an
application. The Interaction Builder enables a client to
develop interaction-based applications, that, among other
things:

- interface with existing corporate databases;

- connect to corporate directories;

- gather information from, and post information to a
web server;

- send and receive e-mail using popular e-mail
protocols, such as Post Office Protocol 3 (POP3),
Internet Message Access Protocol 4 (IMAP4) and Simple
Mail Transfer Protocol (SMTP); and

- parse and personalize various document types,
including documents in text, HyperText Markup
Language or HTML, and eXtensible Markup Language or
XML formats.

- The Delano Interaction Administrator is a program that enables
our clients to configure, administer and manage
interaction-based applications created with the Application
Builder and executed on the Interaction Server. The Server
Administrator is available as a native or web application to
enable remote administration.

Delano Analytics Server

Delano's Analytics Server is an analytical platform for creating highly
customized analytical applications that instantly link and analyze disparate
data without predefining data structures or data types. Delano's analytical CRM
applications leverage the Analytics Server to maximize the flexibility,
scalability, and the degree to which a customer can customize its in-depth
customer analysis.

Delano Analytics Server consists of the following:

- Delano Analytics Server is a storage repository that permits
rapid data integration and analysis. The Analytics server
includes over 90 analytic operators;

- Digital Explorer is the desktop environment for building and
customizing analytic models, with easy-to-use drag and drop
interfaces;

- Net Discovery Explorer is a complete toolkit for building HTML
interfaces for Delano-based analytic solutions. Net Discovery
is based on a series of plug-ins that operate within industry
standard environments such as Microsoft's Front Page.

Delano Knowledge Management Server

The Delano Knowledge Management Server assists artificial intelligence
(AI) assisted technology to provide flexible yet powerful English language and
language-independent search capabilities. It can be used to decipher free-form
text to deliver automated responses and perform intelligent routing to the
person most appropriate for managing a particular customer's requests.

The Delano Knowledge Management Server enables companies to capture,
control and disseminate information and knowledge across their extended
enterprise. Through this server, companies can cultivate a collaborative
environment of knowledge sharing and can automatically organize, categorize,
cross-link and disseminate large amounts of unstructured information. The Delano
Knowledge Management Server is incorporated into Delano's Velocity Service
application.

Delano Rules Server

The Delano Rules Server enables organizations to manage the business
rules associated with customer interactions. This enables agile adaptation to
changing business needs without having to customize an organization's existing
systems and applications. By empowering the `owners' of business processes to
determine the intelligence behind rules, the Delano Rules Server places control
of an organization's interactions in the hands of its experts.

Delano Component Packs

Delano component packs are designed as groupings of components to
improve integration between the Delano Interaction Server and our client's
existing infrastructures, including third party solutions, databases, and
middleware

technology. The following are the component packs we currently have available
for our clients: Delano Component Pack for J2EE, Delano Component Pack for
Microsoft BackOffice, Delano Component Pack for Databases, Delano Enterprise
Connectivity, Delano Component Development Kit, Delano Component Pack for
Wireless Interactions, Delano Component Pack for XML, Delano Component Pack for
the Web, and Component Pack for IBM Connectivity.

OPERATIONAL CRM

Delano's operational CRM applications - Velocity Live, Velocity Expert
and Velocity Assistant, comprise an integrated suite of marketing and customer
service applications that are built on top of the Delano Interaction Server and
leverage its inherent benefits including its flexibility and scalability.

Delano Velocity Marketing

Velocity Marketing is a campaign management application that enables
marketers to create and enhance customer relationships with event-driven,
one-to-one marketing campaigns, interactive surveys, and personalized
newsletters. It enables organizations to launch event-driven marketing campaigns
to acquire new customers and create relationships through timely, relevant and
personalized up-sell and cross-sell offers.

Velocity Marketing provides a unified view of all campaign efforts
across multiple channels, enabling the user to change timelines, targets,
offers, and responses, on the fly. It also enables an organization to optimize
campaign execution by using in-depth analysis to measure key success metrics
following a campaign and use the insight to drive greater results in future
campaigns. Marketers can also increase their productivity while ensuring
consistency across campaigns, by creating custom campaigns for different
segments and saving the templates for future use.

Using Velocity Marketing, marketing campaigns can automatically be
triggered by any pre-determined event that occurs throughout the customer
lifecycle, such as the purchase of a new product or the end of a service
contract. It enables interactive surveys to be distributed as part of marketing
campaigns, or used as Web registration forms. Organizations can also use
Velocity Marketing to design, deliver, and analyze results of personalized
surveys, contests, and quizzes, using individual responses to automatically
trigger additional campaign efforts. It also enables organizations to create,
manage and distribute newsletters, completely automating and managing the
workflow from author to editor to publisher to customer.

Delano Velocity Service

Delano Velocity Service is a customer service application that provides
fast, relevant, and automated response management and routing of inbound
communications via e-mail, chat, or Web inquiries. By automating the routing and
response of inbound communications, Velocity Service increases customer loyalty
and retention while lowering the cost of an organization's service department.

Velocity Service helps to maximize ensures maximum customer service
productivity, response accuracy, and improved lead management. This is achieved
by enabling customer service professionals to quickly deliver accurate answers
to customer inquiries using established knowledge bases of corporate information
and send auto-acknowledgements and auto-responses based on sophisticated,
easy-to-create rules.

Powerful and flexible routing and escalation rules, content analysis,
consultation, and response allow the entire workflow of inbound communications
to be automated, thereby increasing response efficiency and effectiveness.

ANALYTICAL CRM

Discovery Marketing

Discovery Marketing is an analytical e-marketing application that
enables an enterprise to use disparate data to identify, finely segment, and
better understand their customers and add intelligence to their online marketing
campaigns. Discovery Marketing strengthens Delano's Velocity Marketing offering
by turning data from disparate sources across an enterprise into customer
knowledge. The customer knowledge enables marketers to increase their return on
investment by developing timely, relevant and targeted marketing campaigns that
help to convert prospects to customers, and retain high value customers.

In addition to providing in-depth segmentation of customer information
which helps to increase sales from new and existing customers, Discovery
Marketing also enables organizations to analyze customer segments against
various criteria--such as demographics--to identify cross-sell and up-sell
opportunities. Discovery Marketing enables an organization to use ad-hoc
analysis to segment customers based on the optimal criteria for a given
marketing campaign.

PROFESSIONAL SERVICES

If desired, our professional services group will work with clients to
learn about their specific requirements and implement integrated solutions based
on Delano's offerings. Generally, this process is based on a four-step
methodology, with key client checkpoints at the completion of each step:

- Initial needs assessment. Our professional services group
works with our clients to define their requirements. Once a
sale has been completed, the professional services group works
with the client to prioritize applications, identify key data
structures that are required and develop a detailed design
overview document;

- Application building. The group will construct the required
applications using the Application Builder, develop web forms
and e-mail messages and install and configure the Interaction
Server in the client's environment;

- Testing and training. The applications are volume and
user-tested. The group also tests the interfaces between our
applications and existing legacy systems. The group will
conduct training and develop technical documentation for the
specific applications;

- Deployment. The applications are published and integrated with
client's systems. The group monitors production to ensure that
the application is functioning properly and that any
modifications are documented.

We typically provide professional services on a time-and-materials
basis, acting either alone or with third-party distribution companies,
consulting organizations and software vendors. After our solution has been
implemented, our client services and support organization handles ongoing
account management and monitors client satisfaction.

PRODUCTS UNDER DEVELOPMENT

Due to our CRM focus, we continue to enhance our marketing and service
offerings, adding breadth and depth to the application suite through our
internal research and development efforts and partnerships with other technology
vendors. This strategy enables us to deliver products to cross- and up-sell to
our existing customers, simultaneously strengthening our overall product
offering for prospects. Our focus includes:

- enhancing our current customer segmentation capabilities, to
allow marketers to deliver targeted campaigns to the right
audience with the right message and provide service
professionals with the information needed to best service
their customers by leveraging the Delano analytics platform;
and,

- broadening our offering of customer value management,
providing managers with the ability to drive customer
relationships based on individual customer value by analyzing
both the revenue and the costs associated with marketing and
service activities.

CLIENT SERVICE AND SUPPORT

Our technical services group provides maintenance and technical support
to our clients, including software upgrades and updates and emergency response.
To date, almost all our clients have entered into maintenance agreements that
entitle them to technical services. Annual maintenance fees are typically equal
to 18% of the product license fee. We provide support to our clients through our
support center located in Markham, Ontario.

SALES AND MARKETING

As of March 31, 2001, we had 182 sales, business development and
marketing professionals, including sales personnel, sales engineers, strategic
account representatives and marketing representatives. We maintain 3 direct
sales representatives in Ontario as well as a total of 31 sales representatives
in the United States, and 7 sales representatives in Europe, who oversee and
process all orders for our products and services in Europe and parts of Africa.
As well, we have a joint venture with eGlobal Technology Service Limited
("eGlobal") for Asia Pacific. Our direct sales force is organized into regional
teams, which include both sales representatives and systems engineers.

Our direct sales force is complemented by telemarketing from our
headquarters in Markham, Ontario, which

7
8

generates, follows up and qualifies leads, and by third-party distribution
companies, consulting organizations and software vendors with whom we have
agreements, such as Nortel Networks, Braun Consulting, Deloitte Consulting,
Interactive Business Systems and Ironside Technologies. These third-parties
further expand the distribution channels for our products.

We also pursue original equipment manufacturer sales opportunities with
vendors of complementary technology, including developers of enterprise resource
planning systems, customer relationship management systems, messaging, internet
and e-commerce solutions such as Ironside Technologies, i2 Technologies, Nortel
Networks, and Protagona worldwide. These vendors may seek to enhance and extend
their solutions by integrating our products into theirs.

To support our sales efforts, we conduct seminars for prospective
clients and ongoing public relations campaigns, participate in conferences and
trade shows and distribute direct mailings, newsletters and website
communications. We typically market our products and services independently, but
we also selectively conduct joint marketing activities with third-party
distribution companies, consulting organizations and software vendors.

CLIENTS

We focus our sales efforts on organizations in five major market
sectors: financial services, retail, technology, telecommunications, and
transportation and logistics. We have also identified demand in marketing
services organizations and companies focused on business-to-business or
business-to-consumer commercial opportunities over the internet. Although we are
primarily targeting clients in these market sectors, we believe that increasing
use of the internet and the benefits offered by our products will provide
opportunities in other market sectors. The following is a representative list of
our clients by market segment:

- Financial Services -- Charles Schwab Canada Co., Chase Manhattan Bank,
Zurich Insurance, Heller Financial, Worldinsure.com;

- Technology -- Nortel Networks; i2 Technologies, Compaq, ATI
Technologies, Ironside Technologies, Protagona;

- Telecommunications -- Ericsson Inc., Sprint, HickoryTech Information
Solutions;

- Transportation and Logistics -- Mark VII, Inc., Rental Services Corp.,
and Cardinal Logistics;

- Retail -- Mary Kay, The Sharper Image, Ann Taylor, Target;

- Marketing Services -- Ogilvy Worldwide, Grey Worldwide, Middleberg
1.2.1, Association of National Advertisers, and The Computing Group, a
division of Omnicom;

- E-commerce (business-to-consumer) -- GroceryGateway.com, Tickets.com,
Webhelp.com, Borderfree, e-centives inc., Harborfreight.com, a web
service operated by Central Purchasing Inc. and Marketrend
Communications Inc.; and,

- E-commerce (business-to-business) -- LendingTree.com, and eBreviate, a
division of AT Kearney.

In the year ended March 31, 2001, no customer accounted for 10% of our
total revenues. We expect a substantial portion of our license and service
revenues in any given quarter to be generated from a limited number of clients.
However, we do not believe that we will be dependent on any ongoing commitments
from any particular client.

COMPETITION

The market for our products and services is highly competitive. The
market is evolving rapidly from both a commercial and a technological
perspective. We believe that the principal competitive factors affecting our
market include the technology infrastructure, breadth of the offered solution,
the speed of deployment, distribution breadth, product quality and reliability,
customer and professional services quality, a significant base of high-profile
customers and industry influencers, and demonstrable value for the customer.
Although we believe that our products compare very favorably with respect to
these factors our market is relatively new and is developing rapidly.

We currently, and will for the foreseeable future, face competition
from many sources, including operational and analytical CRM vendors (who compete
directly with our products), and systems designed in-house and by third-party
development efforts. For example, our competitors include CRM vendors such as
e.Piphany, Broadbase/Kana, and Xchange Applications.

RESEARCH AND DEVELOPMENT

We believe that our future success depends in large part on our ability
to maintain and enhance our technology, to develop a large library of software
products, and to enhance our market positioning through the deployment of
emerging technologies. For the year ended March 31, 2001, we invested $17.4
million in product development, compared to $3.6 million and $797,000 for the
year ended March 31, 2000, and the period from May 7, 1998 to March 31, 1999
respectively.

In order to maintain our focus on developing new products and
enhancements, it is important that we recruit highly skilled, experienced
engineers and software developers. Our senior managers are generally experienced
in enterprise application development. We have designed a process for product
development which defines and addresses the activities required to successfully
bring product concepts and development projects to market, ensures that feedback
from our sales, marketing, and business development efforts is appropriately
integrated into the development cycle, and ensures that products and programs
are available within appropriate timeframes.

As of March 31, 2001, we had 179 personnel engaged in research and
development activities.

INTELLECTUAL PROPERTY

We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We currently have two U.S.
patent applications pending. Our pending applications, if allowed, will cover a
material portion of our products and services. In addition, we have one U.S.
trademark.

As part of our confidentiality procedures, we generally require our
employees, clients and potential business partners to enter into confidentiality
and non-disclosure agreements before we will disclose any sensitive aspects of
our products, technology or business plans. In addition, we generally require
employees to agree to surrender to us any proprietary information, inventions or
other intellectual property they generate or come to possess while employed by
us. These efforts afford only limited protection.

EMPLOYEES

As of March 31, 2001, we had 490 full-time employees, including 179 in
research and development, 76 in professional services, 182 in sales, business
development and marketing and 53 in general and administrative. We had a net
addition of 209 employees between April 1, 2000 and March 31, 2001. None of our
employees are covered by collective bargaining agreements and we have never
experienced a strike or work stoppage. We believe our relations with our
employees are good.

ITEM 2: PROPERTIES

Our corporate headquarters are located in Markham, Ontario. In November
1999, we entered into a 10-year lease for approximately 58,000 square feet for
new corporate headquarters. This new lease took effect on May 1, 2000. We
believe that our facilities are adequate to meet our requirements for the
foreseeable future. We also lease office space in California, Colorado, Kansas,
Illinois, Minnesota, Texas, New York and New Jersey, London, U.K. and Hong Kong.
We do not own any real property.

We are proceeding to sub-lease portions of our offices in Markham,
Illinois, California and London.

ITEM 3: LEGAL PROCEEDINGS

On February 22, 2001, We Media, Inc. filed a lawsuit against the
Company in the Supreme Court for the State of New York, County of New York. The
Complaint asserts claims for breach of contract, unjust enrichment,
misrepresentation, and tortuous interference with prospective economic
advantage. WeMedia claims damages in the amount of $5,000,000 together with
treble punitive damages, interest and costs. The Company has removed the action
to the United States District Court for the Southern District of New York, and
filed its Answer and a Counterclaim. The Company believes that it has numerous
meritorious defenses to the action and intends to defend it vigorously.

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

None.

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(A) MARKET INFORMATION AND RECENT SALES OF UNREGISTERED SECURITIES

Delano's common stock is listed on the NASDAQ Stock Market under the
symbol "DTEC" and commenced trading on Feb 9, 2000. The Company's common stock
is also listed on the Toronto Stock Exchange under the symbol "DLN" and
commenced trading on May 3, 2001.

The following table sets forth the range of high and low closing sales
prices for each period indicated, adjusted for the 3 for 2 stock split effective
January 2000:

HIGH LOW
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FISCAL 2000
Fourth Quarter (from February 9, to March 31, 2000)...... $ 51.50 $ 22.44
FISCAL 2001
First Quarter ........................................... $ 24.94 $ 9.75
Second Quarter .......................................... $ 18.19 $ 9.50
Third Quarter .......................................... $ 17.12 $ 5.12
Fourth Quarter .......................................... $ 5.37 $ 1.37

The reported last sale price of Delano's common stock on the NASDAQ
Stock Market on May 18, 2001 was: $0.81. The approximate number of holders of
record of the shares of the Company's common stock was 635 as of May 18, 2001.
This number does not include stockholders whose shares are held in trust by
other entities. The actual number of stockholders is greater than this number of
holders of record. The Company estimates that the number of beneficial
stockholders of the shares of the Company's common stock as of May 18, 2001 was
approximately 6,000.

Delano has authorized common stock, with no par value and Preferred
Stock. Delano has not issued any Preferred Stock.

Delano has not paid any cash dividends on its capital stock. Delano
currently intends to retain its earnings to fund the development and growth of
its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.

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

Our financial statements are reported in United States dollars and have
been prepared in accordance with accounting principles generally accepted in the
United States.

We express all dollar amounts in this Annual Report on Form 10-K in
United States dollars, except where otherwise indicated. References to "$" are
to United States dollars and references to "Cdn$" are to Canadian dollars. This
Annual Report on Form 10-K contains a translation of some Canadian dollar
amounts into U.S. dollars at specified exchange rates solely for your
convenience. Unless otherwise indicated, these Canadian dollar amounts were
translated into U.S. dollars based on Cdn$1.00 per US$0.6344, which was the
inverse of the noon buying rate in The City of New York for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York on March 31, 2001. See "Exchange Rate Information."

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

EXCHANGE RATE INFORMATION

The following table sets forth, for each period indicated, the high and
low exchange rates for Canadian dollars expressed in U.S. dollars, the average
of such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based on the inverse of the noon buying
rate.

YEAR ENDED YEAR ENDED
MARCH 31,2000 MARCH 31, 2001
------------- --------------

High...................................... $ 0.6969 $ 0.6796
Low....................................... 0.6607 0.6344
End....................................... 0.6879 0.6344
Average................................... 0.6795 0.6636

On May 18, 2001, the inverse of the noon buying rate was Cdn$1.00 per
$0.6523.

ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

You should read the selected consolidated financial data set forth
below in conjunction with our consolidated financial statements and the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
The selected consolidated financial data are derived from our consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
and are included elsewhere in this Annual Report on Form 10-K.

