DELANO TECHNOLOGY CORP, 424B4, 2000-02-10

DELANO TECHNOLOGY CORP
424B4, 2000-02-10
BUSINESS SERVICES, NEC

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<PAGE> 1
Filed Pursuant to Rule No. 424(b)(4)
Registration No. 333-94505

[Logo]
5,000,000 SHARES
COMMON SHARES

Delano Technology Corporation is offering 5,000,000 of its common shares.
This is our initial public offering and no public market currently exists for
our shares. The shares have been approved for quotation on the Nasdaq National
Market under the symbol "DTEC."

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

INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $18.00 $90,000,000
Underwriting Commissions.................................... $ 1.26 $ 6,300,000
Proceeds to Delano.......................................... $16.74 $83,700,000
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

We have granted the underwriters a 30-day option to purchase up to
750,000 additional common shares to cover over-allotments.

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

ROBERTSON STEPHENS INTERNATIONAL
U.S. BANCORP PIPER JAFFRAY

THE DATE OF THIS PROSPECTUS IS FEBRUARY 9, 2000
<PAGE> 2

[DESCRIPTION OF INSIDE FRONT COVER ARTWORK]

[The Delano logo appears in the upper left corner.
To its right appear pictures of
(1) a globe floating above two hands,
(2) a computer screen and
(3) a man and a woman shaking hands.

Underneath the logo and pictures appear the following:]

DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software

DELANO E-BUSINESS INTERACTION SUITE

SALES
- order confirmation
- order fulfillment
- e-coupons...

MARKETING
- lead tracking/management
- customer registration
- customer surveys
- marketing campaigns
- winback programs...

SERVICE
- customer support
- personalized newsletters
- event notification
- personal page...

OPERATIONS
- destination reports
- equipment dispatch reports
- advanced shipping notices...

HR
- T&E reporting
- resume tracking
- suggestion box...

FINANCE
- aged A/R notification
- credit management
- invoice notification
- investor relations...

DELANO'S products and services enable e-businesses to use e-mail and the
web to interact with their customers, partners, suppliers and
employees. Our e-business communications software can be used by most
operational areas within an organization, including finance, marketing,
sales, service, operations and human resources.

<PAGE> 3

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES. IN THIS PROSPECTUS, "DELANO," "WE," "US" AND "OUR"
REFER TO DELANO TECHNOLOGY CORPORATION, AN ONTARIO CORPORATION, AND ITS WHOLLY
OWNED SUBSIDIARIES, UNLESS THE CONTEXT REQUIRES OTHERWISE.

EXCEPT PURSUANT TO A CANADIAN PROSPECTUS OR PROSPECTUS EXEMPTION UNDER
APPLICABLE SECURITIES LEGISLATION, THE COMMON SHARES MAY NOT BE OFFERED OR SOLD
IN CANADA, AND THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND WE ARE NOT BY THIS
PROSPECTUS SOLICITING OFFERS TO BUY THESE SECURITIES, IN CANADA.

UNTIL MARCH 5, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON SHARES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements; Market
Data...................................................... 18
Exchange Rate Information................................... 19
Enforceability of Civil Liabilities......................... 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 34
Management.................................................. 43
Transactions with Related Parties........................... 49
Principal Shareholders...................................... 50
Description of Share Capital................................ 52
Shares Eligible for Future Sale............................. 54
Tax Considerations.......................................... 55
Underwriting................................................ 59
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>

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

Delano, Delano Campaign Server, Delano Component Development Kit, Delano
Component Pack for Back Office, Delano e-Business Interaction Application
Builder, Delano e-Business Interaction Server, Delano e-Business Interaction
Server Administrator, Delano e-Business Interaction Suite and the Delano logo
are trademarks of Delano. This prospectus also makes reference to trademarks of
other companies.

(i)
<PAGE> 4

SUMMARY

You should read the following summary together with the more detailed
information about Delano and the common shares being sold in this offering,
including our consolidated financial statements and the related notes appearing
elsewhere in this prospectus.

DELANO TECHNOLOGY CORPORATION

We provide communications software that enables companies to rapidly
develop and deploy applications that automate business processes and personalize
and manage interactions over the internet with their existing and prospective
customers, partners, suppliers and employees. These interactions, or e-business
communications, consist of inbound and outbound communications through e-mail as
well as communications through companies' web sites. Companies can use
applications developed with our software to initiate, route, track, analyze,
respond to and manage inbound and outbound e-business communications. These
applications can include marketing campaigns, tracking and management of
business leads, electronic surveys, personalized newsletters, inbound e-mail
support, automated customer support, and procurement and inventory management.
We are focusing our sales efforts on businesses in the financial services,
technology, telecommunications, transportation, retail and marketing services
industries, as well as other organizations engaged in, or focused on,
business-to-business or business-to-consumer commercial opportunities using the
internet. Where desirable, our professional services group can assist our
clients' internal information technology, or IT, personnel to implement our
products. To date, we have derived substantially all of our revenues from the
sale of software product licenses.

As the internet becomes an accepted channel for business-to-business and
business-to-consumer interactions, businesses increasingly need an effective and
reliable solution that enables them to manage the growing volume of inbound and
outbound traffic associated with the increased use of the internet. For example,
Jupiter Communications conducted a survey among 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. International Data Corporation estimates
that the worldwide customer relationship management application market will grow
from $1.9 billion in 1998 to $11.0 billion by 2003, and the Direct Marketing
Association estimates that interactive direct-marketing expenditures for the
business market will increase from $379.7 million in 1998 to $3.2 billion by
2003.

We believe our products provide the following principal benefits to our
clients:

- Enhanced Communications. Our products help a client develop and deploy
e-business communications applications across many operational areas,
enabling the client to respond rapidly and effectively to large volumes
of e-mail and other communications over the internet.

- Rapid Deployment. Our products are designed to enable our clients to
develop a wide range of e-business communications applications in a
matter of days or weeks.

- Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business
interactions.

- Increased Revenue Opportunities and Reduced Operating Costs. Clients
can generate revenues through our applications for marketing campaigns
and for lead tracking and management. Our products enable clients to
process large volumes of e-business communications automatically, using
a reduced number of support and administrative personnel.

Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:

- extend our technology leadership by developing new and enhanced
products, including products designed to manage higher volumes of
communications, improve integration with our clients' existing IT
infrastructures and further reduce the time required to develop and
deploy e-business communications applications;

1
<PAGE> 5

- increase our penetration of our target markets by, for example,
introducing new products for particular application areas relevant to
our target industries;

- increase our presence worldwide beyond our historical focus on North
America to take advantage of the growing worldwide demand for
e-business communications applications; and

- increase our distribution capabilities to enhance our market presence
and leverage our sales and service resources by continuing to develop
relationships with established third-party distribution companies,
consulting organizations and software vendors.

Potential investors should consider the following additional
considerations before deciding to invest in our common shares. We first recorded
revenues in the quarter ended June 30, 1999 and have a limited operating
history, making it difficult to evaluate our business and prospects. Since our
inception, we have incurred substantial operating losses in every quarter,
resulting in an accumulated deficit of $6.2 million at December 31, 1999. We
expect to continue to incur losses for the foreseeable future. To date, a
significant portion of our total revenues has been derived from licenses of our
Delano e-Business Interaction Suite and related services to a small number of
clients. We expect that we will continue to be dependent upon a limited number
of clients for a significant portion of our revenues in future periods. Broad
and timely market acceptance of our products is critical to our future success.
Because our market is rapidly changing and highly competitive, we may not be
able to compete successfully against current or potential competitors. For a
discussion of these and other risks relating to an investment in our common
shares, see "Risk Factors."

Delano was incorporated under the laws of the Province of Ontario on May
7, 1998. Our principal executive offices are located at 40 West Wilmot Street,
Richmond Hill, Ontario, Canada L4B 1H8. Our telephone number at that location is
(905) 764-5499. Our web site address is www.delanotech.com. The information
contained on our web site is not part of this prospectus.

CONCURRENT CANADIAN PRIVATE PLACEMENT

On February 7, 2000, we entered into an agreement with Nortel Networks for
the purchase by Nortel Networks of 500,000 common shares in a private placement
in Canada. The common shares will be purchased at the initial public offering
price. The closing of the private placement will occur at the same time as the
closing of this offering. Nortel Networks has agreed not to dispose of or hedge
any of its common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. We will not pay any
placement fees or commissions for the common shares sold in the private
placement. The private placement is conditional upon the closing of this
offering.

2
<PAGE> 6

THE OFFERING

Common shares offered by Delano......... 5,000,000 shares

Common shares to be outstanding after
the offering............................ 29,174,598 shares

Use of proceeds......................... To fund sales and marketing
activities, research and
development, and working capital
and other general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq National Market
symbol.................................. DTEC

The number of common shares to be outstanding after the offering is based
on common shares outstanding as of January 31, 2000. This number includes
18,174,598 common shares to be issued upon completion of this offering as the
result of the conversion of our outstanding redeemable convertible special
shares and exercises of our outstanding special warrants, as well as 500,000
common shares to be issued to Nortel Networks in a private placement in Canada.
This number excludes (1) 3,749,850 common shares issuable upon exercise of
options outstanding at January 31, 2000 under our stock option plan, which have
a weighted average exercise price of $1.94 per share, and (2) 394,737 common
shares issuable upon the exercise of a warrant outstanding at January 31, 2000,
which has an exercise price of $0.44 per share.