PERIOD FROM
MAY 7, 1998
(INCEPTION) TO YEAR ENDED YEAR ENDED
MARCH 31,1999 MARCH 31, 2000 MARCH 31,2001
------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Licenses......................................................... -- $ 8,799 $ 25,636
Services......................................................... -- 690 4,739
---------- ------------ ------------
Total revenues................................................ -- 9,489 30,375
---------- ------------ ------------
Cost of revenues:
Licenses......................................................... -- 59 332
Services......................................................... -- 1,239 5,038
---------- ------------ ------------
Total cost of revenues........................................ -- 1,298 5,370
---------- ------------ ------------
Gross profit....................................................... -- 8,191 25,005
---------- ------------ ------------
Operating expenses:
Sales and marketing............................................. $ 554 11,732 49,275
Research and development........................................ 797 3,649 17,385
General and administrative...................................... 180 1,515 4,671
Amortization of deferred stock-based compensation............... 171 1,671 3,416
Amortization of goodwill and identifiable intangibles........... -- -- 11,025
In-process research and development............................. -- -- 429
Impairment of goodwill and identifiable intangibles............. -- -- 96,980
---------- ------------ ------------
Total operating expenses........................................ 1,702 18,567 183,181
---------- ------------ ------------
Loss from operations............................................... (1,702) (10,376) (158,176)
Interest income, net............................................ 13 1,099 4,393
Equity in loss of associated company............................ -- -- (278)
Asset impairment................................................ -- -- (694)
Restructuring charges........................................... -- -- (6,263)
---------- ------------ ------------
Loss before provision for income taxes............................. (1,689) (9,277) (161,018)
Provision for income taxes...................................... -- -- --
---------- ------------ ------------
Loss for the period................................................ (1,689) (9,277) (161,018)
Less: accretion of dividends on redeemable convertible special
shares.......................................................... (101) (313) --
---------- ------------ ------------
Loss applicable to common shares................................... $ (1,790) $ (9,590) $ (161,018)
========== ============ ============
Basic and diluted loss per common share............................ $ (2.40) $ (1.50) $ (4.84)
========== ============ ============
Shares used in computing basic and diluted loss per common share... 746 6,381 33,283
========== ============ ============

MARCH 31, 2000 MARCH 31, 2001
-------------- --------------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents................................. $ 82,370 $ 34,209
Short-term investments.................................... 29,154 1,155
Working capital........................................... 110,410 32,488
Total assets.............................................. 119,907 64,639
Long-term obligations, net of current portion............. 222 49
Redeemable convertible special shares..................... -- --
Shareholders' equity ..................................... 112,561 49,941

14
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of the Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21e
of the Securities Exchange Act of 1934. Our actual results and timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors," elsewhere in this report and in our other public
filings.

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes appearing elsewhere in
this Annual Report on Form 10-K.

OVERVIEW

From the date of our incorporation on May 7, 1998 until April 1999 we were
a development stage company and had no revenues. Our operating activities during
this period consisted primarily of conducting research and developing our
initial products. In May 1999, we released and sold the first commercially
available version of the Delano e-Business Interaction Suite.

On September 26, 2000 we acquired Continuity Solutions, Inc. pursuant to a
transaction where Continuity became our wholly owned subsidiary. Continuity is a
provider of integrated multi-channel eCRM solutions, consisting of licensed and
ASP offerings. Continuity is headquartered in San Francisco, California and had
15 employees as of the date of the acquisition.

In connection with the acquisition, we issued approximately 4.6 million of
the Company's common stock, no par value, and paid $17.4 million in cash, in
exchange for all of the outstanding shares of capital stock of DA, and each
outstanding option or right to purchase DA common stock was assumed by the
Company and became a right to purchase 0.53 of the Company's common shares. The
transaction was accounted for using the purchase method of accounting.

To date, we have derived substantially all of our revenues from the sale
of software product licenses and from the provision of professional services,
including implementation, training and maintenance services. Our products have
been sold primarily through our direct sales force.

Our products are offered on a licensed basis. We license our products
based on:

- a fee for each client, which depends on the specific and individual
needs of the client;

- an additional fee, which covers installation, configuration, training
and professional services; and

- a variable component, which depends on, among other things, the number
of servers and the number of optional applications and add-ons,
servers and component packs purchased.

We recognize our software license revenues in accordance with the American
Institute of Certified Public Accountants, or ("AICPA"), Statement of Position
("SOP") 97-2, "Software Revenue Recognition," and related amendments and
interpretations contained in the AICPA's SOP 98-9. We generally recognize
revenues allocated to software licenses upon delivery of the software products,
when all of the following conditions have been met:

- persuasive evidence of an arrangement exists;

- the license fee is fixed or determinable; and

- the license fee is collectible.

14
15

Because substantially all of our software license agreements include
related maintenance services, these agreements are multiple-element
arrangements. We allocate the fees in multiple-element arrangements based on the
respective value for each element, with maintenance being allocated typically at
18% of license revenue in all sales. Delivery of the software generally is
deemed to occur upon shipment of the software unless customers are provided the
opportunity to return the products. Revenues are recognized only when all refund
obligations have expired. In situations where we provide online offerings,
delivery of the software occurs upon initiation of the online offerings.
Revenues from maintenance and support services and online offerings are
recognized ratably over the related contractual period.

Our cost of revenues includes the cost of product documentation, the cost
of compact disks used to deliver our products, personnel-related expenses,
travel costs, equipment costs and overhead costs.

Our operating expenses are classified into four categories: sales and
marketing, research and development, general and administrative, and
amortization of deferred stock-based compensation.

- Sales and marketing expenses consist primarily of compensation and
related costs for sales and marketing personnel and promotional
expenditures, including public relations, advertising, trade shows and
marketing materials;

- Research and development expenses consist primarily of compensation
and related costs for research and development employees and
contractors and in connection with the enhancement of existing
products and quality assurance activities;

- General and administrative expenses consist primarily of compensation
and related costs for administrative personnel, legal, accounting and
other general corporate expenses;

- Amortization of deferred stock-based compensation includes the
amortization, over the vesting period of a stock option, of the
difference between the exercise price of options granted to employees
and the deemed fair market value of the options for financial
reporting purposes. In addition, deferred stock-based compensation
includes compensation expense arising on the issuance of options and a
warrant to employees and a consultant, calculated as the difference
between the exercise price of the options and warrant and the fair
market value at the date of issuance. Also included in amortization of
deferred stock-based compensation is compensation expense relating to
an option to acquire shares of the Company issued in connection with a
professional services agreement between the Company and a related
corporation. The compensation expense is calculated as the difference
between the exercise price of the option and the fair market value at
the time the option was issued or earned. Also included in
amortization of deferred stock-based compensation is compensation
expense relating to the unvested options assumed in the acquisitions
of Continuity and DA.

We allocate common costs based on relative headcount or other relevant
measures. These allocated costs include rent and other facility-related costs
for the corporate head office, communication expenses and depreciation expenses
for furniture and equipment.

In connection with the granting of stock options and the issuance of a
warrant to our employees and a consultant, we recorded deferred stock-based
compensation totaling $13.7 million through March 31, 2001. This amount
represents the total difference between the exercise prices of stock options and
the warrant and the deemed fair value of the underlying common stock for
accounting purposes on the date these stock options were granted and the warrant
issued. This amount is included as a component of stockholders' equity and is
being amortized by charges to operations over the vesting period of the options,
consistent with the method described in Financial Accounting Standards Board, or
("FASB"), Interpretation No. 28. We recorded $171,000 of stock-based
compensation amortization expense during the period from May 7, 1998 to March
31, 1999, $1.7 million of stock-based compensation amortization expense during
the year ended March 31, 2000 and $3.4 million of stock-based compensation
amortization expense during the year ended March 31, 2001. As of March 31, 2001,
we had a total of $8.5 million of deferred stock-based compensation that had not
been amortized. The amortization of the remaining deferred stock-based
compensation will result in additional charges to operations through December
2003 of approximately $845,000 per quarter. The amortization of deferred
stock-based compensation is classified as a separate component of operation
expenses in our consolidated statement of operations.

In our development of new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, our software
development costs eligible for capitalization have been insignificant and all
costs related to internal product development have been expensed as incurred.

15
16

Special charges for the year ended March 31, 2001 included a $694,000
asset impairment charge, a $6.3 million restructuring charge and a $97.0 million
goodwill and identifiable intangibles impairment.

(a) Asset Impairment Charge. During the three months ended March 31, 2001,
the Company restructured its operations to reduce operating expenses.
During the restructuring, it was determined that $694,000 of software
and other capital assets, as well as a long-term investment, had no
future value to the Company.

(b) Restructuring Charge. During the three months ended March 31, 2001,
the Company incurred a restructuring charge of $6.3 million as part of
a plan to improve its operating results by reducing employees, by
closing duplicative Company facilities in the USA and Canada, and by
implementing other measures. This charge is part of a plan to
streamline the Company's efforts to focus on achieving profitability.
The restructuring charge was comprised of $3.2 million for headcount
reductions, $2.2 million for facilities related costs including
penalties associated with the reduction of lease commitments and
future lease payments and $900,000 related to eliminating the
Company's ASP sales model. As of March 31, 2001, $2.7 million had been
paid out on the restructuring charge.

The Company determined its restructuring charge in accordance with
Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3") and Staff Accounting
Bulletin No. 100 ("SAB 100"). EITF 94-3 and SAB 100 require that the Company
commit to an exit plan before it accrues employee termination costs and exit
costs. On January 4, 2001, the Company's senior management prepared a detailed
exit plan that included the termination of 136 employees, closure of certain
facilities and the elimination of the ASP sales model.

In connection with the restructuring actions, the Company terminated the
employment of 102 employees, consisting primarily of applications development
employees, sales and marketing employees, technical and other support employees,
and administrative employees in all locations. In addition, the Company did not
replace approximately 34 employees who resigned voluntarily during the three
months ended March 31, 2001. At March 31, 2001, the Company had terminated all
employees associated with these restructuring actions. At March 31, 2001, the
Company had exited a portion of its facilities in Toronto and most of its
offices in the USA. The Company has entered into sublease arrangements for some
of its office space.

In April 2001, the Company announced further restructuring plans to reduce
its headcount by 31 percent and close additional offices in the USA and Canada.
The Company expects some of the employees in these offices to consider
opportunities to work in its other remaining offices. There was no impact on the
financial statements for the year ended March 31, 2001 relating to these
actions. The Company expects to recognize a restructuring charge in the first
quarter of fiscal year 2002 relating to the April 2001 restructuring of
approximately $5.5 million.

(c) Impairment of goodwill and identifiable intangibles. We performed an
impairment assessment of the goodwill and identifiable intangibles
recorded in connection with the acquisition of Continuity and DA. The
assessment was performed primarily due to the significant sustained
decline in our stock price since the valuation date of the shares
issued in the Continuity and DA acquisitions resulting in our net book
value of our assets prior to the impairment charge significantly
exceeding our market capitalization, the overall decline in the
industry growth rates, and our lower fourth quarter of 2001 actual and
projected operating results. As a result of our review, we recorded a
$97.0 million impairment charge to reduce goodwill and identifiable
intangibles. The charge was determined based upon our estimated
discounted cash flows over the remaining estimated useful life of the
goodwill and identifiable intangibles using a discount rate of 24.8%.
The assumptions supporting the cash flows including the discount rate
were determined using our best estimates as of such date. The
remaining goodwill balance of approximately $5.2 million will be
amortized over its remaining useful life. We will continue to assess
the recoverability of the remaining goodwill and identifiable
intangibles periodically in accordance with our policy.

We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being a
good indication of our future performance. Our prospects must be considered in
light of the risks, expenses and difficulties frequently experienced by
companies in early stages of development, particularly companies in new and
rapidly evolving markets like ours. Although we have experienced significant
revenue growth recently, this trend may not be sustainable. Furthermore, we may
not achieve or maintain profitability in the future.

16
17

RESULTS OF OPERATIONS

Year ended March 31, 2001 Compared to year ended March 31, 2000.

Revenues. Total revenues for the year ended March 31, 2001 were $30.4
million compared to $9.5 million for the year ended March 31, 2000. In the year
ended March 31, 2001 license revenues accounted for $25.6 million or 84.4% of
total revenues. In the year ended March 31, 2000, license revenues accounted for
$8.8 million, or 92.7% of total revenues. Services revenues, including
maintenance and services fees, accounted for $4.7 million, or 15.6% of revenues
for the year ended March 31, 2001, compared to $690,000 or 7.3% of total
revenues for the year ended March 31, 2000. Approximately 66.0% of our total
revenues were generated in the United States, 19.9% were generated in Canada and
14.1% were generated elsewhere in the year ended March 31, 2001, compared to
69.3%, 25.9% and 4.8% respectively for the year ended March 31, 2000.

Cost of revenues. Cost of license revenues was $332,000 or 1.1% of total
revenues for the year ended March 31, 2001 compared to $59,000 for the year
ended March 31, 2000 or 0.6% of total revenues. Cost of services revenues was
$5.0 million, or 16.6% of total revenues for the year ended March 31, 2001,
compared to $1.2 million for the year ended March 31, 2001, or 13.1% of total
revenues. We anticipate that cost of service revenues will decrease in absolute
dollars as we do not anticipate hiring additional services personnel. We
anticipate that the cost of license revenues will stay proportionate with
license revenues.

Sales and marketing. Sales and marketing expenses increased from $11.7
million or 123.6% of revenues for the year ended March 31, 2000 to $49.3 million
or 162.2% of revenues for the year ended March 31, 2001. This increase was
attributable primarily to the addition of 51 sales and marketing personnel and
higher marketing costs due to expanded promotional activities. We anticipate
that sales and marketing expenses will decrease in absolute dollars as we have
reduced the number of sales and marketing personnel and reduced discretionary
marketing programs.

Research and development. Research and development expenses increased from
$3.6 million or 38.5% of revenues for the year ended March 31, 2000 to $17.4
million or 57.2% of revenues for the year ended March 31, 2001. This increase
was attributable primarily to the addition of 85 product development and related
services personnel and to increased consulting and recruiting costs. The
expenses were reduced by investment tax credits of $285,000 for the year ended
March 31, 2000. We anticipate that research and development expenses will
decrease in absolute dollars, and will reduce as a percentage of total revenues
from period to period as we have reduced research and development personnel.

As a Canadian Controlled Private Corporation or ("CCPC"), we qualified for
certain investment tax credits under the Income Tax Act (Canada) on eligible
research and development expenditures. Prior to our initial public offering,
refundable investment tax credits, which result in cash payments to us, have
been recorded at a rate of 35% of eligible current and capital research and
development expenditures. Prior to our initial public offering, we were entitled
to an investment tax credit at these rates for the first Cdn$2.0 million
(approximately $1.3 million) of eligible research and development expenditures
and a further investment tax credit at the rate of 20% of eligible research and
development expenditures in excess of Cdn$2.0 million. Investment tax credits on
current expenditures earned at the 35% rate are fully refundable to CCPCs.
Investment tax credits earned by a CCPC on capital expenditures at the 35% rate
are refundable at a rate of 40% of the amount of the credit. We will earn
investment tax credits at a rate of 20% of eligible current and capital research
and development expenditures made after our initial public offering. While a
portion of investment tax credits earned as a CCPC are refundable, investment
tax credits earned after our initial public offering may only be used to offset
income taxes otherwise payable.

General and administrative. General and administrative expenses increased
from $1.5 million or 16.0% of revenues for the year ended March 31, 2000 to $4.7
million or 15.4% of revenues for the year ended March 31, 2001, due primarily to
the addition of 29 administrative personnel, increased consulting costs and to
higher facilities-related expenses necessary to support our growth. We expect
that general and administrative expenses will decrease in absolute dollars as we
have reduced personnel and related costs to facilitate the growth of our
business.

Amortization of goodwill and identifiable intangibles. On September 26,
2000, the Company completed its acquisition of Continuity. As a result of the
acquisition, $19.4 million was allocated to goodwill, and identifiable
intangibles. This amount is being amortized on a straight-line basis over a
period of three years for identifiable intangibles, and five years for goodwill
from October 1, 2000. On October 16, 2000, the Company completed its acquisition
of Digital Archaeology. As a result of the acquisition, $94.2 million was
allocated to goodwill and identifiable intangibles. This

17
18

amount is being amortized from October 16, 2000 on a straight-line basis over a
period of three years for identifiable intangibles and five years for goodwill.
For the year ended March 31, 2001, $11.0 million (2000 - nil) of goodwill
amortization was recorded.

If events or changes in circumstances indicate that these long lived
assets will not be recoverable, as determined based on the undiscounted cash
flows of the acquired businesses or if determined that the amounts paid for them
would have changed materially based on underlying changes in the financial
markets and therefore fundamental changes in the value of technology companies,
over the remaining amortization period, the carrying value is reduced to net
realizable value. For the year ended March 31, 2001, goodwill and identifiable
intangibles was reduced by approximately $97.0 million.

Amortization of deferred stock-based compensation. We incurred a charge of
$1.7 million or 17.6% of revenues in the year ended March 31, 2000 and a charge
of $3.4 million or 11.2% of revenues for the year ended March 31, 2001 related
to the issuance of stock options with exercise prices less than the deemed fair
market value for financial reporting purposes on the date of grant.

Interest income, net. Interest income, net for the period ended March 31,
2000 was $1.1 million. Interest income, net for the year ended March 31, 2001
was $4.4 million, reflecting the interest earned on the cash and cash
equivalents balance arising from our special warrant offering in June 1999 and
our initial public offering in February 2000.

In-process research and development. In connection with the acquisition of
Continuity and Digital Archaeology, net intangibles of $429,000 were allocated
to in-process research and development. The fair value allocation to in-process
research and development was determined by identifying the research projects for
which technical feasibility has not been achieved and which have no alternative
future use at the acquisition date, assessing the stage and expected date of
completion of the research and development effort at the acquisition date, and
calculating the net present value of the cash flows expected to result from the
successful deployment of the new technology resulting from the in-process
research and development effort.

Provision for income taxes. A deferred tax asset of $44.1 million existed
as of March 31, 2001 compared to $4.8 million at March 31, 2000. A valuation
allowance is recorded against a deferred tax asset if it is more likely than not
that the asset will not be realized. A valuation allowance taken against
substantially all of the deferred tax asset reflects the lack of profitability
in the past, the significant risk that taxable income would not be generated in
the future and the non-transferable nature of the deferred tax asset under
certain conditions.

Year ended March 31, 2000 Compared to year ended March 31, 1999.

Revenues. For the period from our inception to March 31, 1999, we were a
development stage company and had no revenues. Total revenues for the year ended
March 31, 2000 were $9.5 million. License revenues accounted for $8.8 million,
or 92.7% of total revenues. Services revenues, including maintenance and
services fees, accounted for the remaining $690,000 or 7.3% of total revenues.
Approximately 69.3% of our total revenues were generated in the United States,
25.9% were generated in Canada and 4.8% were generated elsewhere in the year
ended March 31, 2000.

Cost of revenues. Cost of license revenues was $59,000 for the year ended
March 31, 2000 or 0.6% of total revenues. Cost of services revenues was $1.2
million for the year ended March 31, 2000, or 13.1% of total revenues. We
anticipate that cost of service revenues will increase in absolute dollars as we
continue to hire additional services personnel. We anticipate that the cost of
product revenues will increase proportionately with increases in license
revenues.

Sales and marketing. Sales and marketing expenses increased from $554,000
for the period ended March 31, 1999 to $11.7 million for the year ended March
31, 2000. This increase was attributable primarily to the addition of 110 sales
and marketing personnel and higher marketing costs due to expanded promotional
activities. We anticipate that sales and marketing expenses will increase in
absolute dollars as we continue to hire additional sales and marketing personnel
and expand discretionary marketing programs.

Research and development. Research and development expenses increased from
$797,000 for the period ended March 31, 1999 to $3.6 million for the year ended
March 31, 2000. This increase was attributable primarily to the addition of 74
product development and related services personnel and to increased consulting
and recruiting costs. The expenses were reduced by investment tax credits of
$285,000 for the year ended March 31, 2000. We anticipate that research and
development expenses will increase in absolute dollars, but will vary as a
percentage of total revenues from period to period as we continue to hire
additional research and development personnel.

18
19

As a Canadian Controlled Private Corporation or ("CCPC"), we qualified for
certain investment tax credits under the Income Tax Act (Canada) on eligible
research and development expenditures. Prior to our initial public offering,
refundable investment tax credits, which result in cash payments to us, have
been recorded at a rate of 35% of eligible current and capital research and
development expenditures. Prior to our initial public offering, we were entitled
to an investment tax credit at these rates for the first Cdn$2.0 million
(approximately $1.4 million) of eligible research and development expenditures
and a further investment tax credit at the rate of 20% of eligible research and
development expenditures in excess of Cdn$2.0 million. Investment tax credits on
current expenditures earned at the 35% rate are fully refundable to CCPCs.
Investment tax credits earned by a CCPC on capital expenditures at the 35% rate
are refundable at a rate of 40% of the amount of the credit. We will earn
investment tax credits at a rate of 20% of eligible current and capital research
and development expenditures made after our initial public offering. While a
portion of investment tax credits earned as a CCPC are refundable, investment
tax credits earned after our initial public offering may only be used to offset
income taxes otherwise payable.

General and administrative. General and administrative expenses increased
from $180,000 for the period ended March 31, 1999 to $1.5 million for the year
ended March 31, 2000, due primarily to the addition of 18 administrative
personnel, increased consulting costs and to higher facilities- related expenses
necessary to support our growth. We expect that general and administrative
expenses will increase in absolute dollars as we add personnel and incur related
costs to facilitate the growth of our business.

Amortization of deferred stock-based compensation. We incurred a charge of
$171,000 in the year ended March 31, 1999 and a charge of $1.7 million for the
year ended March 31, 2000 related to the issuance of stock options with exercise
prices less than the deemed fair market value for financial reporting purposes
on the date of grant.

Interest income, net. Interest income, net for the period ended March 31,
1999 was $13,000. Interest income, net for the year ended March 31, 2000 was
$1.1 million, reflecting the interest earned on the cash and cash equivalents
balance arising from our special warrant offering in June 1999 and our initial
public offering in February 2000.

Provision for income taxes. A deferred tax asset of $4.8 million existed
as of March 31, 2000. A valuation allowance is recorded against a deferred tax
asset if it is more likely than not that the asset will not be realized. A
valuation allowance taken against substantially all of the deferred tax asset
reflects the lack of profitability in the past, the significant risk that
taxable income would not be generated in the future and the non-transferable
nature of the deferred tax asset under certain conditions.

Period from May 7, 1998 (Inception) to March 31, 1999

Sales and marketing. Sales and marketing expenses were $554,000 for the
eleven months included in the period from our inception to March 31, 1999. These
expenses consisted primarily of compensation and related costs for sales and
marketing personnel and promotional expenditures, including public relations,
advertising, trade shows and marketing materials.

Research and development. Research and development expenses were $797,000
for the eleven months ended March 31, 1999. These expenses consisted primarily
of compensation and related costs for research and development employees and
contractors. The expenses were reduced by investment tax credits of $201,000.

General and administrative. General and administrative expenses were
$180,000 for the eleven months ended March 31, 1999. These expenses consisted
primarily of compensation and related costs for administrative personnel, legal,
accounting and other general corporate expenses.

Amortization of deferred stock-based compensation. We incurred a charge of
$171,000 for the eleven months ended March 31, 1999 related to the issuance of
stock options with exercise prices less than the deemed fair market value for
financial reporting purposes on the date of grant.

Interest income, net. Interest income, net consisted of $13,000 earned on
cash and cash equivalents for the eleven months ended March 31, 1999.

QUARTERLY RESULTS OF OPERATIONS

19
20

The following table sets forth certain unaudited consolidated statements
of operations data for our eight quarters of operation. In our management's
opinion, this unaudited information has been prepared on the same basis as our
annual consolidated financial statements appearing elsewhere in this Annual
Report on Form 10-K and includes all adjustments necessary to fairly present the
unaudited quarterly results. These adjustments consist only of normal recurring
adjustments. This information should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
Annual Report on Form 10-K. The operating results for any quarter are not
necessarily indicative of results for any future period.

20
21

QUARTER ENDED
-------------------------------------------------------------------------------
JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1999 1999 1999 2000 2000 2000 2000 2001
-------- -------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS)

CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License............................ $ 752 $ 1,561 $ 2,748 $ 3,738 $ 5,361 $ 7,009 $ 8,040 $ 5,226
Services........................... 59 54 183 394 657 1,025 1,230 1,827
------- ------- -------- ------- -------- -------- -------- ---------
Total revenues................... 811 1,615 2,931 4,132 6,018 8,034 9,270 7,053
------- ------- -------- ------- -------- -------- -------- ---------
Cost of revenues

License............................ -- 6 14 39 59 122 89 62
Services........................... 149 231 321 538 801 1,169 1,440 1,628
------- ------- -------- ------- -------- -------- -------- ---------
Total cost of revenues........... 149 237 335 577 860 1,291 1,529 1,690
------- ------- -------- ------- -------- -------- -------- ---------
Gross profit.......................... 662 1,378 2,596 3,555 5,158 6,743 7,741 5,363
------- ------- -------- ------- -------- -------- -------- ---------
Operating expenses:
Sales and marketing................ 818 1,198 3,440 6,276 10,388 11,116 13,641 14,130
Research and development........... 389 801 1,054 1,405 2,320 3,856 6,128 5,081
General and administrative......... 157 255 355 748 998 1,142 1,397 1,134
Amortization of deferred
stock-based compensation......... 107 211 451 902 1,624 856 1,003 (67)
Amortization of goodwill and
identifiable intangibles ........ -- -- -- -- -- -- 5,107 5,918
In-process research and
development...................... -- -- -- -- -- 360 69 --
Impairment of goodwill and
identifiable intangibles......... -- -- -- -- -- -- -- 96,980
------- ------- -------- -------- -------- -------- -------- ---------
Total operating expenses.............. 1,471 2,465 5,300 9,331 15,330 17,330 27,345 123,176
------- ------- -------- -------- -------- -------- -------- ---------
Loss from operations.................. (809) (1,087) (2,704) (5,776) (10,172) (10,587) (19,604) (117,813)

Interest income, net............... 11 165 178 745 1,542 1,384 926 541
Equity in loss of associated
company ........................ -- -- -- -- -- -- -- (278)
Asset impairment................... -- -- -- -- -- -- -- (694)
Restructuring charges.............. -- -- -- -- -- -- -- (6,263)
------- ------- -------- -------- -------- -------- -------- ---------
Loss before provision for
income taxes....................... (798) (922) (2,526) (5,031) (8,630) (9,203) (18,678) (124,507)
Provision for income
taxes.............................. -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- ---------
Loss for the period................... $ (798) $ (922) $ (2,526) $ (5,031) $ (8,630) $ (9,203) $(18,678) $(124,507)
======= ======= ======== ======== ======== ======== ======== =========

Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. Our limited operating
history and the undeveloped nature of the market for interaction-based
e-business communications products make predicting future revenues difficult.
Our expense levels are based, in part, on expectations regarding future revenue
increases, and to a large extent, such expenses are fixed, particularly in the
short term. There can be no assurance that our expectations regarding future
revenues are accurate. Moreover, we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues in relation to our expectations would likely
cause significant increases in our net losses for that period.

Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on them as indicative of our future
performance. You should also evaluate our prospects in light of the risks,
expenses and difficulties commonly encountered by comparable early-stage
companies in new and rapidly emerging markets. We cannot assure you that we will
successfully address the risks and challenges that face us. In addition,
although we have experienced significant revenue growth recently, we cannot
assure you that our revenues will continue to grow or that we will become or
remain profitable in the future.

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LIQUIDITY AND CAPITAL RESOURCES

Since the date of incorporation, we have raised an aggregate of $3.4
million through private placements of special shares. We have raised $14.4
million, net of the agents' commission and offering expenses, through a private
placement of special warrants in June 1999. We have also raised $103.4 million,
net of agents' commissions and offering expenses through our initial public
offering in February 2000.

Our operating activities used cash of $6.8 million for the year ended
March 31, 2000 and cash of $45.7 million for the year ended March 31, 2001. Our
negative operating cash flow resulted principally from the net losses that we
incurred during these periods as we invested in the development of our products,
expanded our sales force and expanded our infrastructure to support our growth.

Our financing activities generated $118 million in the year ended March
31, 2000 and $254,000 in year ended March 31, 2001. In the year ended March 31,
2000 the issuance of special warrants generated net proceeds of $14.4 million
and the issuance of common shares as part of our initial public offering
generated net proceeds of $103.4 million.

Our investing activities, consisting of the purchase of computer
equipment, software, furniture and equipment to support our growing number of
employees, as well as the purchase of short-term investments used cash of $31.0
million during the year ended March 31, 2000, and $2.9 million during the year
ended March 31, 2001.

In March 1999, we obtained a lease line of credit from a Canadian
chartered bank to purchase equipment and furniture. Approximately $431,000 was
outstanding as of March 31, 2001. The ceiling on the lease line of credit is
Cdn$1,000,000 (approximately $634,000). The lease line of credit is not
collateralized with cash for the amount of the line that is used for leasing
equipment.

Our capital requirements depend on a number of factors. We expect to
devote substantial resources to continue our research and development efforts,
expand our sales, support, marketing and product development organizations,
establish additional facilities worldwide and build the infrastructure necessary
to support our growth. Our expenditures have increased substantially since the
date of incorporation, but we anticipate that capital expenditures will decrease
in absolute dollars in the foreseeable future.

At March 31, 2001, we had cash and cash equivalents aggregating $34.2
million. At March 31, 2001, we also had a short-term investment of $1.2 million.
We believe that our current cash and cash equivalents are sufficient to fund our
operations for at least the next 12 months. If cash generated from operations is
insufficient to meet our long-term liquidity needs, we may need to raise
additional funds or seek other financing arrangements. Additional funding may
not be available on favorable terms or at all. In addition, although there are
no present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies, we may, from time to
time, evaluate potential acquisitions of other businesses, products and
technologies. In order to consummate potential acquisitions, we may issue
additional securities or need additional equity or debt financing and any such
financing may be dilutive to existing investors.

RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" or SFAS No. 133. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting
for Certain Hedging Activities" (SFAS No. 138), which amended SFAS No. 133. SFAS
138 must be adopted concurrently with the adoption of SFAS No. 133. The Company
will be required to adopt these statements for the year ending March 31, 2002.
SFAS No. 133 and SFAS No. 138 establish methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because the Company currently holds no
derivative financial instruments and the Company does not currently engage in
hedging activities, the adoption of SFAS No. 133 and SFAS No. 138 is not
expected to have a material impact on the Company's financial condition or
results of operations.

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ITEM 7A: QUALITATIVE AND QUANTITATIVE MARKET RISK

We develop products in Canada and sell these products in North America,
Europe and Asia Pacific. Generally, our sales are made in local currency, which
to date has been mostly United States dollars. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. We do not
currently use derivative instruments to hedge our foreign exchange risk. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the nature of our short-term investments, we have concluded
that there is no material market risk exposure.

RISK FACTORS

Investing in our common shares will subject you to risks inherent in our
business. You should carefully consider the following factors as well as other
information contained in this Annual Report on Form 10-K before deciding to
invest in our common shares. If any of the risks described below occurs, our
business, results of operations and financial condition could be adversely
affected. In such cases, the price of our common shares could decline, and you
may lose part or all of your investment.

RISKS RELATED TO OUR BUSINESS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
FORECAST OUR FUTURE OPERATING RESULTS.

We were incorporated on May 7, 1998, and we first recorded revenues in the
quarter ended June 30, 1999. We are still in the early stages of our development
and have a limited operating history, making it difficult to evaluate our
business and prospects. As a result of our limited operating history, it is
difficult or impossible for us to predict future operating results. For example,
we cannot forecast operating expenses based on our historical results because
our historical results are limited and we, to some extent, forecast expenses
based on future revenue projections. Moreover, due to our limited operating
history, any evaluation of our business and prospects must be made in light of
the risks and uncertainties often encountered by early-stage companies in
internet-related markets. Many of these risks are discussed in the sub-headings
below, and include our ability to execute our product development activities,
implement our sales and marketing initiatives, both domestically and
internationally, and attract more clients. We may not successfully address any
of these risks.

FACTORS RELATING TO OUR BUSINESS MAKE OUR FUTURE OPERATING RESULTS UNCERTAIN,
AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO PERIOD.

Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter, particularly because our
products and services are relatively new and our prospects are uncertain. If our
quarterly revenues or operating results fall below the expectations of
investors, the price of our common shares could decline substantially. Factors
that might cause quarterly fluctuations in our operating results include the
risk factors described in the sub-headings below as well as the following:

- the timing of new releases of our products;

- changes in our pricing policies or those of our competitors, including
the extent to which we may need to offer discounts to match
competitors' pricing;

- the mix of sales channels through which our products and
services are sold;

- the mix of our domestic and international sales;

- costs related to the customization of our products;

- our ability to expand our operations, and the amount and timing of
expenditures related to this expansion;

- any costs or expenses related to our move to new corporate offices;
and,

- our operating results may also be affected by the following factors
over which we have little or no control:

- the evolving and varying demand for interaction-based software
products and services for e-businesses, particularly our products
and services;

- the discretionary nature of our client's purchasing and budgetary
cycles;

- the timing of execution of large contracts that materially affect
our operating results; and

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- global economic conditions, as well as those specific to large
enterprises with high e-mail volume.

OUR OPERATING EXPENSES ARE RELATIVELY FIXED, WHICH WOULD CAUSE OUR OPERATING
RESULTS TO VARY FROM PERIOD TO PERIOD.

Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if total
revenues for a particular quarter are below our expectations, we cannot
proportionately reduce operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on our operating results
for that quarter.

WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE BECAUSE OF OUR PLAN TO INCREASE OPERATING EXPENSES.

Since we began operations in May 1998, we have incurred substantial
operating losses in every quarter. As a result of accumulated operating losses,
as of March 31, 2001, we had an accumulated deficit of $172.4 million. For the
year ended March 31, 2001, we had a net loss of $161.0 million, or 530.1% of
total revenues for that period. Our growth in recent periods has been from a
limited base of clients, and we may not be able to sustain our growth rate. We
expect to continue to increase our operating expenses. As a result, we expect to
continue to experience losses and negative cash flow, even if sale of our
products and services continues to grow, and we may not generate sufficient
revenues to achieve profitability in the future.

In addition, as a result of our rapid growth, we expect that our losses
may increase even more because of additional costs and expenses related to an
increase in:

- the number of our employees;

- research and development activities; and

- sales and marketing activities.

WE ARE DEPENDENT UPON A LIMITED NUMBER OF CLIENTS, AND A LOSS OF ANY OF THESE
CLIENTS OR A REDUCTION, DELAY OR CANCELLATION IN ORDERS FROM THESE CLIENTS COULD
HARM OUR BUSINESS.

To date, a significant portion of the total revenues has been derived from
sales to a small number of clients. In the year ended March 31, 2001, no
customer accounted for 10% of our total revenues. We expect that we will
continue to be dependent upon a limited number of clients for a significant
portion of our revenue in future periods. There can be no assurance that our
existing clients or any future clients will continue to use our products. A
reduction, delay or cancellation in orders from our clients, including
reductions or delays due to market, economic or competitive conditions, could
have a materially adverse effect on our business, operating results and
financial condition.

DIFFICULTIES IN IMPLEMENTING OUR PRODUCTS COULD HARM OUR BUSINESS.

Our success depends upon the ability of our staff and our clients to
implement our products. This implementation typically involves working with
sophisticated software, computing and communications systems. If we experience
implementation difficulties or do not meet project milestones in a timely
manner, we could be obligated to devote more customer support, engineering and
other resources to a particular project than anticipated. Some clients may also
require us to develop customized features or capabilities. If new or existing
clients require more time to deploy our products than is originally anticipated,
or require significant amounts of our professional services support or
customized features, our revenue recognition could be further delayed and our
costs could increase, causing increased variability in our operating results.

OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE MARKETPLACE.

Of our total revenues of $30.4 million for the year ended March 31, 2001,
$25.6 million were derived from licenses of our products and $4.7 million was
from related services. We are not certain that our target clients will widely
adopt and deploy our products and services. Our future financial performance
will depend on the successful development, introduction and client acceptance of
new and enhanced versions of our products. In the future, we may not be
successful in marketing our products and services or any new or enhanced
products.

WE EXPECT TO DEPEND ON SALES OF OUR DELANO INTERACTION SERVER, CRM AND ANALYTICS
APPLICATIONS FOR A SUBSTANTIAL MAJORITY OF OUR REVENUES FOR THE FORESEEABLE
FUTURE.

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In the year ended March 31, 2001, we derived most of our revenues from
licenses of our Delano Interaction Server and Customer Velocity. Although we
have added new product offerings and expect to add new product offerings, we
expect to continue to derive a substantial majority of our revenues from sales
of the Delano Interaction Server and Customer Velocity for the foreseeable
future. Implementation of our strategy depends on our products being able to
solve the communication needs of businesses engaging in commercial transactions
over the internet or having an internet presence. If current or future clients
are not satisfied with our products, our business and operating results could be
seriously harmed.

WE MUST CONTINUE TO DEVELOP ENHANCEMENTS TO OUR PRODUCTS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE EVOLVING NEEDS OF OUR CLIENTS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY OUR COMPETITORS.

Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render our
products obsolete. The market for e-business communications software is
characterized by:

- rapid technological change;

- frequent new product introductions;

- changes in customer requirements; and

- evolving industry standards.

Our products are designed to work on, or interoperate with, a variety of
operating systems used by our clients. However, our software may not operate
correctly on evolving versions of operating systems, or the hardware upon which,
or with which, they are intended to run or interoperate, programming languages,
databases and other systems that our clients use. For example, because the
server component of the current versions of our products run only on the Windows
NT operating system from Microsoft, we must develop products and services that
are compatible with UNIX and other operating systems to meet the demands of our
clients. If we cannot successfully develop these products in response to client
demands or improve our existing products to keep pace with technological
changes, our business could suffer.

We must continually improve the performance, features and reliability of
our products, particularly in response to competitive offerings. Our success
depends, in part, on our ability to enhance our existing software and to develop
new services, functionality and technologies that address the increasingly
sophisticated and varied needs of our prospective clients. If we do not properly
identify the feature preferences of prospective clients, or if we fail to
deliver features that meet the requirements of these clients on a timely basis,
our ability to market our products successfully and to increase our revenues
will be impaired.

DELAYS IN INTRODUCING NEW AND ENHANCED PRODUCTS COULD HARM OUR BUSINESS.