The underwriters have reserved up to 400,000 common shares for sale to
Canada Life Assurance at the initial public offering price. Canada Life
Assurance has not committed to purchasing these common shares.

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

Unless otherwise indicated, the information in this prospectus assumes:

- the underwriters have not exercised the option granted by us to
purchase additional shares in this offering;

- the conversion of all outstanding redeemable convertible special shares
into an aggregate of 11,684,212 common shares, which will occur
automatically upon the completion of this offering;

- the exercise of all outstanding special warrants to purchase an
aggregate of 6,490,386 common shares in connection with the completion
of this offering;

- the issuance of 500,000 common shares to Nortel Networks in a private
placement in Canada at the initial public offering price, which will
close concurrently with this offering; and

- the completion of a 3-for-2 split of our common shares, which was made
effective by articles of amendment filed on February 7, 2000.

See "Underwriting" and "Description of Share Capital."

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

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 prospectus in United States dollars,
except where otherwise indicated. References to "$" are to United States dollars
and references to "Cdn$" are to Canadian dollars. This prospectus 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$0.6925, 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 December 31, 1999. See "Exchange Rate
Information."

3
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables summarize the financial data of our business. The pro
forma share information included in the consolidated statements of operations
data has been computed as described in note 2 of the notes to consolidated
financial statements included elsewhere in this prospectus. The pro forma column
in the consolidated balance sheet data reflects the conversion of our
outstanding redeemable convertible special shares into common shares and the
exercise of our outstanding special warrants to acquire common shares, all in
connection with the completion of this offering. The pro forma as adjusted
column in the consolidated balance sheet data also reflects our sale of the
5,000,000 common shares offered by us at the initial public offering price of
$18.00 per share after deducting underwriting commissions and estimated offering
expenses, the private placement in Canada of 500,000 shares to Nortel Networks
at a price of $18.00 per share and the application of the estimated net proceeds
as described under "Use of Proceeds."

<TABLE>
<CAPTION>
PERIOD FROM MAY 7, PERIOD FROM MAY 7, NINE MONTHS
1998 (INCEPTION) TO 1998 (INCEPTION) TO ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- ------------------- -----------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
Total revenues....................... -- -- 5,357
Gross profit.............................. -- -- 4,636
Loss from operations...................... $(1,702) $ (677) (4,600)
Loss for the period applicable to common
shares.................................. (1,790) (677) (4,458)
Basic and diluted loss per common share... $ (2.40) $ (1.35) $ (1.85)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 746 503 2,415
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.30) $ (0.24)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 6,010 18,584
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $11,940 $11,940 $103,840
Working capital.......................................... 12,187 12,187 104,087
Total assets............................................. 16,590 16,590 108,490
Long-term obligations, net of current portion............ 267 267 267
Redeemable convertible special shares.................... 3,851 -- --
Special warrants......................................... 14,703 -- --
Shareholders' equity (deficiency)........................ (5,458) 13,096 104,996
</TABLE>

4
<PAGE> 8

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 prospectus 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 subheadings
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 subheadings 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; and

- any costs or expenses related to our anticipated move to new corporate
offices.

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 clients' purchasing and budgetary
cycles;

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

- global economic conditions, as well as those specific to large
enterprises with high e-mail volume.
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<PAGE> 9

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 can not
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 December 31, 1999, we had an accumulated deficit of $6.2 million. For the
nine months ended December 31, 1999, we had a net loss of $4.2 million, or 79.3%
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 sales of our
products and services continue 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
will increase even more significantly 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.

OUR SALES CYCLE IS LONG AND SALES DELAYS COULD CAUSE OUR OPERATING RESULTS TO
VARY WIDELY.

The long sales cycle for our products may cause license revenues and
operating results to vary significantly from period to period. To date, the
sales cycle for our products has been three to six months in the United States
and Canada and may be longer in foreign countries. Our sales cycle is subject to
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, over which we have little or no control. We invest
significant amounts of time and resources educating and providing information to
our prospective clients regarding the use and benefits of our products. Many of
our clients evaluate our software relatively slowly and deliberately, depending
on the specific technical capabilities of the client, the size of the
deployment, the complexity of the client's existing IT infrastructure, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy our products. Consequently, if sales expected from a specific customer in
a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of a typical order,
a lost or delayed sale could result in revenues that are lower than expected.

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 our total revenues has been derived
from sales to a small number of clients. In the nine months ended December 31,
1999, one customer accounted for 26% 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 material adverse effect on our business, operating results and financial
condition.

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<PAGE> 10

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 $5.4 million for the nine months ended December
31, 1999, $5.1 million were derived from licenses of our products and $296,000
were 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 E-BUSINESS INTERACTION SUITE FOR A
SUBSTANTIAL MAJORITY OF OUR REVENUES FOR THE FORESEEABLE FUTURE.

In the nine months ended December 31, 1999, we derived substantially all
of our revenues from licenses of our Delano e-Business Interaction Suite.
Although we expect to add new product offerings, we expect to continue to derive
a substantial majority of our revenues from sales of the Delano e-Business
Interaction Suite for the foreseeable future. Implementation of our strategy
depends on the Delano e-Business Interaction Suite 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 the Delano e-Business Interaction Suite, 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
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<PAGE> 11

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 entails 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, 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 a
few operational or functional areas, such as eGain Communications and Kana
Communications. We also compete with companies that provide customer management
and communications solutions, such as Siebel Systems, Silknet Software and
Vantive. Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM and Microsoft, may leverage their existing relationships
and capabilities to offer e-business communications software that competes with
our products. We believe competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. We may also face competition from web application servers, messaging
server platform solutions, e-mail application vendors and e-mail service
bureaus.

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
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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 E-BUSINESS INTERACTION SUITE 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 e-Business Interaction Suite. 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 EXPANSION PLANS.

We intend to increase the number of our sales and marketing, engineering,
professional services and product management personnel significantly over the
next 12 months. Competition for these individuals is intense in our industry,
particularly in the Toronto area where we are headquartered, and there is 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 recruiting, training and retaining 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 hire and 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, our President and Chief Executive
Officer, and Bahman Koohestani, our Executive Vice-President, Products and Chief
Technology Officer and a founder of Delano. Although we have purchased
Cdn$500,000 (approximately $346,000) life insurance benefitting Delano on these
two individuals, the loss of the services of either of these individuals could
significantly harm our business and operations.

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 year. 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.

WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES, AND
ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY CAUSE OUR BUSINESS TO SUFFER.

Our ability to offer our products and services successfully in a rapidly
evolving market requires an effective planning and management process. We have
limited experience in managing rapid growth. We are experiencing a period of
growth that is placing a significant strain on our managerial, financial and
personnel resources. On January 31, 2000, we had a total of 210 full-time
employees compared to 33 on January 31, 1999. We expect to continue to hire new
employees at a rapid pace. Our business will suffer if this growth
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continues and we fail to manage this growth. Any additional growth will further
strain our management, financial, personnel and other resources. To manage any
future growth effectively, we must improve our financial and accounting systems,
controls, reporting systems and procedures, integrate new personnel and manage
expanded operations. Any failure to do so could negatively affect the quality of
our products, our ability to respond to our clients and retain key personnel,
and our business in general.

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 recently entered into non-exclusive
distribution agreements with various parties, including Clarify,
Hewlett-Packard, Janna Systems, Macromedia 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. For the nine months ended December 31,
1999, we derived 26% of our total revenues from a single sale through one of
these agreements. We may not be able to derive significant revenues in the
future from these agreements.

WE MAY SEEK TO GROW BY MAKING ACQUISITIONS, BUT WE HAVE NEVER ACQUIRED ANOTHER
BUSINESS AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE ANY ACQUISITIONS WE
UNDERTAKE OR INTEGRATE ANY ACQUIRED BUSINESS WITH OUR OWN.

We intend to consider investments in complementary companies, products or
technologies. If we undertake 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.

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.

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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;

- 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.

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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 number of competitors grows and the
functionality of products in different industry segments overlaps. 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 clients' 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 clients' 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, to date, have been limited. We plan to expand our existing
international operations and establish additional facilities in other parts of
the world, including continental Europe and Asia. However, we have not yet
determined which cities or countries will be the locations for our international
expansion. The expansion of our existing international operations and entry into
additional international markets are key parts of our growth strategy and will
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.

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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.

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. For a discussion of these and other tax
considerations relating to an investment in our common shares, see "Tax
Considerations."

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.

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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 costs of doing business, or otherwise harm our
business.

YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS.

Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates.