The development of proprietary technologies and necessary service
enhancements entail significant technical and business risks and requires
substantial expenditures and lead time. If we experience product delays in the
future we may face:

- customer dissatisfaction;

- cancellation of orders and license agreements;

- negative publicity;

- loss of revenues;

- slower market acceptance; and

- legal action by clients against us.

In the future, our efforts to remedy product delays may not be successful
and we may lose clients as a result. Delays in bringing to market new products
or product enhancements could be exploited by our competitors. If we were to
lose market share as a result of lapses in our product development, our business
would suffer.

INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE.

The market for our products and services is intensely competitive,
evolving and subject to rapid technological change. We expect the intensity of
competition to increase in the future. Increased competition may result in price
reductions,

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reduced gross margins and loss of market share. The market for e-business
communications software is new and intensely competitive. There are no
substantial barriers to entry in this emerging market segment, and we expect
established or new entities to enter this market segment in the near future.

We currently face competition for our products principally from systems
designed by in-house and third-party development efforts. In addition, some of
our competitors who currently offer licensed software products are now beginning
to offer online offerings, which involve providing software on a rental basis
hosted on the hardware of an application service provider, or ASP. We currently
do not offer online offerings in any material way.

Our competitors include companies providing software that is focused on
operational and analytical CRM, such as Kana/Broadbase, e.Piphany, and Xchange
Applications. We believe competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market.

Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we do. In
addition, many of our competitors have well-established relationships with our
current and potential clients and have extensive knowledge of our industry. We
may lose potential clients to competitors for various reasons, including the
ability or willingness of our competitors to offer lower prices and other
incentives that we cannot match. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition may increase as a
result of industry consolidations. We may not be able to compete successfully
against current and future competitors, and competitive pressures may seriously
harm our business.

THE DELANO INTERACTION SERVER ENABLES THIRD PARTIES TO DEVELOP APPLICATIONS THAT
COMPETE WITH OUR APPLICATIONS.

Third parties have the ability to develop their own applications on top of
the Delano Interaction Server. The applications of these third parties could
compete with products developed by us or services which we offer now or will
offer in the future. If our target clients do not widely adopt and purchase our
products, or if third parties compete with applications developed by us, our
business would suffer.

FAILURE TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL COULD ADVERSELY
AFFECT OUR BUSINESS.

Competition for these individuals is intense in our industry, particularly
in the Toronto area where we are headquartered, and there are a limited number
of experienced people available with the necessary technical skills. Our ability
to increase revenues in the future depends considerably upon our success in
retaining and in some cases recruiting additional direct sales personnel and the
success of the direct sales force. Our business will be harmed if we fail to
hire or retain qualified sales personnel, or if newly hired salespeople fail to
develop the necessary sales skills or develop these skills more slowly than we
anticipate. We also are substantially dependent upon our ability to develop new
products and enhance existing products, and we may not be able to retain highly
qualified research and development personnel. Similarly, our failure to attract
and retain the highly trained personnel that are integral to our professional
services group, which is responsible for the implementation and customization
of, and technical support for, our products and services, may limit the rate at
which we can develop and install new products or product enhancements, which
would harm our business.

THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS COULD ADVERSELY AFFECT OUR BUSINESS.

Our future success depends to a significant degree on the skills,
experience and efforts of our executive officers. In particular, we depend upon
the continued services of John Foresi, Chief Executive Officer, David Frankland,
President and Bahman Koohestani, our Executive Vice-President, Products and
Chief Technology Officer and a founder of Delano.

We have not entered into employment agreements with our executive officers
which would require them to work solely for us on a long-term basis. If any of
our executive officers left or was seriously injured and unable to work and we
were unable to find a qualified replacement, our business could be harmed.

FAILURE TO INTEGRATE OUR EXECUTIVE TEAM MAY INTERFERE WITH OPERATIONS.

Our executive team has largely been hired in the past two years. To
integrate into our company, these individuals must spend a significant amount of
time developing interpersonal relationships and learning our business model and
management system, in addition to performing their regular duties. Accordingly,
the integration of new personnel has resulted, and may continue to result, in
some disruption of our ongoing operations.

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OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.

We believe that our success in penetrating our target markets depends in
part on our ability to enter into agreements with established third-party
distribution companies, consulting organizations and software vendors relating
to the distribution of our products. We have entered into non-exclusive
distribution agreements with various parties, including Nortel Networks,
Deloitte Consulting and PricewaterhouseCoopers. Since these agreements are
non-exclusive and normally terminable without penalty on short notice, some
third parties may choose to discontinue working with us or may decide to work
with our competitors. We derive revenues from these agreements through the sale
of licenses. We may not be able to derive significant revenues in the future
from these agreements.

WE HAVE COMPLETED TWO ACQUISITIONS, AND THOSE ACQUISITIONS MAY RESULT IN
DISRUPTIONS TO OUR BUSINESS AND MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING
PERSONNEL AND OPERATIONS.

We may not realize the benefits from the acquisitions we have completed.
In September 2000, we acquired Continuity, and in October 2000, we acquired
Digital Archaeology. We may not be able to successfully assimilate the remaining
personnel, operations, acquired technology and products into our business. In
particular, we will need to assimilate and retain key professional services,
engineering and marketing personnel. This is particularly difficult since
Continuity's operations are located in San Francisco and Digital Archaeology is
located in Kansas while we are headquartered in Markham, Canada. Key personnel
from the acquired companies may in the future decide that they do not want to
work for us. In addition, products of these companies will have to be integrated
into our products, and it is uncertain whether we may accomplish this easily or
at all. These difficulties could disrupt our ongoing business, distract
management and employees or increase expenses. Acquisitions are inherently risky
and we may also face unexpected costs, which may adversely affect operating
results in any quarter.

THE ACQUISITIONS OF CONTINUITY AND DIGITAL ARCHAEOLOGY INTO OUR COMPANY COULD
ADVERSELY AFFECT OUR COMBINED FINANCIAL RESULTS.

If the benefits of the acquisitions of Continuity and DA into our company
do not exceed the costs associated with these acquisitions, including any
dilution to our stockholders resulting from the issuance of shares in connection
with the acquisitions, our financial results, including earnings per share,
could be adversely affected.

IF WE ACQUIRE ADDITIONAL COMPANIES, PRODUCTS OR TECHNOLOGIES, WE MAY FACE RISKS
SIMILAR TO THOSE FACED IN OUR OTHER ACQUISITIONS.

If we are presented with appropriate opportunities, we may make other
investments in complementary companies, products or technologies. We may not
realize the anticipated benefits of any other acquisition or investment. If we
acquire another company, we will likely face the same risks, uncertainties and
disruptions as discussed above with respect to our other acquisitions.
Furthermore, we may have to incur debt or issue equity securities to pay for any
additional future acquisitions or investments, the issuance of which could be
dilutive to our company or our existing stockholders. In addition, our
profitability may suffer because of acquisition-related costs or amortization
costs for acquired goodwill and other intangible assets.

WE MAY SEEK TO GROW BY MAKING ACQUISITIONS AND WE MAY NOT BE ABLE TO
SUCCESSFULLY COMPLETE ANY ACQUISITIONS WE UNDERTAKE OR INTEGRATE ANY ACQUIRED
BUSINESS WITH OUR OWN.

We may consider other investments in complementary companies, products or
technologies. If we undertake such an acquisition or investment, we may not
realize the anticipated benefits. If we buy a company, we may not be able to
successfully assimilate the acquired personnel, operations, technology and
products into our business. In particular, we will need to assimilate and retain
key technical, professional services, sales and marketing personnel. In
addition, acquired products or technology will have to be integrated into our
products and technology, and it is uncertain whether we may accomplish this.
These difficulties could disrupt our ongoing business, distract our management
and employees or increase our expenses. In connection with a merger, or
acquisition for shares, the issuance of these securities may be dilutive to our
existing shareholders or affect profitability. Furthermore, we may have to issue
equity or incur debt to pay for future acquisitions or investments, the issuance
of which could be dilutive to us or our existing shareholders or affect our
profitability. In addition, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
acquired intangible assets.

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WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO GROW OUR BUSINESS, WHICH WE MAY NOT
BE ABLE TO DO.

Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of our existing
and new service offerings as well as competing technological and market
developments. As a result, we may not be able to generate sufficient cash from
our operations to meet additional working capital requirements, support
additional capital expenditures or take advantage of acquisition opportunities.
Accordingly, we may need to raise additional capital in the future. Our ability
to obtain additional financing will be subject to a number of factors, including
market conditions and our operating performance. These factors may make the
timing, amount, terms and conditions of additional financing unattractive for
us. If we raise additional funds by selling equity securities, the relative
equity ownership of our existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors. If we raise
additional funds through debt financing, we could incur significant borrowing
costs. If we are unable to raise additional funds when needed, our ability to
operate and grow our business could be impeded.

TECHNICAL PROBLEMS WITH INTERNAL OR OUTSOURCED COMPUTER AND COMMUNICATIONS
SYSTEMS COULD RESULT IN REDUCED REVENUES AND HARM TO OUR REPUTATION.

The success of our online support services depends on the efficient and
uninterrupted operation of our own and outsourced computer and communications
hardware and software systems. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters, telecommunications
failures, break-ins, sabotage, computer viruses and similar adverse events. Our
operations depend on our ability to protect our systems against damage or
interruption. We cannot guarantee that our internet access will be
uninterrupted, error-free or secure. We have no formal disaster recovery plan in
the event of damage or interruption, and our insurance policies may not
adequately compensate us for losses that we may incur. Any system failure that
causes an interruption in our service or a decrease in responsiveness could harm
our relationships with our clients and result in reduced revenues.

FAILURE TO SELL ONLINE SERVICES MAY IMPAIR OUR FUTURE REVENUE GROWTH.

We currently focus primarily on software sales rather than online offerings.
Our competitors may move to a heavier emphasis on online offerings, and our
failure to focus on it at an early stage may make it difficult to compete if
online offerings become a dominant means of generating revenues within the
industry. In addition, although our sales force sells both our software products
and online offerings, the skills necessary to market and sell online offerings
are different than those relating to our software products. As a result, our
sales and marketing groups may not be able to maintain or increase the level of
sales of our online offerings.

A DECLINE IN OUR LICENSE REVENUES COULD CAUSE A DECLINE IN OUR SERVICE REVENUES.

Our products are designed to enable customers to rapidly develop and
deploy e-business communication applications. Where desirable, our professional
services group can assist our clients' internal IT personnel to implement our
products. Because the revenues associated with these services are largely
correlated with the licensing of our products, a decline in license revenues
could also cause a decline in our service revenues.

CONFLICTS BETWEEN OUR PRODUCTS AND OTHER VENDORS' PRODUCTS COULD HARM OUR
BUSINESS AND REPUTATION.

Our clients generally use our products together with products from other
companies. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. Even when these problems are not caused
by our products, they may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.

OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.

We rely on contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. None of our
trademarks is registered, nor do we have any trademark applications pending. We
currently have no patent applications pending relating to our software. Despite
any precautions that we take to protect our intellectual property:

- laws and contractual restrictions may be insufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;

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- current laws that prohibit software copying provide only limited
protection from software "pirates", and effective trademark, copyright
and trade secret protection may be unavailable or limited in foreign
countries;

- other companies may claim common law trademark rights based upon
state, provincial or foreign laws that precede any registrations we
may receive for our trademarks; and

- policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.

It is possible that our intellectual property rights could be successfully
challenged by one or more third parties, which could result in our inability to
exploit, or our loss of the right to prevent others from exploiting, certain
intellectual property. We are aware that certain of our competitors have filed
patent applications.

Also, the laws of other countries in which we market our products may
offer little or no effective protection of our technology. Reverse engineering,
unauthorized copying or other misappropriation of our technology could enable
third parties to benefit from our technology without paying us for it, which
would significantly harm our business.

WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS.

We use and in the future will use certain software technologies and other
information that we license or otherwise acquire from third parties, usually on
a non-exclusive basis, including software that is integrated with our internally
developed software and used in our products to perform what may be important
functions. If we are not able to continue to use the third-party software and
technologies, or if they fail to adequately update and support their products,
we could suffer delays or reductions in shipments of our products until
alternative software and technologies could be identified, which could adversely
affect our business and financial condition.

CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.

Substantial litigation over intellectual property rights exists in our
industry. We expect that software in our industry may be increasingly subject to
third-party infringement claims as the numbers of competitors grow and the
functionality of products in different industry segments overlap. Third parties
may currently have, or may eventually be issued patents that our products or
technology infringe.

Any of these third parties might make a claim of infringement against us.
Many of our software license agreements require us to indemnify our clients and
suppliers from any claim or finding of intellectual property infringement. Any
litigation, brought by us or others, could result in the expenditure of
significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement might
cause negative publicity, have an impact on prospective clients, cause product
shipment delays, require us to develop non-infringing technology or require us
to enter into royalty or license agreements, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.

OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS.

Our products are integrated into our client's networks. The sale and
support of our products results in the risk of product liability or warranty
claims based on damage to these networks. In addition, the failure of our
products to perform to client expectations could give rise to warranty claims.
Although we carry general liability insurance, our insurance would likely not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.

OUR PRODUCTS COULD CONTAIN UNDETECTED DEFECTS OR ERRORS.

We face the possibility of higher costs as a result of the complexity of
our products and the potential for undetected errors. Due to the
mission-critical nature of our products and services, undetected errors are of
particular concern. We have only a limited number of clients that test new
features and the functionality of our software before we make these features and
functionalities generally available. If our software contains undetected errors
or we fail to meet our client's expectations in a timely manner, we could
experience:

- loss of, or delay in revenues expected from the new product and an
immediate and significant loss of market share;

- loss of existing clients that upgrade to the new product and of new
clients;

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- failure to achieve market acceptance;

- diversion of development resources;

- injury to our reputation;

- increased service and warranty costs;

- legal actions by clients against us; and

- increased insurance costs.

A product liability claim could harm our business by increasing our costs,
damaging our reputation and distracting our management.

OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.

Our operations outside the United States and Canada are located in the
United Kingdom and Asia and, to date, have been limited. We may expand our
existing international operations and establish additional facilities in other
parts of Asia via our joint venture, specifically Australia, Singapore, Hong
Kong, Taiwan, Malaysia, Korea, Indonesia, China, New Zealand and Thailand. We
intend to increase our penetration of these markets by intensifying global
activities, and allying ourselves with selected international third-party
distribution companies, consulting organizations and software vendors.

The expansion of our existing international operations and entry into
additional international markets are key parts of our growth strategy and may
require significant management attention and financial resources. In addition,
to expand our international sales operations, we will need to, among other
things:

- expand our international sales channel management and support
organizations;

- develop relationships with international service providers and
additional distributors and systems integrators; and

- customize our products for local markets.

Our investments in facilities in other countries may not produce desired
levels of revenues. Even if we are able to expand our international operations
successfully, we may not be able to maintain or increase international market
demand for our products.

OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES
ASSOCIATED WITH OPERATING INTERNATIONALLY.

Expanding our operations outside the United States and Canada subjects us
to numerous inherent potential risks associated with international operations.
These risks include greater difficulty in accounts receivable collection, the
burden of complying with multiple and conflicting regulatory requirements,
foreign exchange controls, longer payment cycles, import and export restrictions
and tariffs, potentially adverse tax consequences, and political and economic
instability, any of which could impair our sales and results of operations. In
addition, our ability to expand our business in certain countries will require
modification of our products, particularly domestic language support.

Our international operations will increase our exposure to international
laws and regulations. If we cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, we
could incur unexpected costs and potential litigation. For example, the
governments of foreign countries might attempt to regulate our products and
services or levy sales or other taxes relating to our activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make it
more difficult to conduct our business. The European Union, in which we have a
sales office, recently enacted its own privacy regulations that may result in
limits on the collection and use of certain user information, which, if applied
to the sale of our products and services, could negatively impact our results of
operations.

FLUCTUATIONS IN EXCHANGE RATES MAY AFFECT OUR OPERATING RESULTS.

A substantial portion of our revenues are now, and are expected to
continue to be, realized in currencies other than Canadian dollars. Our
operating expenses are primarily paid in Canadian dollars. Fluctuations in the
exchange rate between the Canadian dollar and these other currencies may have a
material effect on our results of operations. In particular, we may be adversely
affected by a significant strengthening of the Canadian dollar against the U.S.
dollar. We do not currently engage in currency hedging activities. We have not
yet, but may in the future, experience significant foreign exchange rate losses,
especially to the extent that we do not engage in hedging.

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IF WE ARE OR BECOME A PASSIVE FOREIGN INVESTMENT COMPANY WE MAY NOT BE ABLE TO
SATISFY RECORD-KEEPING REQUIREMENTS, WHICH COULD HAVE ADVERSE U.S. TAX
CONSEQUENCES TO YOU.

The rules governing passive foreign investment companies can have
significant effects on U.S. investors. We could be classified as a passive
foreign investment company if, for any taxable year, either:

- 75% or more of our gross income is passive income, which includes
interest, dividends and some types of rents and royalties; or

- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of passive income is 50% or more.

Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, these rules generally will not apply if the
U.S. investor elects to treat the passive foreign investment company as a
qualified electing fund under Section 1295 of the Internal Revenue Code.

If we are or become a passive foreign investment company we may not be
able to satisfy record-keeping requirements that would permit you to make a
qualified electing fund election.

RISKS RELATED TO OUR INDUSTRY

OUR FUTURE REVENUES AND PROFITS DEPEND ON THE CONTINUED GROWTH IN USE AND
EFFICIENT OPERATION OF THE INTERNET AND E-MAIL.

We sell our products and services primarily to organizations that receive
large volumes of e-mail and communications over the web. Consequently, our
future revenues and profits, if any, substantially depend upon the continued
acceptance and use of the web and e-mail, which are evolving as communications
media. Rapid growth in the use of e-mail is a recent phenomenon and may not
continue. As a result, a broad base of enterprises that use e-mail as a primary
means of communication may not develop or be maintained. Moreover, companies
that have already invested significant resources in other methods of
communications with customers, such as call centers, may be reluctant to adopt a
new strategy that may limit or compete with their existing investments. If
businesses do not continue to accept the web and e-mail as communications media,
our business would suffer.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
DISCOURAGE COMMUNICATION BY E-MAIL OR OTHER INTERNET-BASED COMMUNICATIONS
FACILITATED BY OUR PRODUCTS.

Due to the increasing popularity and use of the internet, it is possible
that Canadian and U.S. federal, Canadian provincial, U.S. state, and other
foreign regulators could adopt laws and regulations that impose additional
burdens on those companies that conduct business online. These laws and
regulations could discourage communication by e-mail or other internet-based
communications facilitated by our products, which could reduce demand for our
products and services.

The growth and development of the market for online services may prompt
calls for more stringent consumer protection laws or laws that may inhibit the
use of internet-based communications or the information contained in these
communications. The adoption of any additional laws or regulations may slow the
growth of the internet. A decline in the growth of the internet, particularly as
it relates to online communication, could decrease demand for our products and
services and increase our cost of doing business, or otherwise harm our
business.

BECAUSE WE ARE A CANADIAN COMPANY, IT MAY BE DIFFICULT FOR YOU TO ENFORCE
AGAINST US LIABILITIES BASED SOLELY UPON THE FEDERAL SECURITIES LAWS OF THE
UNITED STATES.