We continue to monitor our software, the software we license for our
internal use, the systems that operate in conjunction with our software and our
internal and external systems for Year 2000 failures. We still may discover Year
2000 compliance problems in our systems that will require substantial revision.
In addition, third-party software, hardware or services incorporated into our
products and services may need to be revised or replaced, all of which could be
time-consuming and expensive and result in the following, any of which could
have a material adverse effect on our business including:

- delay or loss of revenue;

- cancellation of client contracts;

- diversion of development resources;

- damage to our reputation;

- increased service and warranty costs; and

- litigation costs.

RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT HAS BROAD DISCRETION AS TO USE OF PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.

We do not have specific uses for a significant portion of our proceeds
from this offering. As a result, our management will have broad discretion in
how we use the net proceeds from this offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding how to use the net proceeds from this offering, and
we may spend these proceeds in ways that do not increase our operating results
or market value.

INVESTORS WILL INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION.

If you purchase common shares in this offering, you will incur immediate
dilution of $14.37 in the pro forma net tangible book value per share of the
common shares from the price you pay for the common shares. We also have a large
number of outstanding stock options and a warrant to purchase common shares with
exercise prices significantly below the initial public offering price for the
common shares. To the extent these securities are exercised, there will be
further dilution. See "Dilution."

WE EXPECT APPROXIMATELY 24 MILLION COMMON SHARES TO BECOME AVAILABLE FOR SALE
180 DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS
OUR SHARE PRICE.

After this offering, we will have outstanding 29,174,598 common shares.
Sales of a substantial number of our common shares in the public market
following this offering could cause the market price of our common shares to
drop. All the shares sold in this offering will be freely tradeable. Of the
remaining 24,174,598 common shares outstanding after this offering, a total of
23,937,755 common shares will be

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available for sale in the public market 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."

OUR SHARE PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL AT OR ABOVE
THE OFFERING PRICE.

There has previously not been a public market for our common shares. We
cannot predict the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for our common shares was determined by
negotiations between us and the representatives of the underwriters. Among the
factors considered in these negotiations were prevailing market conditions, our
financial information, market valuations of other companies that we and the
representatives believed to be comparable to us, estimates of our business
potential and the present state of our development. The initial public offering
price for our common shares may not be indicative of the prices that will
prevail in the trading market. In addition, the stock market in general, and the
Nasdaq National Market and software and internet-based companies like ours in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies are at or near
historical highs and these trading prices and these trading prices may not be
sustained. These broad market and industry factors may materially adversely
affect the market price of our common shares, regardless of our actual
performance. You may not be able to resell your shares at or above the initial
public offering price.

AFTER THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL
BENEFICIALLY OWN MORE THAN 34% OF OUR COMMON SHARES, AND MAY BE ABLE TO CONTROL
MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL.

Following this offering and completion of the amalgamation described under
"Principal Shareholders," our executive officers, directors and other principal
shareholders, in the aggregate, will beneficially own approximately 34.72% of
our outstanding common shares. As a result, these shareholders, if acting
together, may be able to control matters requiring shareholder approval,
including the election of directors, thereby permitting these shareholders to
obtain control of our management and affairs. The voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of Delano, the effect of which may be to deprive
our shareholders of a control premium that might otherwise be realized in
connection with our acquisition.

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.

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. See
"Description of Share Capital."

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

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA

This prospectus contains so-called forward-looking statements under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These include
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 prospectus.

This prospectus contains market data related to the internet and us. These
data have been included in studies published by the market research firms of
Direct Marketing Association, International Data Corporation, and Jupiter
Communications.

Direct Marketing Association's estimate that interactive direct-market
expenditures for the business market will increase from $379.7 million in 1998
to $3.2 billion by 2003 is based on several assumptions, including that:

- employment growth rates will continue to increase; and

- direct marketing sales will continue to grow.

International Data Corporation's estimate that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, is based on several assumptions, including that:

- the market encompasses applications designed for marketing automation,
sales force automation, customer service, and field service, as well as
internet customer relationship management;

- businesses will continue to try and establish closer ties to their
customers; and

- the demand from electronic commerce sites will outstrip that of
traditional customer calls to call centers.

International Data Corporation's estimates, that electronic commerce will
increase from $50.4 billion in 1998 to $1.3 trillion by 2003 and that the number
of web users will increase from 142.2 million in 1998 to 502.4 million in 2003,
are based on several assumptions, including that:

- the number of devices used to access the world wide web will continue
to increase;

- virtually all devices using the internet for e-mail will also use the
web for other purposes; and

- the number of web buyers and the average transaction value per buyer
will increase.

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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.

<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 PERIOD FROM MAY 7, 1998 NINE MONTHS
(INCEPTION TO) (INCEPTION TO) ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------- ----------------------- -----------------
<S> <C> <C> <C>
High............................... $0.6982 $0.6982 $0.6925
Low................................ 0.6341 0.6341 0.6607
End................................ 0.6626 0.6504 0.6925
Average............................ 0.6598 0.6587 0.6784
</TABLE>

On February 4, 2000, the inverse of the noon buying rate was Cdn$1.00 per
$0.6912.

ENFORCEABILITY OF CIVIL LIABILITIES

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
prospectus, are residents of Canada, and a substantial portion of their assets
and a majority of our assets are located outside the United States. As a result,
it may be difficult for investors to effect service of process within the United
States upon the directors, controlling persons, officers and representatives of
experts who are not residents of the United States or to enforce against them
judgments of courts of the United States based upon civil liability under the
federal securities laws of the United States. There is doubt as to the
enforceability in Canada against us or against any of our directors, controlling
persons, officers or experts who are not residents of the United States, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities based solely upon the federal securities laws of the
United States.

19
<PAGE> 23

USE OF PROCEEDS

We expect to receive approximately $91,900,000 in net proceeds from the
sale of 5,000,000 common shares in this offering and the private placement in
Canada of 500,000 common shares to Nortel Networks, at the initial public
offering price of $18.00 per common share. We estimate the net proceeds will be
approximately $104,455,000 if the underwriters' over-allotment option is
exercised in full. The principal purposes of this offering are to obtain
additional capital, create a public market for our common shares and facilitate
our future access to the public capital markets.

We intend to use our net proceeds for working capital and other general
corporate purposes, including sales and marketing expenses and research and
development expenditures. We have not yet determined with any certainty the
manner in which we will allocate the net proceeds, but we currently intend to
use approximately $8 million of the net proceeds to expand our sales and
marketing capabilities and approximately $3 million for research and development
expenditures. The amounts and timing of these expenditures will vary depending
on a number of factors, including future revenue growth, if any, the amount of
cash we generate from operations, the progress of our product development
efforts and developments in Internet commerce. We may also use a portion of the
net proceeds of this offering to fund acquisitions of, or investments in,
businesses, products or technologies that expand, complement or are otherwise
related to our current business and products. However, we have no present plans,
agreements or commitments, and are not currently engaged in any negotiations,
with respect to any such acquisition or investment. Pending the uses described
above, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.

DIVIDEND POLICY

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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." We intend to retain all of our
available funds for use in the operation of our business. Any future
determination by us to pay dividends will be at the discretion of our board of
directors and in accordance with the terms and conditions of any outstanding
indebtedness and will depend upon our financial condition, results of
operations, capital requirements and such other factors as our board of
directors considers relevant.

20
<PAGE> 24

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on an actual basis, giving effect to a 3-for-2 split of our common
shares, which was made effective by articles of amendment filed on
February 7, 2000;

- on a pro forma basis to reflect the exercise of all of our outstanding
special warrants to purchase 6,490,386 common shares and the conversion
of all of our outstanding redeemable convertible special shares into
11,684,212 common shares in connection with the completion of this
offering as described in "Description of Share Capital;" and

- on a pro forma as adjusted basis to give effect to the sale of the
5,000,000 common shares offered by this prospectus at the initial
public offering price of $18.00 per share and after deducting
underwriting commissions and estimated offering expenses and to the
private placement in Canada of 500,000 common shares to Nortel Networks
at a price of $18.00 per share.

This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Obligations under capital leases, net of current portion.... $ 267 $ 267 $ 267
------- ------- --------
Redeemable convertible special shares; unlimited shares
authorized, 7,789,476 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro
forma and pro forma as adjusted........................... 3,851 -- --
------- ------- --------
Special warrants; 4,326,924 special warrants issued and
outstanding, actual; no special warrants issued and
outstanding, pro forma and pro forma as adjusted.......... 14,703 -- --
------- ------- --------
Shareholders' equity (deficiency):
Common shares; unlimited shares authorized; 5,250,000
shares issued and outstanding, actual; 23,424,598
shares issued and outstanding, pro forma; 28,924,598
shares issued and outstanding, pro forma as adjusted... 6,318 24,872 116,772
Preference shares (undesignated); no shares authorized,
issued or outstanding actual; unlimited shares
authorized, no shares issued or outstanding, pro forma
and pro forma as adjusted.............................. -- -- --
Warrant................................................... 126 126 126
Deferred stock-based compensation......................... (5,502) (5,502) (5,502)
Accumulated other comprehensive losses.................... (152) (152) (152)
Accumulated deficit....................................... (6,248) (6,248) (6,248)
------- ------- --------
Total shareholders' equity (deficiency)................ (5,458) 13,096 104,996
------- ------- --------
Total capitalization................................. $13,363 $13,363 $105,263
======= ======= ========
</TABLE>

The table above excludes options outstanding at December 31, 1999 to
purchase up to 3,594,675 common shares under our stock option plan.

21
<PAGE> 25

DILUTION

If you invest in our common shares, your interest will be diluted by the
amount of the difference between the public offering price per common share and
the pro forma adjusted net tangible book value per common share after this
offering.

Our pro forma net tangible book value as of December 31, 1999 was $13.1
million, or $0.56 per common share. Pro forma net tangible book value per share
is equal to our total tangible assets less total liabilities, divided by the
number of outstanding common shares after giving effect to the conversion of all
our outstanding redeemable convertible special shares and the exercise of all
our outstanding special warrants.

After giving effect to our sale of 5,000,000 common shares in this
offering at the initial public offering price of $18.00 per common share and
after deducting the underwriting commissions and estimated offering expenses and
to the private placement in Canada of 500,000 common shares to Nortel Networks,
which will occur concurrently with the completion of this offering, our adjusted
pro forma net tangible book value as of December 31, 1999 would have been $105.0
million, or $3.63 per common share. This amount represents an immediate increase
in pro forma net tangible book value of $3.07 per common share to existing
shareholders and an immediate dilution of $14.37 per common share to new
investors. The following table illustrates this dilution to new investors:

<TABLE>
<S> <C> <C>
Initial public offering price per common share.............. $18.00
Pro forma net tangible book value per common share as of
December 31, 1999...................................... $0.56
Increase per common share attributable to this offering
and the private placement in Canada.................... 3.07
-----
Adjusted pro forma net tangible book value per common share
after this offering and the private placement in Canada... 3.63
------
Dilution per common share to new investors in this offering
and the private placement in Canada....................... $14.37
======
</TABLE>

If the underwriters exercise their option to purchase additional common
shares in this offering, our adjusted pro forma net tangible book value at
December 31, 1999 would be $117.6 million, or $3.96 per common share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $3.40 per share and an immediate dilution to new
investors of $14.04 per common share.

The table below shows on a pro forma basis as of December 31, 1999, after
giving effect to the conversion of all our outstanding redeemable convertible
special shares and the exercise of our outstanding special warrants, the
difference between our existing shareholders and our new investors (including
Nortel Networks which will acquire common shares in our private placement in
Canada) with respect to the number of common shares purchased, the total
consideration paid and the average price per share paid, before deducting
underwriting commissions and estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ 23,424,598 81.0% $ 24,872,000 20.1% $ 1.06
New investors........................ 5,500,000 19.0 99,000,000 79.9 18.00
----------- ------ ------------ ------
Total.............................. 28,924,598 100.0% $123,872,000 100.0%
=========== ====== ============ ======
</TABLE>

If the underwriters' over-allotment option is exercised in full, the
number of common shares held by new investors will increase to 6,250,000, or
21.1%, of the total common shares outstanding after this offering.

22
<PAGE> 26

As of December 31, 1999, we had outstanding options to purchase 3,594,675
common shares at a weighted average exercise price of $0.88 per share and an
outstanding warrant to purchase 394,737 common shares at an exercise price of
$0.44 per share. In addition, there were 905,325 options available for future
grant under our stock option plan. If the option holders or warrant holder
exercise these outstanding securities, there will be further dilution to new
investors.

23
<PAGE> 27

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 prospectus. 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 prospectus.

<TABLE>
<CAPTION>
PERIOD FROM MAY 7, PERIOD FROM MAY 7,
1998 (INCEPTION) TO 1998 (INCEPTION) TO NINE MONTHS ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- ------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
------- ------- -------
Total revenues....................... -- -- 5,357
------- ------- -------
Cost of revenues:
Products................................ -- -- 20
Services................................ -- -- 701
------- ------- -------
Total cost of revenues............... -- -- 721
------- ------- -------
Gross profit.............................. -- -- 4,636
------- ------- -------
Operating expenses:
Sales and marketing..................... $ 554 $ 144 5,456
Research and development................ 797 486 2,244
General and administrative.............. 180 45 767
Amortization of deferred stock-based
compensation......................... 171 2 769
------- ------- -------
Total operating expenses................ 1,702 677 9,236
------- ------- -------
Loss from operations...................... (1,702) (677) (4,600)
Interest income, net...................... 13 -- 354
------- ------- -------
Loss before provision for income taxes.... (1,689) (677) (4,246)
Provision for income taxes................ -- -- --
------- ------- -------
Loss for the period....................... (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.............. (101) -- (212)
Loss applicable to common shares.......... $(1,790) $ (677) $(4,458)
======= ======= =======
Basic and diluted loss per common share... $ (2.40) $ (1.35) $ (1.85)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 746 503 2,415
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.30) $ (0.24)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 6,010 18,584
======= =======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1999
-------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,989 $11,940
Working capital............................................ 1,607 12,187
Total assets............................................... 2,573 16,590
Long-term obligations, net of current portion.............. 66 267
Redeemable convertible special shares...................... 3,481 3,851
Special warrants........................................... -- 14,703
Shareholders' deficiency................................... (1,622) (5,458)
</TABLE>

24
<PAGE> 28

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes appearing elsewhere in
this prospectus.

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.

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
purchased.

We recognize our software license revenues in accordance with the American
Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2,
"Software Revenue Recognition," and related amendments and interpretations
contained in the AICPA's Statement of Position 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.

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 as at least
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.

25
<PAGE> 29

- 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 expenses arising on the issuance of a warrant to an
employee, calculated as the difference between the exercise price of
the warrant and the fair market value at the date of issuance.

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, we recorded deferred stock-based compensation totaling
$6.3 million through December 31, 1999. 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, and
$769,000 of stock-based compensation amortization expense during the nine months
ended December 31, 1999. As of December 31, 1999, we had a total of $5.5 million
of deferred stock-based compensation that had not been amortized. We expect to
record additional deferred stock-based compensation of at least $500,000 for
stock option grants made after December 31, 1999. The amortization of the
remaining deferred stock-based compensation will result in additional charges to
operations through December 2003 of approximately $475,000 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.

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.

RESULTS OF OPERATIONS

Nine Months Ended December 31, 1999 Compared to Period from May 7, 1998
(Inception) to December 31, 1998.

Revenues. For the eight months included in the period from our inception
to December 31, 1998, we were a development stage company and had no revenues.
Total revenues for the nine months ended December 31, 1999 were $5.4 million.
License revenues accounted for $5.1 million, or 94.5% of total revenues.
Services revenues, including maintenance and services fees, accounted for the
remaining $296,000 or 5.5% of total revenues. Approximately 69.5% of our total
revenues were generated in the United States, 30.1% were generated in Canada and
0.4% were generated elsewhere in the nine months ended December 31, 1999.

Cost of revenues. Cost of product revenues was $20,000 for the nine
months ended December 31, 1999 or 0.4% of total revenues. Cost of service
revenues was $701,000 for the nine months ended
26
<PAGE> 30

December 31, 1999, 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 product revenues.

Sales and marketing. Sales and marketing expenses increased from $144,000
for the eight months ended December 31, 1998 to $5.5 million for the nine months
ended December 31, 1999. This increase was attributable primarily to the
addition of 46 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 $486,000 for the eight months ended December 31, 1998 to $2.2 million for
the nine months ended December 31, 1999. This increase was attributable
primarily to the addition of 39 product development and related services
personnel and to increased consulting and recruiting costs. The expenses were
reduced by investment tax credits of $142,000 for the nine months ended December
31, 1999. 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.

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 this 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 this 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 we complete our initial public offering. While a portion of investment tax
credits earned as a CCPC are refundable, investment tax credits earned after we
complete this offering may only be used to offset income taxes otherwise
payable.

General and administrative. General and administrative expenses increased
from $45,000 for the eight months ended December 31, 1998 to $767,000 for the
nine months ended December 31, 1999, due primarily to the addition of 11
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 $2,000 in the eight months ended December 31, 1998 and a charge of $769,000
for the nine months ended December 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 for the nine months ended
December 31, 1999 was $354,000, reflecting the interest earned on the cash and
cash equivalents balance arising from our special warrant offering in June 1999.
Interest income, net for the eight months ended December 31, 1998 was nil.

Provision for income taxes. A deferred tax asset of $2.7 million existed
as of December 31, 1999. A valuation allowance is recorded against a deferred
tax asset if it is more likely than not that the asset will not be realized. The
valuation allowance reflects the lack of profitability in the past, the
significant risk that taxable income would not be generated in the future and
the nontransferable nature of the deferred tax asset under certain conditions.

27
<PAGE> 31

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.