We have been incorporated under the laws of the Province of Ontario, and
our executive offices are located in Ontario. Many of our directors, controlling
persons and officers, and representatives of the experts named in this Annual
Report on Form 10-K, are residents of Canada and a substantial portion of their
assets and a majority of our assets are located outside the United States.
Consequently, it may be difficult for you to enforce against us or any of our
directors, controlling persons, officers or experts who are not resident in the
United States, liabilities based solely upon the federal securities laws of the
United States.

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OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, PREFERENCE
SHARES THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE OF COMMON SHARES AND
THAT MAY DELAY OR PREVENT A CHANGE OF CONTROL.

Our articles of incorporation allow the issuance an unlimited number of
preference shares in one or more series. After the offering, there will be no
preference shares outstanding. However, our board of directors may set the
rights and preferences of any class of preference shares in its sole discretion
without the approval of the holders of common shares. The rights and preferences
of these preference shares may be superior to those of the common shares.
Accordingly, the issuance of preference shares may adversely affect the rights
of holders of common shares. The issuance of preference shares also could have
the effect of delaying or preventing a change of control of our company.

WE DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON SHARES.

We have not paid any cash dividends on our shares and we currently do not have
any plans to pay dividends on our shares. In addition, our lease line of credit
specifically prohibits the payment of dividends on our shares.

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ITEM 8: DELANO TECHNOLOGY CORPORATION INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

PAGE

Independent Auditors Report.............................................. 34

Consolidated Balance Sheets.............................................. 35

Consolidated Statements of Operations.................................... 36

Consolidated Statements of Shareholders' Equity (Deficiency)............. 37

Consolidated Statements of Cash Flows.................................... 38

Notes to Consolidated Financial Statements............................... 39

Schedule II - Valuation and Qualifying Accounts.......................... 52

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Delano Technology Corporation.

We have audited the consolidated financial statements of Delano Technology
Corporation as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material mis-statement. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Delano
Technology Corporation as of March 31, 2000 and March 31, 2001, and the results
of its operations and its cash flows for the period from May 7, 1998 (date of
inception) to March 31, 1999 and the years ended March 31, 2000 and March 31,
2001, in conformity with generally accepted accounting principles in the United
States. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.

On April 30, 2001, we reported separately to the shareholders of Delano
Technology Corporation on the consolidated financial statements for the same
period, prepared in accordance with Canadian generally accepted accounting
principles.

Chartered Accountants

/s/ KPMG LLP
Toronto, Canada
April 30, 2001

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DELANO TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)

MARCH 31, MARCH 31,
2000 2001
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 82,370 $ 34,209
Short-term investments.......................................................... 29,154 1,155
Accounts receivable trade, net of allowance for doubtful accounts of $200
at March 31, 2000, and $1,859 at March 31, 2001............................... 3,910 8,099
Prepaid expenses and other...................................................... 2,100 3,674
------------- -------------
Total current assets.......................................................... 117,534 47,137
Property and equipment............................................................. 2,373 11,300
Investments, at cost .............................................................. -- 120
Goodwill and identifiable intangibles, net ........................................ -- 5,217
Other assets ...................................................................... -- 865
------------- -------------
Total assets....................................................................... $ 119,907 $ 64,639
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................................ $ 5,954 $ 12,492
Deferred revenue................................................................ 961 1,975
Current portion of obligations under capital leases............................. 209 182
------------- -------------
Total current liabilities..................................................... 7,124 14,649
Long-term liabilities:
Obligations under capital leases................................................ 222 49
------------- -------------
Total liabilities.................................................................. 7,346 14,698
Shareholders' equity:
Capital stock:
Preference shares:
Authorized: Unlimited
Issued and outstanding: Nil at March 31, 2000 and 2001
Common shares:
Authorized: Unlimited
Issued and outstanding: 29,929,833 shares at March 31, 2000 and 37,240,858
shares at March 31, 2001.................................................. 133,006 230,647
Warrant......................................................................... 126 496
Deferred stock-based compensation............................................... (8,851) (8,464)
Accumulated other comprehensive losses.......................................... (340) (340)
Deficit......................................................................... (11,380) (172,398)
------------- -------------
Total shareholders' equity.................................................... 112,561 49,941
------------- -------------
Total liabilities and shareholders' equity......................................... $ 119,907 $ 64,639
============= =============

See accompanying notes to consolidated financial statements.

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DELANO TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

PERIOD FROM
MAY 7, 1998
(INCEPTION) YEAR ENDED YEAR ENDED
TO MARCH MARCH 31, MARCH 31,
31, 1999 2000 2001
----------- ---------- ----------

Revenues:
Licenses.................................................................... -- $ 8,799 $ 25,636
Services.................................................................... -- 690 4,739
----------- ---------- ----------
Total revenues............................................................ -- 9,489 30,375
----------- ---------- ----------
Cost of revenues:
Licenses.................................................................... -- 59 332
Services (excluding stock-based compensation of $0, $206 and $73
respectively)............................................................. -- 1,239 5,038
----------- ---------- ----------
Total cost of revenues.................................................... -- 1,298 5,370
----------- ---------- ----------
Gross profit................................................................... -- 8,191 25,005
----------- ---------- ----------
Operating expenses:
Sales and marketing (excluding stock-based compensation of $29, $1,186
and $2,645 respectively).................................................. $ 554 11,732 49,275
Research and development (excluding stock-based compensation of $1, $118
and $373 respectively).................................................... 797 3,649 17,385
General and administrative (excluding stock-based compensation of $141,
$161 and $325 respectively)............................................... 180 1,515 4,671
Amortization of deferred stock-based compensation........................... 171 1,671 3,416
Amortization of goodwill and identifiable intangibles ...................... -- -- 11,025
In-process research and development ........................................ -- -- 429
Impairment of goodwill and identifiable intangibles......................... -- -- 96,980
----------- ---------- ----------
Total operating expenses.................................................. 1,702 18,567 183,181
----------- ---------- ----------
Loss from operations........................................................... (1,702) (10,376) (158,176)
Interest income, net........................................................ 13 1,099 4,393
Equity in loss of associated company........................................ -- -- (278)
Asset impairment ........................................................... -- -- (694)
Restructuring charges....................................................... -- -- (6,263)
----------- ---------- ----------
Loss before provision for income taxes......................................... (1,689) (9,277) (161,018)
Provision for income taxes..................................................... -- -- --
----------- ---------- ----------
Loss for the period............................................................ (1,689) (9,277) (161,018)
Less: accretion of dividends on redeemable convertible
special shares.............................................................. (101) (313) --
----------- ---------- ----------
Loss applicable to common shares............................................ $ (1,790) $ (9,590) $(161,018)
=========== ========== ==========
Basic and diluted loss per common share........................................ $ (2.40) $ (1.50) $ (4.84)
=========== ========== ==========
Shares used in computing basic and diluted loss per
common share (in thousands).................................................... 746 6,381 33,283
=========== ========== ==========

See accompanying notes to consolidated financial statements.

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DELANO TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)

ACCUMULATED TOTAL
COMMON SHARES DEFERRED OTHER SHAREHOLDERS'
-------------------- STOCK-BASED COMPREHENSIVE EQUITY
NUMBER AMOUNT WARRANT COMPENSATION LOSSES DEFICIT (DEFICIENCY)
---------- -------- ------- ------------ ------------- ---------- ------------

Balances, May 7, 1998......... -- -- -- -- -- -- --
Issuance of common shares..... 6,000,000 $ 2 -- -- -- -- $ 2
Deferred stock-based
compensation................ -- 431 $ 126 $ (557) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 171 -- -- 171
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- $ (101) (101)
Other comprehensive losses.... -- -- -- -- $ (5) -- (5)
Loss for the period........... -- -- -- -- -- (1,689) (1,689)
---------- -------- ------- ------------ ------------- ---------- ------------
Balances, March 31, 1999...... 6,000,000 433 126 (386) (5) (1,790) (1,622)
Issuance of common shares..... 6,250,000 103,855 -- -- -- -- 103,855
Issuance of common shares on
conversion of Class A special
shares...................... 6,000,000 1,158 -- -- -- -- 1,158
Issuance of common shares on
conversion of Class B special
shares...................... 5,684,198 2,693 -- -- -- -- 2,693
Issuance of common shares on
conversion of special
warrants ................... 6,490,385 14,703 -- -- -- -- 14,703
Deferred stock-based
compensation................ -- 10,136 -- (10,136) -- -- --
Repurchase of common shares... (750,000) -- -- -- -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 1,671 -- -- 1,671
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- (313) (313)
Exercise of stock options..... 255,250 28 -- -- -- -- 28
Other comprehensive losses.... -- -- -- -- (335) -- (335)
Loss for the period........... -- -- -- -- -- (9,277) (9,277)
---------- -------- ------- ------------ ------------- ---------- ------------
Balances, March 31, 2000...... 29,929,833 133,006 126 (8,851) (340) (11,380) 112,561

Issuance of common shares..... 110,189 261 -- (261) -- -- --
Issuance of common shares on
Employee Share Purchase
Program..................... 461,823 2,128 -- -- -- -- 2,128
Issuance of common shares and
warrants on Continuity
Solutions Inc. acquisition.. 1,412,959 16,439 380 -- -- -- 16,819
Issuance of common shares on
Digital Archaeology
Corporation acquisition..... 4,630,462 75,616 -- -- -- -- 75,616
Deferred stock-based
compensation................ -- 2,768 -- (2,768) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 3,416 -- -- 3,416
Exercise of stock options..... 694,592 412 -- -- -- -- 412
Exercise of warrants.......... 1,000 17 (10) -- -- -- 7
Loss for the period........... -- -- -- -- -- (161,018) (161,018)
---------- -------- ------- ------------ ------------- ---------- ------------
Balances, March 31, 2001...... 37,240,858 $230,647 $ 496 $ (8,464) $ (340) $ (172,398) $ 49,941
========== ======== ======= ============ ============= ========== ============

See accompanying notes to consolidated financial statements.

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DELANO TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)

PERIOD FROM
MAY 7, 1998
(INCEPTION) YEAR ENDED YEAR ENDED
TO MARCH MARCH 31, MARCH 31,
31, 1999 2000 2001
----------- ---------- ----------

Cash provided by (used in):
Operating activities:
Net loss.................................................................... $ (1,689) $ (9,277) $ (161,018)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................................ 33 299 13,990
Equity in loss of associated company...................................... -- -- 278
Amortization of deferred stock-based compensation......................... 171 1,671 3,416
In-process research and development....................................... -- -- 429
Impairment of goodwill and identifiable intangibles ...................... -- -- 96,980
Restructuring charges and asset impairment................................ -- -- 3,602
Changes in non-cash operating working capital, net of effects from purchase
of Continuity and Digital Archaeology:
Accounts receivable trade................................................. (200) (3,852) (4,042)
Prepaid expenses and other................................................ (65) (1,797) (1,944)
Accounts payable and accrued liabilities.................................. 516 5,335 1,717
Deferred revenue.......................................................... 99 844 874
----------- ---------- ----------
Net cash used in operating activities....................................... (1,135) (6,777) (45,718)
Financing activities:
Issuance of redeemable convertible special shares........................... 3,375 -- --
Issuance of common shares and warrants...................................... 2 103,398 2,547
Issuance of special warrants................................................ -- 14,436 --
Payments on notes payable................................................... -- -- (1,995)
Proceeds from bank loan..................................................... -- 156 --
Repayment of bank loan...................................................... -- (156) --
Repayment of obligations under capital leases............................... (2) (126) (298)
----------- ---------- ----------
Net cash provided by financing activities................................... 3,375 117,708 254
Investing activities:
Sale (purchase) of short-term investments .................................. -- (29,154) 27,999
Additions to property and equipment......................................... (251) (1,859) (12,247)
Purchase of long-term investments........................................... -- -- (398)
Cash used in acquisition, net of cash acquired of $2,295 ................... -- -- (18,233)
----------- ---------- ----------
Net cash used in investing activities....................................... (251) (31,013) (2,879)
Effect of currency translation of cash balances................................ -- 463 182
----------- ---------- ----------
Increase (decrease) in cash and cash equivalents............................... 1,989 80,381 (48,161)
Cash and cash equivalents, beginning of period................................. -- 1,989 82,370
----------- ---------- ----------
Cash and cash equivalents, end of period....................................... $ 1,989 $ 82,370 $ 34,209
=========== ========== ==========

See accompanying notes to consolidated financial statements.

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DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION OF THE COMPANY

Delano Technology Corporation (the "Company") was incorporated on May 7,
1998 and commenced commercial operations during the quarter ended June 30, 1999.
The Company develops and markets Customer Relationship Management ("CRM")
software that incorporates advanced analytics with interactive capabilities on a
flexible and scalable technology platform.

2. SIGNIFICANT ACCOUNTING POLICIES

These financial statements are stated in U.S. dollars, except where
otherwise noted. They have been prepared in accordance with accounting
principles generally accepted in the United States.

These consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and a 50% joint venture. An investment in
a 19.9% owned affiliate is accounted for by the equity method of accounting,
whereby the investment is carried at cost of acquisition, plus the Company's
equity in undistributed earnings or losses since acquisition.

All material intercompany transactions and balances have been eliminated.

a. Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.

b. Cash and Cash Equivalents

All highly liquid investments, with an original maturity of three months or
less at the date of acquisition, are classified as cash equivalents.

c. Short-term investments

The Company's short-term investments include highly liquid instruments with
an original maturity of 90 days or more and are carried at cost, which
approximates their fair value.

d. Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation
and amortization, and are amortized over their estimated useful lives.
Expenditures for maintenance and repairs have been charged to the statement of
operations as incurred. Depreciation and amortization are computed using the
straight-line method as follows:

Furniture and office equipment................. 33%
Computer hardware.............................. 33%
Computer software.............................. 50%

The Company regularly reviews the carrying values of its property and
equipment by comparing the carrying amount of the asset to the expected future
cash flows to be generated by the asset. If the carrying value exceeds the
amount recoverable a write down is charged to the statement of operations.

e. Revenue Recognition

The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position ("SOP") No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and

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related provisions as amended by SOP 98-9. The Company's revenues are derived
from product elements, comprised primarily of license fees and service elements,
which include post-contract customer support ("PCS"), installation, training,
consulting and other services. Fees for services are generally billed separately
from licenses of the Company's products. In cases where the Company sells a
multi-element arrangement, the fees are allocated to the elements based on
Company-specific objective evidence of each element's fair value.

Revenue from product elements, consisting primarily of license fees, is
recognized pursuant to a contract or purchase order, when each element is
delivered to the customer and collection of the related receivable is deemed
probable by management. Reserves for product returns and sales allowances are
estimated and provided for at the time of sale. Such reserves are based upon
management's evaluation of historical experience and current industry trends.

Revenue from service elements includes PCS which is recognized ratably over
the term of the agreement, which is typically twelve months. Revenues from
installation, training, consulting and other services are recognized when the
services are performed. Losses on professional services contracts, if any, are
recognized at the time such losses are identified.

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

f. Currency Translation

Effective April 1, 2000, the U.S. dollar became the functional currency of
the Company and of its subsidiaries as all of their revenues and a portion of
their expenditures are denominated in U.S. dollars. This change resulted from
the increased significance of U.S. dollar denominated revenue and expenditures
in relation to Canadian dollar denominated transactions. In addition, the
Company's financing is entirely denominated in U.S. dollars. Exchange gains and
losses resulting from transactions denominated in currencies other than U.S.
dollars are included in the results of operations for the period.

Prior to April 1, 2000, the functional currency of the Company and of its
subsidiaries was the Canadian dollar. Accordingly, monetary assets and
liabilities of the Company and of its subsidiaries that were denominated in
foreign currencies were translated into Canadian dollars at the exchange rate
prevailing at the balance sheet date. Transactions included in operations were
translated at the average rate for the period. Exchange gains and losses
resulting from the translation of these amounts were reflected in the
consolidated statement of operations in the period in which they occurred. As
the Company's reporting currency was the U.S. dollar, the Company translated
consolidated assets and liabilities denominated in Canadian dollars into U.S.
dollars at the exchange rate prevailing at the balance sheet date, and the
consolidated results of operations at the average rate for the period.
Cumulative net translation adjustments were included as a separate component of
shareholders' equity.

g. Research and Development Expenses

Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, completing a working model of the Company's products and
general release has substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.

h. Investment Tax Credits

The Company is entitled to Canadian federal and provincial investment tax
credits that are earned as a percentage of eligible current and capital research
and development expenditures incurred in each taxation year. Certain investment
tax credits are fully refundable to the Company prior to going public in
February 2000. All other investment tax credits are available to be applied
against future income tax liabilities, subject to a 10-year carry forward
period. Investment tax credits are accounted for as a reduction of the related
expenditure for items of a current nature and a reduction of the related asset
cost for items of a long-term nature, provided that the Company has reasonable
assurance that the tax credits will be realized.

i. Income Taxes

Under the asset and liability method of Statement of Accounting Standards
No. 109, "Accounting for Income Taxes"

40
41

("SFAS 109"), deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the consolidated statement
of operations in the period that includes the enactment date.

j. Stock-based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standards Board, Statement No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, deferred stock-based
compensation is recorded at the option grant date in an amount equal to the
difference between the fair market value of a common share and the exercise
price of the option. Deferred stock-based compensation for options which are
contingently issuable based upon the achievement of performance criteria is
recorded based upon the current fair market value of the shares at the end of
each period. Deferred stock-based compensation resulting from employee option
grants is amortized over the vesting period of the individual options, generally
three or four years, in accordance with Financial Accounting Standards Board
Interpretation No. 28.

k. Loss Per Common Share

Loss per common share has been calculated on the basis of earnings
applicable to common shares divided by the weighted average number of common
shares outstanding during each period. The calculation of weighted average
number of shares outstanding during each period excludes common shares held in
escrow. Diluted loss per common share has been calculated assuming that the
common shares held in escrow pursuant to escrow arrangements with certain
employee/shareholders prior to the date of the completion of the Company's IPO,
redeemable convertible special shares, special warrants, warrant and stock
options outstanding at the end of the period had been issued, converted or
exercised at the later of the beginning of the period or their date of issuance,
where such conversion or exercise would not be anti-dilutive.

l. Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments and accounts receivable trade. Cash equivalents and short-term
investments consist of deposits with, or guaranteed by, major commercial banks.
With respect to accounts receivable trade, the Company performs periodic credit
evaluations of the financial condition of its customers and typically does not
require collateral from them. Management assesses the need for allowances for
potential credit losses by considering the credit risk of specific customers,
historical trends and other information.

m. Fair Values of Financial Assets and Financial Liabilities

The carrying values of cash and cash equivalents, short-term investments,
accounts receivable trade, accounts payable and accrued liabilities approximate
their fair values due to the relatively short periods to maturity of the
instruments. In addition, the carrying values of obligations under capital
leases and loans receivable approximate their fair values. The following methods
and assumptions were used to estimate the fair value of the following financial
instruments:

(i) Obligations under capital leases -- at the present value of the
contractual future payments of principal and interest, discounted at
the current market rates of interest available to the Company for the
same or similar debt instrument.