28
<PAGE> 32

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statements
of operations data for our seven 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 prospectus
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 prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1999 1999 1999 1999
-------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Products................ -- -- -- -- $ 752 $ 1,561 $ 2,748
Services................ -- -- -- -- 59 54 183
---- ----- ----- ------- ------ ------- -------
Total revenues........ -- -- -- -- 811 1,615 2,931
---- ----- ----- ------- ------ ------- -------
Cost of revenues
Products................ -- -- -- -- -- 6 14
Services................ -- -- -- -- 149 231 321
---- ----- ----- ------- ------ ------- -------
Total cost of
revenues............ -- -- -- -- 149 237 335
---- ----- ----- ------- ------ ------- -------
Gross profit.............. -- -- -- -- 662 1,378 2,596
---- ----- ----- ------- ------ ------- -------
Operating expenses:
Sales and marketing..... -- $ 31 $ 113 $ 410 818 1,198 3,440
Research and
development........... $ 95 179 212 311 389 801 1,054
General and
administrative........ 4 11 30 135 157 255 355
Amortization of deferred
stock-based
compensation.......... -- -- 2 169 107 211 451
---- ----- ----- ------- ------ ------- -------
Total operating
expenses............ 99 221 357 1,025 1,471 2,465 5,300
---- ----- ----- ------- ------ ------- -------
Loss from operations...... (99) (221) (357) (1,025) (809) (1,087) (2,704)
Interest income, net...... -- -- -- 13 11 165 178
---- ----- ----- ------- ------ ------- -------
Loss before provision for
income taxes............ (99) (221) (357) (1,012) (798) (922) (2,526)
Provision for income
taxes................... -- -- -- -- -- -- --
---- ----- ----- ------- ------ ------- -------
Loss for the period....... $(99) $(221) $(357) $(1,012) $ (798) $ (922) $(2,526)
==== ===== ===== ======= ====== ======= =======
</TABLE>

Our revenues have increased in our three most recent quarters due to the
initial introduction of our products in May 1999 and our addition of
distribution channels. Each of our expense categories has increased on a
quarterly basis due to the growth of our business and the hiring of new
personnel.

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

29
<PAGE> 33

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.

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 also raised $14.4
million, net of the agents' commission and offering expenses, through a private
placement of special warrants.

Our operating activities used cash of $1.1 million during the eleven
months ended March 31, 1999 and cash of $4.2 million for the nine months ended
December 31, 1999. 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 $3.4 million in cash during the eleven
months ended March 31, 1999 and $14.3 million in the nine months ended December
31, 1999. Of these financing activities, the issuance of redeemable convertible
special shares generated net proceeds of $3.4 million in the eleven months ended
March 31, 1999, and the issuance of special warrants generated net proceeds of
$14.4 million in the nine months ended December 31, 1999.

Our investing activities, consisting of the purchase of computer
equipment, software, furniture and equipment to support our growing number of
employees, used cash of $251,000 during the period ended March 31, 1999 and cash
of $464,000 during the nine months ended December 31, 1999.

In March 1999, we obtained a lease line of credit from a Canadian
chartered bank to purchase equipment and furniture. Approximately $96,000 was
outstanding on the lease line of credit as of March 31, 1999 and approximately
$476,000 was outstanding as of December 31, 1999. The ceiling on the lease line
of credit is Cdn$1,000,000 (approximately $693,000). The lease line of credit is
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, and we anticipate that capital expenditures will continue
to increase in absolute dollars in the foreseeable future.

At December 31, 1999, we had cash and cash equivalents aggregating $11.9
million. We believe that our current cash and cash equivalents are sufficient to
fund our operations for at least the next 12 months even if we do not complete
this offering or the private placement in Canada to Nortel Networks. We expect
that the proceeds of this offering and the private placement will enable us to
facilitate more rapid expansion, including increases in personnel and office
facilities, to develop new or enhance existing products or services, to respond
to competitive pressures, or to acquire or invest in complementary businesses,
technologies, services or products. 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.

YEAR 2000 COMPLIANCE

entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations, causing disruptions of normal business
activities.

Scope of Our Year 2000 Assessment. Our IT group directed our Year 2000
compliance program and was charged with identifying issues of potential risk
within each department and making the appropriate evaluations, modifications,
upgrades or replacements. Members of our IT group worked with members of each of
our principal internal divisions in the course of assessing our Year 2000
compliance.

The scope of our Year 2000 compliance program included testing the Delano
e-Business Interaction Suite and the IT and non-IT systems used at our office in
Toronto, Ontario. Our other sales offices use the same third-party hardware and
software systems as those in our Toronto office. Accordingly, our IT group
determined that it would not conduct an independent review of those offices. The
operational areas under investigation included:

- products;

- software applications;

- facilities;

- suppliers and vendors; and

- computer systems.

We do not currently have any information concerning the Year 2000
compliance status of our clients. If our current or future clients failed to
achieve Year 2000 compliance or if they divert technology expenditures,
especially technology expenditures that were budgeted for our products, to
address Year 2000 compliance problems, our business could suffer.

Budget. We funded our Year 2000 plan from available cash and have not
separately accounted for these expenses in the past. Expenditures for Year 2000
compliance totalled less than $20,000. Because our products were designed to be
Year 2000 compliant, most of our expenses related to the operating costs
incurred by employees involved in the evaluation process and Year 2000
compliance matters generally.

Products. We have completed testing the products that we have shipped to
date. Our testing has determined that these products are capable of properly
distinguishing between 20th and 21st century dates when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with these
products are also capable of properly distinguishing between 20th and 21st
century dates.

Third-party Hardware and Software Systems and Services. We have evaluated
all of the material third-party systems and software that we use in our
business. We have received written statements of Year 2000 compliance from
substantially all of the providers of hardware used in our business, and have
installed Year 2000 "patch kits" where appropriate. We have identified twelve
different software vendors that provide software products in our business. If
any of the compliance statements that we have received from our third-party
software or hardware providers are false, our internal systems and our ability
to ship our product would be materially harmed.

We also have obtained written compliance statements as to Year 2000
compliance from our other third-party service providers, including our Internet
service providers, cellular telephone providers and all of our utilities.

While we have not experienced any business disruptions, or other adverse
effects from Year 2000 problems to date, we continue to monitor our software,
the software we license for our internal use, the systems that operate in
conjunction with our software and our internal and external systems for Year
2000 failures. We do not expect that the Year 2000 issue will have a material
adverse effect on our business. However, it is not possible to be certain that
all aspects of the Year 2000 issues affecting us, including those

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related to the efforts of third parties, have been fully resolved. For
information concerning risks to us relating to the Year 2000 issue and its
potential impact on our business, see "Risk Factors -- Year 2000 complications
may disrupt our operations and harm our business."

Contingency Plan. We have developed a contingency plan to ensure that our
customers continue to receive service in the event of failure due to unforeseen
or unanticipated problems with internal or external systems, vendors or
suppliers. Our key systems are backed up with the data stored both on and off
premises. Key servers and systems have replacement systems containing all
applicable data. Key technical personnel will be monitoring all systems during
the critical period of the date change and much of our other personnel will be
on call. If our main Internet connection becomes inoperative, we have individual
dial facilities that can enable internal users to connect to our system. Our
product downloads are located offsite and we are satisfied that the hosting
company's Year 2000 compliance program and contingency plans are adequate. All
sales and support personnel are equipped with notebook computers with internal
modems allowing them to be self-sufficient outside of our main office.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," or SFAS No. 131, which we adopted in
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, product and services, geographic areas and major customers. We operate
in a single reportable operating segment, that is the developing and marketing
of interaction-based e-business communications applications.

In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Development or Obtained for Internal Use," or SOP No. 98-1.
SOP No. 98-1 requires entities to capitalize certain costs related to internal
use software once certain criteria have been met. We adopted SOP 98-1 in 1998.
The adoption of SOP No. 98-1 did not have a material impact on our financial
position or results of operations.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities" which provides guidance on the financial reporting of
start-up costs. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. We adopted SOP 98-5 in 1998. As we had not
capitalized these costs, adopting SOP 98-5 did not have an impact on our
consolidated financial statements.

In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition with respect to Certain Transactions." SOP
No. 98-9 amends SOP No. 97-2 to require the entity to recognize revenue for
multiple element arrangements by means of the "residual method" when:

- there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;

- vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and

- all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.

We adopted SOP No. 98-9 commencing April 1, 1999. Adopting SOP 98-9 did
not have a material effect on our results of operations, financial position or
cash flows.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" or SFAS
No. 133. SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. We do not
believe that adopting SFAS No. 133 will have a material effect on our financial
position or results of operations.

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QUALITATIVE AND QUANTITATIVE MARKET RISK

We develop products in Canada and sell these products in North America and
Europe. 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.

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BUSINESS

OVERVIEW

We provide communications software that enables companies to rapidly
develop and deploy applications that automate business processes and personalize
and manage interactions over the internet with their existing and prospective
customers, partners, suppliers and employees. These interactions, or e-business
communications, consist of inbound and outbound communications through e-mail as
well as communications through companies' web sites. Companies can use
applications developed with our software to initiate, route, track, analyze,
respond to and manage inbound and outbound e-business communications. We are
focusing our sales efforts on businesses in the financial services, technology,
telecommunications, transportation, retail and marketing services industries, as
well as other organizations engaged in, or focused on, business-to-business or
business-to-customer commercial opportunities using the internet. Where
desirable, our professional services group can assist our clients' internal IT
personnel to implement our products.

INDUSTRY BACKGROUND

The internet is growing dramatically as a means of conducting business.
According to International Data Corporation, electronic commerce will increase
from $50.4 billion in 1998 to $1.3 trillion by 2003, as more consumers shop
online and the internet becomes an accepted channel for business-to-consumer and
business-to-business interactions. International Data Corporation estimates that
the number of web users will increase from 142.2 million in 1998 to 502.4
million in 2003. Businesses are using e-mail and the web to interact more
effectively with existing and prospective customers, partners, suppliers and
employees. For example, companies in industries such as financial services,
telecommunications, transportation, retail and marketing services increasingly
rely on e-mail and communications through web sites instead of traditional means
of communication such as telephone calls, letters, facsimiles and face-to-face
meetings. E-mail and the web, which once were used primarily within the
technical community, have become mainstream methods of communication.

In order to take advantage of the internet to communicate, businesses need
solutions that can manage both inbound and outbound traffic. For example,
Jupiter Communications conducted a survey of 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. Clients need solutions to manage the
growing volume of traffic associated with the increased use of the internet. For
example, International Data Corporation estimates that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, and the Direct Marketing Association estimates that
interactive direct-marketing expenditures will increase from $379.7 million in
1998 to $3.2 billion by 2003.

To date, organizational and operational constraints have made it difficult
and expensive to automate interactions and business processes between a company
and its customers, partners, suppliers and employees. Companies seeking to
implement e-business communications must either develop their own custom
applications or purchase prepackaged software. Customized applications for
specific business requirements are often expensive and complex. In addition,
since applications typically are developed for internal business processes, they
may not be easily adapted to communicate with customers, partners, suppliers and
employees over the internet. Although prepackaged software can eliminate a
portion of the time and expense required to develop a customized application,
the implementation and subsequent upgrades of a prepackaged solution may require
business process changes or software customization that strains internal IT
resources. Since prepackaged software often is designed to address a single
operational area, an organization may encounter difficulties using prepackaged
software to address the needs of other operational areas or to communicate with
customers, partners, suppliers and employees over the internet. In addition,
prepackaged software may not leverage an organization's existing IT
infrastructure, resulting in redundancies in software and data.

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Businesses increasingly require a solution that enables them to rapidly
develop and deploy applications that automate, personalize and manage their
interactions over the internet. The solution must leverage businesses' existing
IT infrastructures to provide a broad range of applications across many
operational areas. It must be able to handle large volumes of communications
reliably and cost-effectively to meet businesses' growing dependence on
communications over the internet. Finally, the solution must extend beyond the
walls of the enterprise to reach and connect customers, suppliers and partners.

THE DELANO SOLUTION

Our solution is based on the Delano e-Business Interaction Suite, which
enables businesses to rapidly develop and deploy applications that automate
business processes and personalize and manage interactions over the internet
with their customers, partners, suppliers and employees. We believe that our
solution offers the following specific benefits to our clients:

Enhanced Communications. Our e-business communications software enables
an organization to develop and deploy e-business communications applications
across many operational areas, including finance, marketing, sales, service,
operations and human resources. Our products permit our clients to respond
rapidly and effectively to large volumes of e-mail and web-based communications.
For example, our products allow companies to automatically respond to large
numbers of inbound communications received by e-mail or through websites and
route inquiries to the appropriate departments for action. Our products also
enable organizations to capture and analyze information by communicating with a
client's existing corporate databases and directories. Our clients can use this
information to design better marketing programs, products and services and to
improve business processes to meet the needs of their customers, partners,
suppliers and employees.

Rapid Deployment. Our products use 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 the e-business communications
application. This component-based architecture enables our clients to develop a
wide range of e-business communications applications in a matter of days or
weeks.The flexible and open nature of our component-based architecture enables
the Delano e-Business Interaction Suite to be integrated with our clients'
existing systems, applications and databases, extending the capabilities of our
clients' existing IT infrastructure.

Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business interactions. Our
component-based architecture supports incremental additions to hardware capacity
to address increased communication volumes.

Increased Revenue Opportunities and Reduced Operating Costs. We believe
our products can help our clients increase their revenues and reduce their
operating costs. For example, clients can generate revenue through applications
for marketing campaigns and for lead tracking and management. Our service
improvement applications, which include electronic surveys, personalized
newsletters and inbound e-mail support, can lead to increased revenues by
increasing customer loyalty. Using our solution enables clients to process large
volumes of e-business communications automatically, using a reduced number of
support and administrative personnel, which results in lower costs than can be
achieved using traditional methods such as call centers. Clients also can reduce
costs by using our applications for processes such as overdue accounts
receivable notification, automated customer support, inventory management and
self-service.

BUSINESS STRATEGY

Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:

Extend Technology Leadership. We intend to continue to develop and
improve our products to extend our technological leadership. We believe we are
the first to market a component-based architecture designed to rapidly develop
and deploy e-business communications applications that can connect most of a
business's operational areas to its customers, partners, suppliers and
employees. We intend to continue to

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develop new and enhanced products, including products designed to manage higher
volumes of communications and improve integration with our clients' existing IT
infrastructures. In addition, we are continuing to develop e-business
applications such as the Delano Velocity application suites, which are being
designed as prepackaged applications for specific business areas to further
reduce the time required to develop and deploy e-business communications
applications.

Increase Penetration of Target Markets. We are focusing our sales efforts
on industries that we believe are early adopters of e-business communications
applications. We use our in-house industry expertise to supply our products to
organizations in the financial services, technology, telecommunications,
transportation, retail and marketing services industries as well as to other
organizations that are engaged in, or focused on, business-to-business or
business-to-consumer commercial opportunities over the internet. We intend to
develop new products for particular application areas that are relevant to our
target industries.

Increase Presence Worldwide. We plan to extend our commitment to
international sales and support to take advantage of the growing worldwide
demand for e-business communications applications. We have recently opened an
office in the United Kingdom, which oversees and processes all orders for our
products and services in Europe and parts of Africa. We intend to increase our
international presence by opening additional offices and intensifying marketing
activities in Europe, and allying ourselves with selected international
third-party distribution companies, consulting organizations and software
vendors.

Increase Distribution Capabilities. We have entered into agreements with
established third-party distribution companies, consulting organizations and
software vendors, including Clarify, Macromedia and PricewaterhouseCoopers, to
enhance our market presence and extend our sales and services resources. We
intend to enter into additional agreements to further expand the distribution
channels for our products.

Pursue Strategic Acquisitions. We intend to pursue acquisitions of
complementary technologies and expertise. Acquisitions will be made only if we
believe that they are financially attractive and present opportunities for
expanding growth. For example, we will seek to identify opportunities to acquire
technologies and personnel that will help us to expand the breadth of our
applications and provide us with additional domain expertise.

PRODUCTS

Our solution is based on the Delano e-Business Interaction Suite, which
automates business processes that utilize e-mail or the web to interact with a
client's customers, partners, suppliers and employees. We also offer other
products that complement the Interaction Suite and focus on specific
technologies or business areas, including products that manage higher volumes of
communications, improve integration with our clients' existing IT infrastructure
and further reduce the time required to develop and deploy e-business
communications applications.

Delano e-Business Interaction Suite

The Delano e-Business Interaction Suite enables companies to rapidly
develop and deploy e-business communications applications. The Interaction Suite
consists of the following:

- The Delano e-Business Interaction Server is an application server
designed to manage thousands of e-business communications applications
simultaneously. The Interaction Server is Microsoft Windows NT-based
and includes an application repository to manage the storage and
version control of e-business communications 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 e-Business Application Builder is a graphical application
builder environment, designed to enable our clients to develop
e-business communications applications simply and quickly. The
Application 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.
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The application components serve as the building blocks of the
e-business communications application. The Application Builder enables a
client to develop e-business communications 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 or POP3, Internet Message Access Protocol 4 or
IMAP4, and Simple Mail Transfer Protocol or 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 e-Business Interaction Server Administrator is a program
that enables our clients to configure, administer and manage e-business
applications created with the Application Builder and executed on the
Interaction Server. The Server Administrator is available as a Windows
NT application or as a web application to enable remote administration.

Delano Component Pack for BackOffice

Our component packs are being designed as groupings of components to
improve integration of the Interaction Suite with our clients' existing IT
infrastructures. In October 1999, we introduced the Delano Component Pack for
BackOffice, which delivers enhanced integration with, and access to, Microsoft
SQL Servers, Microsoft Exchange Servers, Microsoft Message Queues and Microsoft
Active Directories.