(ii) Loans receivable -- discounted cash flows at the current market rates
of interest available to the Company for the same or similar asset.

n. Comprehensive Income

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise except those
resulting from shareholder transactions.

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42

Comprehensive loss for the year ended March 31, 2000 and March 31, 2001, was not
materially different from net loss for the periods.

o. Goodwill and identifiable intangibles

Goodwill arising from acquisitions (Note 3) is recorded as the excess of
the purchase price over the fair value of assets acquired and amortized over its
estimated useful life of five years. Purchased identifiable intangible assets
are recorded at the appraised value of technology, workforce and customer lists
acquired and amortized using a straight-line method over estimated useful lives
of three years. Accumulated amortization of goodwill and identifiable
intangibles was $11.0 million at March 31, 2001. If events or changes in
circumstances indicate that these long-lived assets will not be recoverable, as
determined based on the undiscounted cash flows of the acquired businesses over
the remaining amortization period, the carrying value is reduced to net
realizable value. For the year ended March 31, 2001, goodwill and identifiable
intangibles was reduced by approximately $97.0 million. See also Note 12,
Special Charges.

p. Other assets

Other assets include patent & trademark costs, shareholder loans and other
long-term loans receivable.

q. Recent Accounting Pronouncement

3. ACQUISITIONS

On October 16, 2000, the Company acquired Digital Archaeology Corporation,
a Kansas corporation ("DA"), pursuant to an Agreement and Plan of Merger, dated
as of October 13, 2000. At the effective time of the acquisition, the Company
issued approximately 4.6 million of the Company's common shares and paid
approximately $17.4 million in cash, in exchange for all of the outstanding
shares of capital stock of DA, and each outstanding option or right to purchase
DA common stock was assumed by the Company and became a right to purchase 0.53
of the Company's common shares.

In connection with the acquisition, 694,569 of the Company's common shares
issued to the former DA shareholders are being held in escrow until October 2001
to cover any reimbursable claims under the Merger Agreement and related
agreements.

The Company has accounted for the acquisition using the purchase method of
accounting. As a result, Delano recorded on its balance sheet the fair market
value of DA's assets and liabilities, acquisition-related costs of $1.6 million
and goodwill and identifiable intangibles of approximately $94.2 million.
Goodwill and intangible assets acquired in connection with the acquisition will
be amortized over three years for identifiable intangibles and five years for
goodwill, resulting in an approximate $19.5 million charge per year. The
allocation of the purchase price to assets acquired and liabilities assumed is
presented in the table that follows (in thousands).

On September 26, 2000, the Company finalized the acquisition of Continuity
Solutions, Inc. ("Continuity"). In connection with the acquisition, each share
of Continuity common stock outstanding immediately prior to the consummation of
the acquisition was converted into 0.10 shares of Delano common stock (the
"Exchange Ratio") and Delano assumed Continuity's outstanding stock options and
warrants based on the Exchange Ratio, issuing approximately 1.4 million shares
of Delano common stock and assuming options and warrants to acquire
approximately 150,000 of Delano common stock.

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43

In connection with the acquisition, 282,592 of the Company's common shares
issued to the former Continuity shareholders are being held in escrow to cover
any reimbursable claims under the Merger Agreement and related agreements.

The Company has accounted for the acquisition using the purchase method of
accounting. As a result, Delano recorded on its balance sheet the fair market
value of Continuity's assets and liabilities, acquisition-related costs of $1.5
million and goodwill and identifiable intangibles of approximately $19.4
million. Goodwill and intangible assets acquired in connection with the
acquisition will be amortized over a three-year period, resulting in an
approximate $6.3 million charge per year. The allocation of the purchase price
to assets acquired and liabilities assumed is presented in the table that
follows (in thousands).

DIGITAL
ARCHAEOLOGY CONTINUITY
----------- ----------

Net tangible assets acquired .............. $ 349 $ 135
Identifiable intangibles acquired:
In-process research and development ....... 69 360
Existing technology ....................... 2,920 2,580
In-place workforce ........................ 1,933 280
Goodwill .................................. 89,302 16,207
Liabilities assumed........................ -- (450)
Notes payable paid ........................ -- (745)
--------- ----------
Net assets acquired .................... $ 94,573 $ 18,367
========= ==========

The purchase price for the DA acquisition was approximately $94.6 million,
measured as the average fair market value of Delano's outstanding common stock
from October 9 to 23, 2000, five trading days before and after the Merger
Agreement was announced plus the Black-Scholes calculated value of the vested
options of DA assumed by Delano in the acquisition, and other costs directly
related to the acquisition presented in the table that follows (in thousands).
The purchase price for the Continuity acquisition was approximately $18.4
million, measured as the average fair market value of Delano's outstanding
common stock from August 30 to September 14, 2000, five trading days before and
after the Merger Agreement was announced plus the Black-Scholes calculated value
of the vested options and warrants of Continuity assumed by Delano in the
acquisition, and other costs directly related to the acquisition presented in
the table that follows (in thousands):

DIGITAL
ARCHAEOLOGY CONTINUITY
----------- ----------

Fair market value of Delano's common stock.. $ 62,276 $ 15,395
Fair market value of options assumed ....... 13,340 679
Cash paid................................... 17,364 --
Debt assumed................................ -- 745
Acquisition-related costs .................. 1,593 1,548
---------- ----------
Total ...................................... $ 94,573 $ 18,367
========== ==========

The following unaudited pro forma net revenues, net loss and loss per share
data for the year ended March 31, 2001 and 2000 (year ended December 31, 2000
and 1999 for DA and Continuity) are based on the respective historical financial
statements of the Company, DA and Continuity. The pro forma data reflects the
consolidated results of operations as if the acquisition with DA and Continuity
occurred at the beginning of the period indicated and includes the amortization
of the resulting goodwill and other intangible assets. The pro forma financial
data presented are not necessarily indicative of the Company's results of
operations that might have occurred had the transaction been completed at the
beginning of the period specified, and do not purport to represent what the
Company's consolidated results of operations might be for any future period.

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44

Unaudited Pro Forma Financial Information (in thousands)

YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 2001
-------------- --------------

Net revenue .................................................................. $ 10,346 $ 31,168
Net loss ..................................................................... $ (39,047) $ (180,881)
Basic and diluted loss per share ............................................. $ (3.55) $ (4.96)
Shares used in computing basic and diluted loss per share .................... 11,011 36,464

4. JOINT VENTURES AND INVESTMENT IN AFFILIATE

In June 2000, the Company formed Delano Minerva Holdings Inc. ("Minerva"),
and has a controlling position with a 50% ownership and a majority of the seats
of the Board of Directors. During fiscal 2001, the Company's proportionate share
of Minerva's losses exceeded its investment and therefore the Company
consolidated Minerva's results of operations, which were included within the
Company's fiscal 2001 revenue, cost and expense categories.

In December 2000, the Company invested in eGlobal joint venture as a
minority interest party by acquiring 19.9% of the common shares. The investment
in this joint venture has been made in the form of a $398,000 capital
contribution, as well as a long-term non-interest bearing loan receivable of
$602,000. This investment is accounted for using the equity method of accounting
and during fiscal 2001, the Company recognized $278,000 of losses, which
represent the Company's proportionate share of eGlobal's losses, net of the
intercompany elimination.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

MARCH 31, MARCH 31,
2000 2001
--------- ---------

Furniture and office equipment................................................ $ 407 $ 4,201
Computer hardware............................................................. 1,426 5,369
Computer software............................................................. 321 3,050
Leasehold improvements........................................................ -- 1,839
Assets under capital leases................................................... 557 439
--------- ---------
2,711 14,898
Less accumulated depreciation and amortization................................ 338 3,598
--------- ---------
$ 2,373 $ 11,300
========= =========

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows (in thousands):

MARCH 31, MARCH 31,
2000 2001
--------- ---------

Accounts payable............................................................. $ 2,408 $ 4,164
Accrued compensation......................................................... 1,474 3,080
Accrued financing............................................................ 466 --
Accrued restructuring........................................................ -- 3,532
Other accrued liabilities.................................................... 1,606 1,716
--------- ---------
$ 5,954 $ 12,492
========= =========

7. BANK LOAN

The Company has a lease line of credit available to a maximum of $679,000
(Cdn$1,000,000). Refer to note 8 for details as to the amounts utilized under
this line of credit as at March 31, 2001. The Company has three Letters of
Guarantee outstanding at March 31, 2001 for approximately $1.2 million on
various facilities with maturity dates ranging between February 2002 and June
2005.

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45

8. OBLIGATIONS UNDER CAPITAL LEASES

The following is an analysis by year of the future minimum lease payments
for capital leases (in thousands):

MARCH 31, MARCH 31,
2000 2001
--------- ---------

March 31, 2002................................................................ $ 209 $ --
March 31, 2002................................................................ 205 205
March 31, 2003................................................................ 59 59
--------- ---------
473 264
Less amount representing interest (at rates ranging from
7.7% to 8.5%)................................................................. 42 33
--------- ---------
Balance of obligation......................................................... 431 231
Less current portion.......................................................... 209 182
--------- ---------
$ 222 $ 49
========= =========

9. REDEEMABLE CONVERTIBLE SPECIAL SHARES AND SPECIAL WARRANTS

Redeemable Convertible Special Shares

The Company is authorized to issue an unlimited number of Class A, Class B
and Class C special shares. In July 1998, the Company issued 4,000,000 Class A
special shares for proceeds of $992,129. During January 1999, the Company issued
3,789,476 Class B special shares for proceeds of $2,382,528. To date, no Class C
special shares have been issued.

The Class A and Class B special shares automatically converted to common
shares on a 3 for 2 basis when the Company completed its initial public offering
("IPO").

Special Warrants

On June 24, 1999, the Company closed a private placement of 4,326,924
special warrants at a price of $3.55 per special warrant for proceeds of
$14,486,978, net of issue costs of $873,602.

The special warrants were converted into common shares at a ratio of 3
common shares for each 2 special warrants.

10. SHAREHOLDERS' EQUITY

Stock Option Plan

The Company's stock option plan (the "Plan") was established for the
benefit of the employees, officers, directors and certain consultants of the
Company. The maximum number of common shares which may be set aside for issuance
under the Plan is 9,335,382 shares, provided that the Board of Directors of the
Company has the right, from time to time, to increase such number subject to the
approval of the shareholders of the Company when required by law or regulatory
authority. Generally, options issued subsequent to March 4, 1999 under the Plan
vest over a four-year period. Options issued prior to March 5, 1999 vest
annually over a three-year period.

Details of stock option transactions are as follows:

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46

WEIGHTED
OPTIONS AVAILABLE AVERAGE
FOR NUMBER EXERCISE PRICE
GRANT OF OPTIONS PER SHARE
------------------ ---------- ---------------

Balances, March 31, 1999....................................... 1,221,000 1,779,000 $ 0.13
Additional options authorized............................ 2,500,000
Options granted.......................................... (2,692,725) 2,692,725 $ 3.85
Options exercised........................................ (255,250) $ 0.11
Options cancelled........................................ 202,875 (202,875) $ 1.08
--------- ---------
Balances, March 31, 2000....................................... 1,231,150 4,013,600 $ 2.51
Additional options authorized............................ 3,835,382
Options granted.......................................... (6,466,956) 6,466,956 $ 7.24
Options exercised........................................ (694,592) $ 0.59
Options cancelled........................................ 1,677,928 (1,677,928) $ 7.28
--------- ---------
Balances, March 31, 2001....................................... 277,504 8,108,036 $ 4.90
========= =========
Options exercisable at March 31, 2001.......................... 2,123,690 $ 1.86
=========

The stock options expire at various dates between May 2003 and
September 2010.

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- ---------- ----------

Weighted average fair value of options granted during
the period with exercise prices equal to fair value at
date of grant .......................................... $ 0.02 -- $ 11.96
Weighted average fair value of options granted during
the period with exercise prices less than fair value at
date of grant .......................................... $ 0.29 $ 5.83 $ 6.54
Weighted average fair value of options granted during
the period with exercise prices greater than fair value
at date of grant ....................................... -- -- --

As of March 31, 2001, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ----------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PER SHARE EXERCISABLE PER SHARE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------

$ 0.11......................... 1,246,850 2.56 $ 0.11 660,100 $ 0.11
0.44-1.38.................... 534,013 3.82 0.47 185,562 $ 0.48
1.45-2.19.................... 1,165,874 7.57 1.50 889,016 $ 1.45
2.38......................... 1,653,400 4.77 2.38 -- n/a
2.39-9.50.................... 1,255,874 3.93 5.77 286,021 $ 4.99
9.56-10.94................... 863,525 4.13 10.36 102,991 $10.40
11.00-12.25.................. 958,950 4.48 12.09 -- n/a
12.38-17.00.................. 429,550 4.34 13.65 -- n/a

The Company recorded deferred stock-based compensation amounting to
$10.1 million for the year ended March 31, 2000 and $3.0 million for the year
ended March 31, 2001. Amortization of deferred stock-based compensation amounted
to $171,000 for the period from May 7, 1998 (inception) to March 31, 1999, $1.7
million for the year ended March 31, 2000 and $3.4 million for the year ended
March 31, 2001.

For the year ended March 31, 2000, compensation amounting to $39,660
arising on the issuance of 32,000 stock options to consultants was recorded. The
compensation was determined based on the fair value at the grant date of the
stock options consistent with the method under SFAS 123 "Accounting for
Stock-based Compensation". To determine the fair value of each option, the
following assumptions were used: dividend yield of 0.0%, 100% volatility, a
weighted

average risk free interest rate of 5.5% and a weighted average expected life of
options of 3.5 years.

The amortization of deferred stock-based compensation relates to the
following cost of service revenues and operating expense categories (in
thousands):

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- ---------- ----------

Cost of service revenues...................................... $ -- $ 206 $ 73
Sales and marketing........................................... 29 1,186 2,645
Research and development ..................................... 1 118 373
General and administrative.................................... 141 161 325
---------- --------- ---------
$ 171 $ 1,671 $ 3,416
========== ========= =========

Had compensation expense for the Company's stock option plans been
determined based on the fair value at the grant dates for the awards under the
plan consistent with the method under SFAS 123 "Accounting for Stock-Based
Compensation", the Company's loss and loss per common share would have been
reported as the pro forma amounts indicated in the table below. To determine the
fair value of each option on the grant date the following assumptions were used:

PRE-IPO TO POST-IPO TO YEAR ENDED
FEBRUARY 8, 2000 MARCH 31, 2000 MARCH 31, 2001
---------------- -------------- --------------

Dividend Yield ................................................ 0.0% 0.0% 0.0%
Volatility .................................................... 0.0% 180.0% 146.0%
Weighted average risk free interest rate ...................... 5.5% 5.5% 4.6%
Weighted average expected life of options ..................... 3.5 years 3.5 years 3.5 years

Pro forma information for the period indicated is as follows (in
thousands, except per share amounts):

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- ---------- ----------

Loss-- as reported......................................... $ (1,689) $ (9,277) $ (161,018)
Loss-- pro forma........................................... (1,678) (9,807) (166,928)
Loss per common share-- as reported........................ (2.40) (1.50) (4.84)
Loss per common share-- pro forma.......................... (2.25) (1.54) (5.01)
Weighted average grant date fair value of options granted
during the period....................................... 0.24 5.39 5.41

Warrant

During January 1999, the Company issued a warrant for no consideration
to an executive of the Company to purchase 394,737 common shares at a price of
$0.44 per share. The warrant expires when the executive ceases to be employed by
the Company or January 5, 2002 whichever is earlier.

Escrow Shares

At March 31, 2001, 140,625 common shares of the Company are held in
escrow pursuant to escrow arrangements entered into with certain
employee/shareholders. Under the terms of the arrangements the remaining number
of common shares will be released from escrow on June 30, 2001.

Employee Stock Purchase Plan

The Company has established an employee stock purchase plan under which
employees may authorize payroll deductions of up to 15% of their compensation
(as defined in the plan) to purchase common shares at a price equal to 85% of
the lower of the fair market values as of the beginning or the end of the
offering period. As at March 31, 2001, 1.0 million shares of common stock were
reserved for issuance. In July 2000, 123,334 shares of common stock were
purchased

under the plan at $8.50 per share, and 338,489 shares of common stock were
purchased under the plan in January 2001 at $3.19 per share.

11. INCOME TAXES

The provision for income taxes differs from the amount computed by
applying the combined federal and provincial income tax rate of 43.6% (1999:
44.6%) to the loss before provision for income taxes as a result of the
following (in thousands):

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- ------------- -----------

Loss for the period ................................................... $ 1,689 $ 9,277 $ 159,299
============== ============= ===========
Computed expected tax recovery ........................................ $ 753 $ 4,045 $ 69,454
Increase (reduction) in income tax recovery resulting from:
Permanent differences - impairment of goodwill ..................... -- -- (42,423)
Permanent differences - other....................................... (79) (154) (1,185)
Change in beginning of the year balance of the valuation allowance
allocated to income tax expense .................................... (718) (3,905) (14,397)
Reduction in tax rate for foreign subsidiary ....................... -- (48) (11,475)
Additional loss carry forward due to Ontario
superallowance ..................................................... 44 62 26
-------------- ------------- -----------
$ -- $ -- $ --
============== ============= ===========

The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at March 31, 2000
and March 31, 2001 are presented below (in thousands):

MARCH 31, MARCH 31,
2000 2001
---------------- ----------------

Future tax assets:
Non-capital loss carried forward............................... $ 4,125 $ 19,348
Research and development expenses deferred for income tax
purposes....................................................... 246 368
Share issue costs.............................................. 483 555
Restructuring costs............................................ -- 830
Other.......................................................... -- 298
---------------- ----------------
Total gross future tax assets.................................. 4,854 21,399
Less valuation allowance....................................... 4,623 19,020
---------------- ----------------
Net future tax assets.......................................... 231 2,379
Future tax liabilities:
Depreciation and amortization.................................. (139) (2,379)
Investment tax credits receivable.............................. (92) --
---------------- ----------------
Total gross future tax liabilities............................. (231) (2,379)
---------------- ----------------
Net future tax assets (liabilities)............................ $ -- $ --
================ ================

In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income, uncertainties related to the industry
in which the Company operates, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods that the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowances.

As at March 31, 2001 the Company had $44.1 million of losses and
deductions available to reduce future years' taxable income in Canada and the
United States. Of these losses, $14.1 million are available to reduce future
years' taxable income in Canada, the majority of which expire between 2006 and
2008, and $30.0 million are available to reduce future years' taxable income in
the United States, the majority of which expire between 2020 and 2021.

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49

The Company also has earned investment tax credits ("ITCs") on Canadian
eligible research and development expenditures of $280,000 that expire between
2010 and 2011. These ITCs are available to reduce taxes otherwise payable.

12. SPECIAL CHARGES

(a) Asset Impairment Charge. During the three months ended March
31, 2001, the Company restructured its operations to reduce
operating expenses. During the restructuring, it was
determined that $694,000 of software and other capital assets,
as well as a long-term investment, had no future value to the
Company.