Delano Component Development Kit

The Delano Component Development Kit enables software developers to create
customized components for use within the Interaction Suite. Our clients can
create customized components that integrate with their legacy or other
specialized IT systems, such as enterprise resource planning or customer
relationship management systems.

Delano Application Templates

The Delano Application Templates are designed to act as a starting point
for our clients to develop their own e-business communications applications. We
currently offer eleven application templates, including templates that act as
starting points for developing outbound marketing campaigns, customer surveys,
credit management applications and customer support applications.

Delano Campaign Server

The Campaign Server reliably manages the processing of high volumes of
outbound e-mail initiated from the Interaction Suite. The Campaign Server
significantly enhances the scalability of the Interaction Server by distributing
the outbound communications across a company's multiple e-mail servers to
achieve a higher number of e-mail deliveries in a shorter period of time.

SERVICES

If desired, our professional services group will work with clients to
learn about their specific requirements and implement integrated solutions based
on the Interaction Suite. 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

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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
clients' 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

We continue to invest in research and development to develop new products
and enhance the functionality of our existing products. For example, we
currently are developing:

- additional Component Packs, which are intended to extend the
capabilities of the Interaction Suite and facilitate integration
between the Interaction Suite and our clients' IT systems; and

- Delano Velocity application suites, which will complement the
Interaction Suite and will permit our clients to enhance specific areas
of operation through the use of prepackaged e-business communications
applications. In addition, the Velocity application suites are intended
to enable the rapid deployment of applications while still providing
our clients with flexibility to update the applications as their
businesses evolve. Because the application suites utilize the
Interaction Suite, they can be easily customized to fit our clients'
business processes and to leverage our clients' existing customer
databases and infrastructures.

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 Toronto.

SALES AND MARKETING

As of January 31, 2000, we had 88 sales, business development and
marketing professionals, including sales personnel, sales engineers, major
account representatives and marketing managers. We maintain four direct sales
representatives in Ontario as well as a total of 12 sales representatives in
California, Georgia, Illinois, Massachusetts, New York and two in the United
Kingdom, who oversees and processes all orders for our products and services in
Europe and parts of Africa. 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 Toronto, Ontario, which generates, follows up and qualifies
leads, and by third-party distribution companies, consulting organizations and
software vendors with which we have agreements, such as Clarify, Macromedia and
PricewaterhouseCoopers. These third-parties further expand the distribution
channels for our products. We intend to increase our direct sales force,
establish additional sales offices and enter into additional agreements
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with established third-party distribution companies, consulting organizations
and software vendors. We expect a substantial portion of our sales in the
foreseeable future to be derived from our direct sales force.

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

We plan to offer an online hosted application service in the first half of
2000. This service will provide an online offering of our products to businesses
that want to deploy an online customer communication system while limiting their
initial investments in hardware, software and services. We expect to be able to
manage customer information and provide our clients with real-time access to
this information. We believe this service will enable us to address markets that
are complementary to our direct sales and reseller markets.

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 web site 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, technology, telecommunications, retail and transportation.
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. These industries have been selected because we believe them
to be early adopters of e-business communications applications. Although we
initially 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., Talvest Fund
Management Inc. and Trimark Investment Management Inc.;

- Technology -- Clarify, Inc. and Macromedia, Inc.;

- Telecommunications -- Ericsson Inc. and BCE Emergis Inc.;

- Transportation -- Mark VII, Inc. and Cardinal Logistics;

- Retail -- Vision Corporation, a subsidiary of TLC Laser Eye Centers
Inc.;

- Marketing Services -- Mosaic Group Inc. and Transparent Languages Inc.;

- E-commerce (business-to-consumer) -- Chapters Online Inc., e-centives
inc., Harborfreight.com, a web service operated by Central Purchasing
Inc., Marketrend Communications Inc., Vitamins.com Internet LLC and We
Media Inc.; and

- E-commerce (business-to-business) -- Cowboy Corporation and
PlasticsNet.com, a web service operated by Commerx Inc.

In the nine months ended December 31, 1999, Clarify accounted for 26% of
our total revenues. No other customer accounted for more than 10% of our total
revenues in the nine months ended December 31, 1999. 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.

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CLIENT CASE STUDIES

The following case studies provide illustrations of how selected clients
have used our products and services to address their requirements. The case
studies represent the diversity of the various applications that can be deployed
with our products. We believe other customer deployments of our products do not
differ significantly from those presented in the case studies below.

Harborfreight.com. Central Purchasing owns and operates Harbor Freight
Tools, which sells tools through its 70 retail store locations, a mail-order
catalog business, and an e-commerce site, Harborfreight.com. Harborfreight.com
has improved customer service and has generated revenue by using our products
for outbound e-mail marketing campaigns.

Mark VII. Mark VII provides a complete range of transportation and
logistics capabilities to support supply chain operations around the world.
Using our technology, Mark VII has implemented several e-business communications
applications to automate, personalize and manage customer and supplier
interactions. Initial applications now automate the customer credit approval
process, accounts receivable aging, credit balance and customer statement
retrieval requests, vendor notifications, and destination and dispatch reports.
These applications have allowed Mark VII to reallocate personnel to
revenue-generating areas of its business.

Vision Corporation. Vision Corporation is a subsidiary of TLC Laser Eye
Centers, which operates more than 50 centers across North America and has a
network of more than 10,000 affiliated eye doctors. Vision Corporation
co-ordinates with the various TLC centers to provide centralized buying services
for business supplies such as letterhead, business cards, and other TLC branded
materials. Vision Corporation uses the Interaction Suite to manage and track its
central buying process from initial ordering through fulfillment. Since
implementing our solution, Vision Corporation has improved its order accuracy
and delivery rates by 20% and has reduced labor costs associated with its supply
procurement by more than 20%.

COMPETITION

The market for our products and services is highly competitive and we
believe that it will become increasingly competitive in the foreseeable future.
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 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 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 systems designed in-house and by third-party development
efforts. E-business communications applications are frequently developed
internally by organizations for their own use. In addition, a number of
companies offer one or more products in the market for e-business communications
software, some of which compete directly with at least part of our products. For
example, our competitors include companies that provide software that is focused
on a few operational or functional areas, such as Annuncio, Brightware, eGain,
Kana, Mustang Software and Responsys.com. We may also compete with companies
that provide customer management and communications solutions, such as Genesys
Telecommunications Laboratories, Lucent Technologies, MessageMedia, Oracle,
Pivotal, Siebel Systems, Silknet Software and Vantive.

Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM, Microsoft and similar companies may leverage their
existing relationships and capabilities to offer e-business communications
software that competes with our products. We also may face competition from web
application servers, messaging server platform solutions, e-mail application
vendors and e-mail service bureaus. We believe competition will increase as our
current competitors increase the sophistication of their offerings and as new
participants enter the market.

We intend to position at least part of our solution as complementary to
our competitors' solutions, thereby helping these vendors meet their clients'
needs. For example, we will participate in the customer
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<PAGE> 44

relationship management market by acting as the interaction technology for a
variety of front office solutions, such as Clarify, and in the web application
server market as a natural fit for vendors, such as Microsoft Site Server,
looking to provide their customers with enhanced e-mail capabilities. This will,
in turn, help us to preserve our distribution channel opportunities.

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. In fiscal 1999, we invested $659,000 in product
development. For the nine months ended December 31, 1999, we invested $2.4
million in product development.

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 January 31, 2000, we had 73 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 do not currently hold any
patents, registered trademarks or copyrights. However, we will assess
appropriate occasions for seeking additional intellectual property protections
for those aspects of our technology that we believe constitute innovations
providing significant competitive advantages. Such future applications may or
may not result in the registration of trademarks or copyrights.

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.

Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary and third parties may attempt to
develop similar technology independently. These precautions may not prevent
misappropriation or infringement of our intellectual property. In addition, laws
of some countries do not protect our proprietary rights to the same extent as do
the United States or Canada. We cannot assure you that protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.

There has been a substantial amount of litigation in the software and
internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of internet-related solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products in different industries
increasingly overlaps. Furthermore, former employers of our current and future
employees may assert that our employees have improperly disclosed confidential
or proprietary information to us. Any such claims, with or without merit, could
be time-consuming to defend, divert management's attention and resources, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements which may not be available on terms acceptable
to us or at all. In addition, parties making these claims may be able to obtain
an injunction, which could prevent us from selling our products in the United
States or abroad. A successful infringement claim against us and our failure or
inability to license the infringed rights or

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<PAGE> 45

develop or license technology with comparable functionality could have a
material adverse effect on our business, operating results and financial
condition.

EMPLOYEES

As of January 31, 2000, we had 210 full-time employees, including 73 in
research and development, 28 in professional services, 88 in sales, business
development and marketing and 21 in general and administrative. We added 147
employees between July 1, 1999 and January 31, 2000, and we expect to continue
hiring employees at a rapid pace. 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.