(b) Restructuring Charge. During the three months ended March 31,
2001, the Company incurred a restructuring charge of $6.3
million as part of a plan to improve its operating results by
reducing employees, by closing duplicative Company facilities
in the USA and Canada, and by implementing other measures.
This charge is part of a plan to streamline the Company's
efforts to focus on achieving profitability. The restructuring
charge was comprised of $3.2 million for reductions in
employee numbers, $2.2 million for facilities related costs
including penalties associated with the reduction of lease
commitments and future lease payments and $900,000 related to
eliminating the Company's ASP sales model. As of March 31,
2001, $2.7 million had been paid out on the restructuring
charge.

In connection with the restructuring actions, the Company terminated
the employment of 102 employees, consisting primarily of applications
development employees, sales and marketing employees, technical and other
support employees, and administrative employees in all locations. In addition,
the Company did not replace approximately 34 employees who resigned voluntarily
during the three months ended March 31, 2001. At March 31, 2001, the Company had
terminated all employees associated with these restructuring actions. At March
31, 2001, the Company had exited its facilities in Markham and its offices in
the USA identified in the restructuring plan. The Company has entered into
sublease arrangements for some of its office space.

Restructuring reserves are included in accrued liabilities at March 31,
2001. Detail of the restructuring charges as of and for the year ended March 31,
2001 are summarized below:

FOURTH QUARTER 2001 RESTRUCTURING BALANCE AT
ACTIONS: ORIGINAL CHARGE REVERSALS UTILIZED MARCH 31, 2001
-------- --------------- --------- -------- --------------

Employee related $ 3,237 $ -- $ 2,188 $ 1,049
Facilities related 2,158 -- 543 1,615
ASP sales model related 868 -- -- 868
------------- --------- --------- -------------
$ 6,263 $ -- $ 2,731 $ 3,532
============= ========= ========= =============

BALANCE AT
BALANCE SHEET COMPONENTS ORIGINAL CHARGE REVERSALS UTILIZED MARCH 31, 2001
------------------------ --------------- --------- -------- --------------

Accounts payable $ 46 $ -- $ 46 $ --
Accrued liabilities 6,217 -- 2,685 3,532
------------- --------- --------- -------------
$ 6,263 $ -- $ 2,731 $ 3,532
============= ========= ========= =============

In April 2001, the Company announced further restructuring plans to
reduce its headcount by 31 percent and close additional offices in the USA and
Canada. The Company expects some of the employees in these offices to consider
opportunities to work in its other remaining offices. There was no impact on the
financial statements for the year ended March 31, 2001 relating to these
actions. The Company expects to recognize a restructuring charge in the first
quarter of fiscal year 2002 relating to the April 2001 restructuring of
approximately $5.5 million.

(c) Impairment of goodwill and identifiable intangibles. We
performed an impairment assessment of the goodwill and
identifiable intangibles recorded in connection with the
acquisition of Continuity and DA. The assessment was performed
primarily due to the significant sustained decline in our
stock price since the valuation date of the shares issued in
the Continuity and DA acquisitions resulting in our net book
value of our assets prior to the impairment charge
significantly exceeding our market capitalization, the overall
decline in the industry growth rates, and our lower fourth
quarter of 2001 actual and projected operating results. As a
result of our review, we recorded a $97.0 million impairment
charge to reduce goodwill and identifiable intangibles. The
charge was determined based upon our estimated discounted cash
flows over the remaining estimated useful life of the goodwill
and identifiable intangibles using a discount rate of 24.8%.
The assumptions supporting the cash flows including the
discount rate were determined using our best estimates as of
such date. The remaining goodwill balance of approximately
$5.2 million will be amortized over its remaining useful life.
We will continue to assess the recoverability of the remaining
goodwill and identifiable intangibles periodically in
accordance with our policy.

13. RELATED PARTY TRANSACTIONS

On June 1, 1999, the Company entered into a professional services
agreement with a company related to a director of the Company in connection with
the management of the Company's European subsidiary. Under the terms of the
agreement, the Company is required to pay certain annual fees, a portion of
which is calculated based on net revenues, as defined, of the European
subsidiary, with the option of converting all or part of this portion into
common shares of the Company subject to certain terms. As at March 31, 2000, the
Company has accrued fees aggregating $179,000 in respect of this agreement and
the related company is eligible to exercise an option to acquire 18,250 shares
at $3.55 per share. In addition, the Company has recorded stock-based
compensation amounting to $193,000 in connection with this option during the
year ended March 31, 2000. During the year ended March 31, 2001, this agreement
was terminated and thus no amount was outstanding as at March 31, 2001.

The Company has accrued consulting fees payable to a shareholder of the
Company amounting to nil for the periods ended March 31, 1999, $60,900 for the
year ended March 31, 2000 and nil for the year ended March 31, 2001.

During the year ended March 31, 2001, the Company recorded $1.0 million
of revenue related to the eGlobal joint venture.

14. SEGMENTED INFORMATION

The Company reviewed its operations and determined that it operates in
a single reportable operating segment, being the development and marketing of
interaction-based e-business communications applications. All long-lived assets
relating to the Company's operations are located in Canada. Revenue per
geographic location, which is attributable to geographic location based on the
location of the external customer, is as follows (in thousands):

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- ------------ -----------

Revenue by geographic locations:
United States ............................................. $ -- $ 6,579 $ 20,049
Canada..................................................... -- 2,457 6,034
Europe..................................................... -- 453 3,085
Asia Pacific............................................... -- -- 1,207
-------------- ------------ -----------
$ -- $ 9,489 $ 30,375
============== ============ ===========

For the year ended March 31, 2001, no one customer accounted for
greater than 10% of total revenues. For the year ended March 31, 2000, one
customer accounted for 15% of total revenues. As at March 31, 2001, the Company
had a receivable from two significant customers amounting to 14% and 10% of
total accounts receivable trade, respectively. As at March 31, 2000, the Company
had a receivable from four significant customers amounting to 15%, 12%, 11% and
11% of total accounts receivable trade, respectively.

15. SUPPLEMENTARY CASH DISCLOSURES:

Supplementary cash disclosures are as follows (in thousands):

PERIOD FROM
MAY 7, 1998 YEAR ENDED YEAR ENDED
(INCEPTION) TO MARCH 31, MARCH 31,
MARCH 31, 1999 2000 2001
-------------- --------------- ---------------

Supplemental disclosure of cash flow information:
Cash received for interest................................... $ 14 $ 1,058 $ 4,322
============== =============== ===============
Cash paid for interest....................................... $ 1 $ 37 $ 32
============== =============== ===============
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations incurred for purchase of capital
Assets...................................................... $ 99 $ 443 $ --
============== =============== ===============
Deferred compensation on the grant of options to purchase
common shares with an exercise price below fair value....... $ 557 $ 10,136 $ 3,029
============== =============== ===============

16. COMMITMENTS AND CONTINGENCIES

(a) Lease commitments

The Company is required to make minimum payments under the terms of
operating leases for premises, property and equipment expiring on various dates
to December 31, 2010. Future minimum lease payments by fiscal year are as
follows (in thousands):

2002............................................................ $ 3,317
2003............................................................ 2,367
2004............................................................ 2,103
2005............................................................ 2,150
2006 and thereafter............................................. 6,550
---------
$ 16,487
=========

Rent expense was $62,000, $339,000 and $2,664,000 for the period from
May 7, 1998 (inception) to March 31, 1999, for the year ended March 31, 2000 and
for the year ended March 31, 2001, respectively.

(b) Contingencies

On February 22, 2001, We Media, Inc. ("We Media") filed a lawsuit
against the Company in the Supreme Court of the State of New York, County of New
York. The complaint asserts claims for breach of contract, unjust enrichment,
misrepresentation, and tortuous interference with prospective economic advantage
arising out of the Company's efforts to implement certain of its software for We
Media beginning in the second quarter of 2000. On March 21, 2001, the Company
removed the action to the United States District Court for the Southern District
of New York. On April 2, 2001, the Company filed its Answer and Counterclaim,
denying We Media's allegations and seeking damages for breach of contract in the
amount of more than $137,000. The Court has not yet issued a Scheduling Order
establishing deadlines for the case going forward and since this matter is in
its earliest stages, no opinion was expressed as to its likely outcome. The
Company believes that it has numerous meritorious defenses to the action and
intends to defend it vigorously.

17. SUBSEQUENT EVENT

Subsequent to March 31, 2001, the Company paid $100,000 for the
remaining ownership interest in Minerva.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

DELANO TECHNOLOGY CORPORATION

ALLOWANCE
BALANCE AT RECORDED BY BALANCE AT
BEGINNING OF ACQUIRED CHARGE TO END OF
PERIOD COMPANIES OPERATIONS DEDUCTIONS PERIOD
------------ --------- ---------- ---------- ----------
(IN THOUSANDS)

Allowance for doubtful accounts:

Period ended March 31, 1999....... -- -- -- -- --

Year ended March 31, 2000......... -- -- $ 200 -- $ 200

Year ended March 31, 2001......... $ 200 $ 328 $ 3,000 $ 1,669 $ 1,859

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not Applicable.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the name, age and positions with Delano
for each of our directors and officers as of March 31, 2001.

NAME AGE POSITION
- ------------------- --- --------------------------------------
Dennis Bennie(1)(2).............. 48 Chairman
John Foresi...................... 40 Director, Chief Executive Officer
Bahman Koohestani................ 39 Director, Executive Vice-President,
Products and Chief Technology Officer
David Frankland ................. 44 President
Thomas Hearne.................... 36 Chief Financial Officer
Robert Lalonde................... 37 Senior Vice-President, Products
Barry Yates...................... 35 Senior Vice-President, Worldwide Sales
David Lewis...................... 38 General Counsel and Secretary
Albert Amato(1)(2)............... 42 Director
J. (Ian) Giffen(1)............... 43 Director
Donald Woodley(2)................ 55 Director
Al DeLorenzi..................... 52 Director

- ----------
(1) Member of the audit committee

(2) Member of the compensation committee

Dennis Bennie has been our Chairman since our inception in May 1998.
Currently, Mr. Bennie is the Chief Executive Officer and President of XDL
Capital Corp. and XDL Intervest, a private venture capital firm that he
established in January 1997 to focus on investing in and working with emerging
Internet companies and related technologies. Mr. Bennie is a director of MGI
Software Corp., a company that produces digital imaging software. In 1988, Mr.
Bennie co-founded Delrina Corporation, a designer of fax, data and voice
communications software, where he was the Chairman and Chief Executive Officer
until the November 1995 sale of Delrina to Symantec Corporation. He remained
employed with Symantec as Executive Vice President and was a director until
mid-1996. Mr. Bennie has an accounting degree from the University of
Witwatersrand.

John Foresi has been our Chief Executive Officer and has served as one
of our directors since January 1999. From May 1998 to December 1998, he was the
President, Transportation of i2 Technologies, a global supply chain software
company. In May 1998, i2 Technologies acquired InterTrans Logistics Solutions,
of which Mr. Foresi was President and Chief Executive Officer from August 1994
to April 1998. Mr. Foresi has an MBA from the Harvard Business School and a BBA
from Wilfrid Laurier University.

Bahman Koohestani founded Delano in May 1998, has served as one of our
directors since our inception and was our President and Chief Executive Officer
from our inception until January 1999. Mr. Koohestani has been our Executive
Vice-President, Products and Chief Technology Officer since January 1999. Prior
to founding Delano, Mr. Koohestani was Director of Products, Messaging for
Netscape Communications from October 1996 to May 1998. From February 1991 to
September 1996, Mr. Koohestani served as Chief Architect of Electronic Forms and
Products e-Commerce at Delrina. Mr. Koohestani has a Bachelor of Science
(Honors) degree from York University.

David Frankland has been President of Delano since January 2, 2001.
Prior to Delano, Mr. Frankland served as President and Chief Executive Officer
of Digital Archaeology, a leading provider of advanced customer analytics for
e-business, which culminated in the sale of the company to Delano. Mr. Frankland
also served as Vice President of Marketing, Sales, and Service for APS
Technologies, a manufacturer and direct marketer of computer peripheral devices.
Mr. Frankland also served as Executive Director of Marketing for Informix
Software, Vice President of Worldwide Sales and Marketing for the division of
Sun Microsystems, Director of OEM Sales and Marketing for ITT Information
Systems and Vice President of Marketing and Sales for Digital Ocean, a wireless
networking start-up company. Mr. Frankland holds a BA in Psychology and Theology
from St. Olaf College and an advanced degree in direct marketing from the Henry
Bloch School of Business at the University of Missouri, Kansas City.

Thomas Hearne has served as our Chief Financial Officer since November
1999. From October 1997 to November 1999, Mr. Hearne was Chief Financial Officer
of Open Text Corporation, a provider of intranet, extranet and e-community
platform solutions. From September 1996 to October 1997, Mr. Hearne served as
Vice President, Finance and Administration of Algorithmics Incorporated, a
developer of risk management software. From April 1996 to September 1996, Mr.
Hearne was the Controller of Algorithmics. From September 1992 to April 1996,
Mr. Hearne was European Controller and Manager, Financial Reporting at Alias
Research Inc., a developer of 3D graphics software, which was sold to Silicon
Graphics, Inc. in June 1995. Mr. Hearne is a chartered accountant and has an MBA
from York University and a Bachelor of Economics degree from Trent University.

Robert Lalonde has served as our Senior Vice-President, Products and
prior to that, our Vice-President, Marketing since January 1999. From July 1993
to January 1999, Mr. Lalonde was the Vice-President, Marketing of the Business
Intelligence Division at Hummingbird Communications, a provider of network
connectivity, business intelligence, document and knowledge management software.
Mr. Lalonde has a Bachelor of Science from Laurentian University.

Barry Yates has served as our Senior Vice-President, Worldwide Sales
since March 2000. Between January 2000 and March 2000, Mr. Yates served as our
Vice President, North American Sales. Between September 1998 and January 2000,
Mr. Yates served as our Vice-President, Professional Services. Prior to joining
us, Mr. Yates was Manager at Bain & Company from December 1995 to September
1998. From April 1992 to November 1995, Mr. Yates was Principal at KPMG
Management Consulting Company. Mr. Yates has a Bachelor of Commerce (Honors)
degree from Queen's University.

David Lewis has served as our General Counsel and Secretary since
January 2000. From February 1999 to January 2000, Mr. Lewis was the Vice
President, Legal at Open Text. From November 1994 to February 1999, Mr. Lewis
was the General Counsel at Alias Wavefront (formerly Alias Research) prior to
its acquisition by Silicon Graphics in June 1995. Between June 1994 and November
1994, Mr. Lewis was an independent consultant and prior to June 1994, Mr. Lewis
was General Counsel at SoftKey Software Products Inc., a consumer software
publisher. Mr. Lewis has a Bachelor of Law degree from Osgoode Hall Law School.

Albert Amato has served as one of our directors since May 1998. Since
November 1995, Mr. Amato has been a technology consultant and advisor to
software companies and technology investment funds. Mr. Amato was a founder and
was Chief Technical Officer of Delrina from 1989 to November 1995. After Delrina
was sold to Symantec, he served as a Vice President with Symantec from November
1995 to May 1996. Mr. Amato has a Bachelor of Applied Science and Engineering
(Honors) degree from the University of Toronto.

J. (Ian) Giffen has served as one of our directors since June 1998.
Since September 1996, Mr. Giffen has been a technology consultant and advisor to
software companies and technology investment funds. From February 1996 to
September 1996, Mr. Giffen was Chief Financial Officer of Algorithmics. From
January 1992 until February 1996, Mr. Giffen served as Chief Financial Officer
of Alias Research, which was sold to Silicon Graphics in June 1995. Mr. Giffen
is a director of and advisor to Macromedia Inc., a developer of software for web
publishing, multimedia and graphics and a director of MGI Software. Mr. Giffen
was a consultant to XDL Capital until February 2001. Mr. Giffen has a Bachelor
of Arts in Business Administration from the University of Strathclyde.

Donald Woodley has served as one of our directors since November 1999.
From February 1997 to October 1999, Mr. Woodley was President of Oracle
Corporation Canada Inc. From September 1987 to January 1997, he was President of
Compaq Canada Inc. Mr. Woodley serves on the board of directors of BCT.Telus, a
telecommunications company, and Star Data Systems Inc., a supplier of financial
and transaction processing services. Mr. Woodley has a Bachelor of
Communications from the University of Saskatchewan and an MBA from the
University of Western Ontario.

Al DeLorenzi has served as one of our directors since January 22, 2001.
Mr. DeLorenzi is the Chief Technology Officer for eBusiness Solutions at Nortel
Networks. eBusiness Solutions is the resulting merger of Clarify, Periphonics,
Epicon, Architel, and Nortel Networks into a single unit. Prior to his position
in eBusiness Solutions, Mr. DeLorenzi held a number of executive positions at
Nortel Networks. Mr. DeLorenzi was one of the founding members of the Frame
Relay forum. In 1991, he gained responsibility for Nortel's new line of Frame
Relay and ATM products. Mr. DeLorenzi began his career in 1972 with Bell Canada,
where he held management positions to develop and introduce a number of the
world's first digital networks, including a national digital data network, a
national packet network, and a nation T1 managed network for voice, data, and
video services. Mr. DeLorenzi is a graduate of the University of Toronto and
holds a Bachelor of Applied Sciences degree in Electrical Engineering.

There are no family relationships among any of our directors and
executive officers.

BOARD OF DIRECTORS AND COMMITTEES

Our board of directors is comprised of seven persons. In accordance
with the provisions of the Business Corporations Act (Ontario), our directors
are authorized from time to time to increase the size of the board of directors,
and to fix the number of directors, up to a maximum of ten persons, without the
prior consent of our shareholders. Each director is elected at the annual
meeting of shareholders to serve until the next annual meeting or until a
successor is elected or appointed. The board of directors has established an
audit committee and a compensation committee.

Our audit committee's mandate is to assist the board of directors in
fulfilling its functions relating to corporate accounting and reporting
practices as well as financial and accounting controls, to provide effective
oversight of the financial reporting process, and to review financial statements
as well as proposals for the issue of securities. Messrs. Bennie, Amato and
Giffen are members of the audit committee.

Our compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock option plan and
performs other duties as may from time to time be determined by our board of
directors. Messrs. Bennie, Amato and Woodley are members of the compensation
committee.

ITEM 11: EXECUTIVE COMPENSATION

The following table sets forth the actual compensation paid or awarded
to our named executive officers for the year ended March 31, 2001, to the
individual who served as Delano's Chief Executive Officer and each of the four
other most highly compensated executive officers whose salary and bonus for the
2000 fiscal year exceeded $100,000, for services rendered in all capacities to
Delano and its subsidiaries for the fiscal year ended March 31, 2001 and the
period from May 8, 1999 to March 31, 1999. The listed individuals are referred
to hereafter as the "Named Executive Officers." No other executive officers who
otherwise would have been includable in this table on the basis of salary and
bonus earned during 2000 have been excluded because they terminated employment
or changed their executive status during the year.

LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION -------------
------------------------------------------- SECURITIES
YEAR OTHER UNDERLYING
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) ($) OPTIONS (#)
--------------------------- ----- ---------- --------- --- -----------

John Foresi(1)............................................. 2001 99,540 -- 4,778 150,000
Chief Executive Officer 2000 104,167 277,778 5,000 --
1999 81,250 -- 1,188 1,144,737

David Frankland(2)......................................... 2001 200,000 140,307 5,000 465,000
President

Barry Yates(3)............................................. 2001 99,540 43,549 4,778 75,000
Senior Vice President, Worldwide Sales 2000 104,167 104,167 5,000 --
1999 58,827 -- 2,916 225,000

Robert Lalonde(4).......................................... 2001 99,540 71,308 4,778 90,000
Senior Vice President, Products 2000 104,167 40,886 5,000 --
1999 20,833 -- -- 135,000

Bruce Cameron(5)........................................... 2001 150,000 45,000 6,000 20,000
Vice President, Sales North America 2000 38,743 35,000 1,250 105,000

- ------------
1. Mr. Foresi joined Delano as President and Chief Executive Officer in
January 1999. His annualized salary for 2001 was Cdn$150,000. Mr.
Foresi also received a car allowance of Cdn$7,200 which is included as
other compensation. As of March 31, 2001, Mr. Foresi held 250,000
unvested shares of Delano at $0.11 per share and has a warrant to
purchase an additional 394,737 common shares at $0.44 per share. The
warrant expires when he ceases to be employed by us or on January 5,
2002, whichever occurs earlier.

2. Mr. Frankland became President of Delano on January 2, 2001. Prior to
Delano, Mr. Frankland served as President and Chief Executive Officer
of Digital Archaeology. Delano acquired Digital Archaeology in October
2000. Mr. Frankland had 265,000 fully vested options granted at $1.45
per share pursuant to the stock incentive plans for Digital Archaeology
that have been assumed by us. As of March 31, 2001, Mr. Frankland held
50,000 unvested shares of Delano at $2.38 per share and 150,000
unvested shares of Delano at $12.25 per share.

3. Mr. Yates joined Delano in September 1998. As of March 31, 2001, Mr.
Yates held 75,000 unvested shares of Delano at $0.11 per share and
75,000 unvested shares of Delano at $2.38 per share.

4. Mr. Lalonde joined Delano in January 1999. As of March 31, 2001, Mr.
Lalonde held 45,000 unvested shares of Delano at $0.11 per share,
75,000 unvested shares of Delano at $2.38 per share and 15,000 unvested
shares of Delano at $9.56 per share.

5. Mr. Cameron joined Delano in January 2000. As of March 31, 2001, Mr.
Cameron held 78,750 unvested shares of Delano at $6.67 per share and
20,000 unvested shares of Delano at $2.38 per share. Mr. Cameron left
the Company in April 2001.

STOCK OPTIONS

The following table sets forth (1) the number of common shares
underlying the options granted to each of the named executive officers during
the fiscal year ended March 31, 2001, (2) the percentage that these options
represent in comparison to the total number of options granted to our employees
during the same period, (3) the exercise price of such options and (4) their
expiration date.

OPTION GRANTS IN FISCAL 2001

POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF SHARES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE PER SHARE EXPIRATION -------------------
NAME (#) FISCAL YEAR ($/SECURITY) DATE 5% ($) 10%($)
---- ----------------- ----------------- --------------- ----------- ------ ------

John Foresi 150,000 2.3% 2.38 January 5, 2006 98,633 217,952
David Frankland 150,000 2.3% 12.25 October 13, 2005 507,667 1,121,812
50,000 * 2.38 January 5, 2006 32,878 72,651
Barry Yates 75,000 1.2% 2.38 January 5, 2006 49,316 108,976
Rob Lalonde 75,000 1.2% 2.38 January 5, 2006 49,316 108,976
15,000 * 9.56 August 7, 2005 39,619 87,547
Bruce Cameron 20,000 * 2.38 January 5, 2006 13,151 29,060

* - less than 1%

OPTION EXERCISES IN FISCAL 2001

# OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
NUMBER OF OPTIONS AT FISCAL THE-MONEY OPTIONS
SHARES YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE -----------------------------------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- -------- ----------- ------------- ----------- -------------

John Foresi -- -- 250,000 400,000 $317,500 $317,500
David Frankland -- -- 265,000 200,000 -- --
Barry Yates 40,000 $533,450 110,000 150,000 $139,700 $95,250
Rob Lalonde 90,000 $614,700 -- 135,000 -- $57,150
Bruce Cameron -- -- 26,250 98,750 -- --

COMPENSATION OF DIRECTORS

The By-laws of the Company provide that, subject to Section 136 of the
Business Corporations Act (Ontario) (the "OBCA"), the Company shall indemnify a
director or officer of the Company, a former director or officer of the Company
or a person who acts or acted at the Company's request as a director or officer
of a body corporate of which the Company is or was a shareholder or creditor,
and his or her heirs and legal representatives, against all costs, charges and
expenses reasonably incurred by him or her in respect of certain actions or
proceedings to which he or she is made a party by reason of his or her office,
if he or she meets certain specified standards of conduct, and the Company shall
also indemnify any such person in such other circumstances as the OBCA or the
law permits or requires. The Company maintains directors' and officers'
liability insurance for its directors and officers. With respect to directors
and officers as a group, the Company paid a premium of approx. $420,000 for
directors' and officers' liability insurance, which included coverage required
in

connection with the Company's initial public offering. The total amount of
insurance purchased for directors and officers as a group was $15,000,000. All
matters insured are subject to a $500,000 securities-related retainer, which
applies to costs of defense and which is waived where claims against all
insureds are dismissed or the insureds are found not liable. We do not otherwise
compensate our directors, but they are reimbursed for out-of-pocket expenses
incurred in connection with meetings of the Board of Directors or its
committees. Directors are eligible to participate in the Company's Stock Option
Plan. To date, options to purchase an aggregate of 850,000 Common Shares have
been granted to members of the Board of Directors as detailed below:

NUMBER OF SHARES
UNDERLYING EXERCISE
OPTIONS GRANTED PRICE PER SHARE EXPIRATION
NAME (#) ($/SECURITY) DATE
---- ------------------ ---------------- -----------

John Foresi 500,000 $0.11 Jan. 04, 2004
150,000 $2.38 Jan. 05, 2006
Dennis Bennie 10,000 $2.38 Jan. 05, 2006
Albert Amato 75,000 $0.11 Aug. 26, 2003
10,000 $2.38 Jan. 05, 2006
J. (Ian) Giffen 30,000 $0.11 Aug. 26, 2003
15,000 $3.08 Oct. 18, 2004
10,000 $2.38 Jan. 05, 2006
Donald Woodley 30,000 $4.51 Nov. 26, 2004
10,000 $2.38 Jan. 05, 2006
Al Delorenzi 10,000 $3.50 Jan. 22, 2006

EMPLOYMENT AGREEMENTS

The following is a brief description of the employment agreements
entered into between the Company or its subsidiaries and each of the Named
Executive Officers.

We have entered into an agreement with Mr. Foresi pursuant to which he
was hired as our President and Chief Executive Officer effective January 4,
1999. Pursuant to this agreement, Mr. Foresi receives a salary of C$150,000
(approximately $98,000) per annum, exclusive of bonuses, benefits and other
compensation. Mr. Foresi was also granted options to purchase 750,000 Common
Shares at a price of $0.11 per share, which options expire on January 4, 2004,
and a warrant to purchase an additional 394,737 Common Shares at a price of
$0.44 per share, which warrant expires when Mr. Foresi ceases to be employed by
us or January 5, 2002, whichever is earlier. On January 11, 2000, Mr. Foresi
exercised options to purchase 250,000 Common Shares at a price of $0.11 per
share. Mr. Foresi also receives a yearly car allowance and compensation for all
expenses incurred from time to time in connection with the carrying out of his
duties. If Mr. Foresi is dismissed without cause he will be entitled to receive
either six months' notice or payment of six months' severance. Options that have
not vested and warrants that have not been exercised prior to notice of
termination (other than for cause) or during the six-month notice or severance
period thereafter will be null and void. The agreement further provides that in
the event of a change of control of Delano resulting in the termination of Mr.
Foresi's employment without cause, all of Mr. Foresi's options will vest within
three months of the change of control.

We have also entered into an agreement with Mr. Koohestani pursuant to
which he was hired as our Executive Vice President, Products and Chief
Technology Officer effective January 4, 1999. Pursuant to this agreement, Mr.
Koohestani receives a salary of C$150,000 (approximately $98,000) per annum,
exclusive of bonuses, benefits and other compensation. Mr. Koohestani also
receives a yearly car allowance and compensation for all expenses incurred from
time to time in connection with the carrying out of his duties.

The Company has also entered into separate Employee Confidentiality and
Non-Solicitation Agreements with each of the Named Executive Officers. Under
these agreements, each of them has agreed to keep in confidence all proprietary
information of the Company obtained during his employment with the Company for a
period of three years following the termination of his employment with the
Company.

STOCK OPTION PLAN

We established our Stock Option Plan to provide incentives to our
directors, officers, employees and consultants through participation in our
growth and success. Options to purchase common shares may be granted from time
to time by our board of directors at an exercise price determined by them. The
maximum number of common shares that currently

may be issued under the plan is 9,335,382 common shares. Options granted under
the plan must be exercised no later than five years after the date of the grant,
except where our board of directors specifically states otherwise, in which case
the expiry date can be no later than 10 years after the date of grant. The
option price per common share shall be determined by the board of directors at
the time an option is granted. The board of directors may accelerate the vesting
of any or all outstanding options of any or all optionees upon the occurrence of
a change of control.

As at March 31, 2001, options to purchase a total of 8,108,036 common
shares are outstanding under the plan, as follows:

COMMON EXERCISE
SHARES UNDER PRICE
HOLDERS OF OPTIONS OPTIONS ($) EXPIRY DATE
------------------ ------------ ------------- -------------------------------------

Executive Officers (six in total) 185,000 0.11 September 1, 2003
500,000 0.11 January 4, 2004
45,000 0.11 January 20, 2004
265,000 1.45 September 10, 2006 to March 6, 2010
430,000 2.38 January 5, 2006
157,500 3.08 October 18, 2004
60,000 5.23 December 1, 2004
105,000 6.67 January 13, 2005
15,000 9.56 August 7, 2005
150,000 12.25 October 13, 2005

Directors who are not Executive
Officers (five in total) 105,000 0.11 August 26, 2003
40,000 2.38 January 5, 2006
15,000 3.08 October 18, 2004
10,000 3.50 January 22, 2006
30,000 4.51 November 26, 2004

Employees 894,863 0.11 to 1.38 May 1, 2003 to August 1, 2010
805,224 1.45 March 31, 2004 to July 11, 2010
1,279,050 1.69 to 2.38 December 1, 2005 to March 21, 2006
2,965,399 2.39 to 17.00 August 25, 2004 to February 23,2006

Others (four in total) 51,000 0.11 to 0.44 August 26, 2003 to June 14, 2004

As at March 31, 2001, 949,842 common shares had been issued pursuant to
the exercise of options granted under the plan.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Shares as of May 18, 2001 of (i) each
shareholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Shares, (ii) each director of the Company, (iii) each
Named Executive Officer (as defined under "Executive Compensation and Other
Transactions", below) of the Company and (iv) all directors and officers as a
group. Beneficial ownership also includes any shares as to which a person or
entity has the right to acquire beneficial ownership of within 60 days after
March 31, 2001 Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Shares listed below, based on the information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community of property laws where applicable. The address
of our executive officers and directors is in care of Delano Technology
Corporation, 302 Town Centre Blvd., Markham, Ontario L3R 0E8, Canada.

NUMBER OF SHARES PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------

Bahman Koohestani (1)....................... 3,500,000 9.4%
Dennis Bennie (2)........................... 1,024,107 2.7%
John Foresi (3)............................. 1,684,603 4.5%
Albert Amato (4)............................ 326,927 *
J. (Ian) Giffen (5)......................... 69,687 *
Donald Woodley (6).......................... 13,375 *
Al DeLorenzi 0 *
All executive officers and directors
as a group (11 Persons) (7)................ 6,861,593 18.4%

* Less than 1%

(1) Represents shares held of record by 1329347 Ontario Inc., in its
capacity as general partner of GHI Limited Partnership. Mr. Koohestani
is the sole shareholder of 1329347 Ontario Inc.. A total of 1,350,000
of theses shares are subject to escrow with the Company.
(2) Represents shares held by 3060357 Canada Inc. and XDL Ventures Corp.,
both of which companies are controlled by Mr. Bennie.
(3) Includes 789,474 shares held of record by Tofino Venture Capital Inc,
of which Mr. Foresi is the voting trustee. The shares also include a
warrant to purchase 394,737 shares at a price of $0.44 per share and
options for 250,000 shares that are vested.
(4) Includes 276,927 shares owned and options for 50,000 shares that are
vested.
(5) Includes 45,000 shares owned and options for 24,687 shares that are
vested.
(6) Includes 4,000 shares owned and options for 9,375 shares that are
vested.
(7) Includes 6,349,563 shares owned and options/warrants for 512,030 shares
that are vested.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIP WITH PROTEGE

Dennis Bennie, our Chairman, is a trustee of the Bennie Children's'
Trust, which owns 11.25% of Protege Software Limited, a company with which we
had entered into a services agreement dated as of June 1, 1999. Pursuant to this
agreement, Protege Software Limited provided administrative assistance and
office space to facilitate the opening of our European offices in return for a
management fee of (pound)125,000 (approximately $200,000) per year, as well as
(pound)6,000 (approximately $9,600) per month in respect of its costs and a
bonus of up to 15% of sales generated by our European offices. The Company
terminated the agreement in October 2000.

ESCROW ARRANGEMENTS

Pursuant to subscription agreements dated July 17, 1998, an aggregate
of 4,500,000 common shares purchased by Bahman Koohestani, Sean Maurik, John Mah
and Robert Gayle were deposited with us in escrow.

The escrow arrangements were entered into with Bahman Koohestani, Sean
Maurik, John Mah and Robert Gayle in order to provide restrictions on the free
disposition by these individuals of the shares held by them and limiting the
ability of these shareholders to immediately divest themselves of all equity
participation in Delano, resulting in a reduced personal economic interest in
our future economic success. Upon completion of this offering, the passage of
time is the only restriction on the release of the escrowed shares. In the event
of termination without cause of an individual's employment resulting from a
change of control of Delano, all of the individual's common shares will be
released from escrow.

In accordance with the terms of the subscription agreement between
Delano and Mr. Koohestani, one-twelfth of the 4,050,000 common shares acquired
by him were released from escrow on July 17, 1998 and an additional one-twelfth
of the common shares are to be released on the last day of each successive
calendar quarter. On June 24, 1999, all the securities of Delano owned by Mr.
Koohestani were transferred to 1329347 Ontario Inc. in its capacity as the
general partner of GHI Limited Partnership. As of March 31, 2001, all of the
4,050,000 common shares of Mr. Koohestani which were originally subject to
escrow had been released from escrow

In accordance with the terms of the subscription agreements between
Delano and each of Mr. Maurik, Mr. Mah and Mr. Gayle, 37,500 of their respective
150,000 common shares were released from escrow on June 30, 1999 and an
additional 9,375 of their respective common shares are to be released on the
last day of each successive calendar quarter. As of March 31, 2001, 103,125
common shares had been released to each of Mr. Maurik, Mr. Mah and Mr. Gayle and
46,875 of their respective common shares remained in escrow.

PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. EXHIBITS

The following exhibits are attached hereto:

EXHIBIT
NUMBER TITLE
- ------ -----
3.1* Articles of Incorporation of the Registrant
3.2* By-laws of the Registrant
3.3* Articles of Amalgamation of the Registrant
3.4* Revised By-laws of the Registrant
4.1+ Specimen Common Share certificate
10.1* Registration Rights Agreement, dated as of January 27, 1999,
between the Registrant and certain shareholders of the Registrant
10.2* Agency Agreement, dated as of June 24, 1999, between the
Registrant and the Agents named therein
10.3* Professional Services Agreement, dated June 1, 1999, between the
Registrant and Protege Software Limited
10.4* Form of Subscription Agreement, dated July 17, 1998 between the
Registrant and each of Robert Gayle, Bahman Koohestani, John Mah
and Sean Maurik
10.5* Form of Subscription Agreement, dated July 17, 1998, between the
Registrant and Bahman Koohestani
10.6* Credit Facility, dated July 5, 1998 between the Registrant and
Royal Bank of Canada
10.7* Sub-lease Agreement, dated December 16, 1998 between the
Registrant and MGI Software Corp.
10.8* Lease Agreement, dated November 17, 1999 between the Registrant
and 302 Town Centre Limited.
10.9* Stock Option Plan
10.10* Employment Agreement, dated November 23, 1998, between John
Foresi and the Registrant
10.11* Employment Agreement, dated February 26, 1998, between Bahman
Koohestani and the Registrant
10.12* Employment Agreement and Form of Confidentiality Agreement
between the Registrant and its executive officers
10.13* Employee Stock Purchase Plan
10.14* Amalgamation Agreement, dated November 30, 1999, between the
Registrant and XDL Delano Holdings Inc.
10.15* Amendment No. 1 to the Amalgamation Agreement, dated February 7,
2000, between the Registrant and XDL Delano Holdings Inc.
10.16* Subscription Agreement, dated February 7, 2000, between the
Registrant and Nortel Networks Corporation
10.17* Amendment to Lease Agreement between Registrant and 302 Town
Centre Limited
21.1* Subsidiaries of Registrant
24.1* Powers of Attorney
- ----------
* Incorporated by reference to the exhibits contained in the Company's
Registration Statement on Form F-1 (File No. 333-94505).

+ Incorporated by reference from the Company's Registration Statement on
Form 8-A dated January 27, 2000.

The Company hereby files as part of the Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein
by reference can be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington, D.C.
and at the Commission's regional offices at 219 South Dearborn Street, Room
1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York and
5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.

B. FINANCIAL STATEMENT SCHEDULES

All schedules are omitted because they are not applicable or the
required information is shown in our consolidated financial statements and
related notes.

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, thereto duly authorized.

DELANO TECHNOLOGY CORPORATION

By: /s/ JOHN FORESI
----------------------------
John Foresi
Chief Executive Officer

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

SIGNATURE TITLE
/s/ JOHN FORESI Chief Executive Officer,
- ------------------------------------------- Director
John Foresi (Principal Executive Officer)

/s/ THOMAS HEARNE Chief Financial Officer
- ------------------------------------------- (Principal Financial Officer
Thomas Hearne And Principal Accounting Officer)

/s/DENNIS BENNIE Chairman of the Board of Directors
- -------------------------------------------
Dennis Bennie

/s/ ALBERT AMATO Director
- -------------------------------------------
Albert Amato

/s/ IAN GIFFEN Director
- -------------------------------------------
Ian Giffen

/s/ BAHMAN KOOHESTANI Director
- -------------------------------------------
Bahman Koohestani

/s/ DONALD WOODLEY Director
- -------------------------------------------
Donald Woodley

/s/ AL DELORENZI Director
- -------------------------------------------
Al DeLorenzi