LEGAL PROCEEDINGS

We are not currently party to any material legal proceedings, nor are we
aware of any proceedings that are contemplated.

FACILITIES

Our corporate headquarters are located in Toronto, Ontario, where we lease
approximately 21,000 square feet. The lease for the principal portion of our
space expires on December 31, 2000. In November 1999, we entered into a 10-year
lease for approximately 34,400 square feet for a new corporate headquarters.
This new lease takes effect on March 1, 2000, and includes an option to lease an
additional 7,000 square feet. We believe that our facilities are adequate to
meet our requirements for the foreseeable future. We also lease office space in
California, Illinois, New York and Texas. We do not own any real property.

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<PAGE> 46

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 December 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C> <C>
Dennis Bennie(1)(2)............................ 46 Chairman
John Foresi(2)................................. 38 Director, President and Chief Executive
Officer
Bahman Koohestani(2)........................... 37 Director, Executive Vice-President, Products
and Chief Technology Officer
Thomas Hearne.................................. 35 Chief Financial Officer
Robert Lalonde................................. 36 Vice-President, Marketing
Barry Yates.................................... 34 Vice-President, North American Sales
Michael Hughes................................. 31 Vice-President, Eastern Sales and Marketing
Andrew Dennis.................................. 32 Vice-President, Business Development
David Lewis.................................... 37 General Counsel and Secretary
Albert Amato(1)(2)............................. 41 Director
J. (Ian) Giffen(1)............................. 42 Director
Donald Woodley................................. 54 Director
</TABLE>

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

(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., 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 President and 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.

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

43
<PAGE> 47

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 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 Vice-President, North American Sales since
January 2000. 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.

Michael Hughes has served as our Vice-President, Eastern Sales and
Marketing since July 1999. From January 1998 to July 1999, Mr. Hughes was
employed as a branch manager at Oracle. From January 1995 to October 1997, Mr.
Hughes was a sales representative at Watermark Software Inc., which was
subsequently purchased by FileNet Corporation in January 1997. From June 1994 to
January 1995, Mr. Hughes worked as a Regional Professional Services Manager for
Information Advantage, Inc., a software development company. Mr. Hughes received
his Bachelor of Science in Computer Engineering from Clemson University and he
has an MBA from the University of North Carolina.

Andrew Dennis has served as our Vice-President, Business Development since
June 1999. From January 1997 to June 1999, Mr. Dennis was a Vice President at
GartnerGroup, an independent provider of advisory and market research services
to information technology vendors and users. From June 1996 to February 1997,
Mr. Dennis was an independent consultant who provided strategic business
planning, sales and marketing, and information technology consulting advice.
From January 1995 to June 1996, Mr. Dennis was the Vice President at Hill Arts &
Entertainment Systems, a client-server application software vendor. From
November 1993 to January 1995 Mr. Dennis served as Director of Sales of Data
Lease International. Mr. Dennis has a BBA in Marketing from the Detroit College
of Business.

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.

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
is also a consultant to XDL Capital. Mr. Giffen has a Bachelor of Arts in
Business Administration from the University of Strathclyde.

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<PAGE> 48

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.

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

BOARD OF DIRECTORS

Our board of directors is comprised of six 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 eight 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, Foresi and Koohestani are members of the
compensation committee.

EXECUTIVE COMPENSATION

The following table sets forth the actual compensation paid or awarded to
our named executive officers, who consist of John Foresi, our current chief
executive officer, and Bahman Koohestani, who preceded Mr. Foresi as our chief
executive officer during the fiscal year ended March 31, 1999:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
OTHER ANNUAL SECURITIES
SALARY COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS
- --------------------------- ------- ------------ ------------
<S> <C> <C> <C>
John Foresi, President and Chief Executive Officer.... $24,764 $1,188 1,144,737
Bahman Koohestani, Executive Vice President, Products
and Chief Technology Officer........................ 82,488 3,563 --
</TABLE>

Each named executive officer has a base salary of Cdn$150,000
(approximately $104,000) per year and receives a car allowance of Cdn$7,200
(approximately $5,000) per year. However, each was employed for less than one
full year as of the fiscal year ended March 31, 1999 and, accordingly, the
information in the table above reflects only the portion of the fiscal year that
they were employed. The amounts specified under "Other Annual Compensation"
consist of car allowances received by the named executive officers in the fiscal
year ended March 31, 1999.

In accordance with the terms of a subscription agreement between Delano
and Mr. Koohestani, in fiscal 1999 a total of 1,350,000 common shares were
released from escrow to a corporation owned by Mr. Koohestani. Under the terms
of the subscription agreement, Mr. Koohestani would not have been entitled to
receive these shares if he had resigned or had been dismissed for cause. See
"Transactions with Related

45
<PAGE> 49

Parties -- Escrow Arrangement." Mr. Foresi has 500,000 options 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.

During the fiscal year ended March 31, 1999, the aggregate compensation
paid to all of our officers and directors as a group, for services in all
capacities, was $191,025, based on currency exchange rates during the fiscal
year.

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, 1999, (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 1999

<TABLE>
<CAPTION>
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%($)
- ---- ---------------- ------------------ --------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John Foresi.......... 750,000 48% $0.11 January 4, 2004 $23,178 $51,218
Bahman Koohestani.... -- -- -- -- -- --
</TABLE>

There were no options exercised by the named executive officers during the
fiscal year ended March 31, 1999.

COMPENSATION OF DIRECTORS

We do not currently 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 Stock
Option Plan. See "Stock Option Plan."

EMPLOYMENT AGREEMENTS

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 Cdn$150,000
(approximately $104,000) 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. Our agreement with Mr. Foresi may be terminated by us without cause
within 12 months of the effective date of the agreement, provided that Mr.
Foresi receives either three months' notice or payment of three months'
severance. If dismissed without cause more than 12 months after the effective
date of the agreement, Mr. Foresi 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 three- or 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

46
<PAGE> 50

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 Cdn$150,000 (approximately $104,000) 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.

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
4,500,000 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 January 31, 2000, options to purchase a total of 3,749,850 common
shares are outstanding under the plan, as follows:

<TABLE>
<CAPTION>
COMMON
SHARES UNDER EXERCISE PRICE
HOLDERS OF OPTIONS OPTIONS ($) EXPIRY DATE
- ------------------ ------------ -------------- ---------------------------
<S> <C> <C> <C>
Executive Officers (seven in
total)........................ 225,000 0.11 September 1, 2003
500,000 0.11 January 4, 2004
135,000 0.11 January 20, 2004
172,500 0.44 May 3, 2004
150,000 0.44 June 2, 2004
140,000 0.44 July 26, 2004
157,500 3.08 October 18, 2004
Directors who are not Executive
Officers (three in total)..... 105,000 0.11 August 26, 2003
15,000 3.08 October 18, 2004
30,000 4.51 November 26, 2004
Employees (182 in total)........ 593,750 0.11 May 1, 2003 to May 10, 2004
374,000 0.44 March 17, 2004 to November
1, 2004
1,054,600 2.35 to 10.00 October 1, 2004 to January
31, 2005
Others (seven persons).......... 97,500 0.11 to 2.35 June 14, 2004 to November
2, 2004
</TABLE>

As at January 31, 2000, 250,000 common shares had been issued to one
employee pursuant to the exercise of options granted under the plan.

EMPLOYEE STOCK PURCHASE PLAN

On January 10, 2000, our board of directors and shareholders approved the
Delano Technology Corporation Employee Stock Purchase Plan, which enables our
employees to acquire common shares through payroll deductions. The plan is
intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986. The initial offering period will start on
February 1, 2000. Purchase

47
<PAGE> 51

periods within each offering period will run for six months, commencing on
February 1 and August 1 of each year and ending on January 31 and July 31. Each
offering period will last for 24 months, with the purchase price throughout the
offering period being 85% of the fair market value of the common shares on the
first day of the period or 85% of the fair market value of the common shares on
the last day of any six month purchase period, whichever is lower. Eligible
employees may select a rate of payroll deduction up to 15% of their compensation
up to an aggregate of $25,000 in each calendar year. An aggregate of 1,000,000
common shares has been reserved for issuance under the plan.

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<PAGE> 52

TRANSACTIONS WITH RELATED PARTIES

RELATIONSHIP WITH PROTEGE

Dennis Bennie, our Chairman, is a trustee of the Bennie Childrens' Trust,
which owns 11.25% of Protege Software Limited, a company with which we have
entered into a services agreement dated as of June 1, 1999. Pursuant to this
agreement, Protege Software Limited has agreed to provide administrative
assistance and office space to facilitate the opening of our European offices in
return for a management fee of L125,000 (approximately $200,000) per year, as
well as between L5,500 and L6,000 (approximately $8,800 to $9,600) per month in
respect of its costs and a bonus of up to 15% of sales generated by our European
offices. Within the first 12 months of the 18 month term of the agreement, the
bonus may be converted into common shares at a price of $2.37 per share. In the
final six months of the agreement, one-half of the bonus may be converted into
common shares based on the average trading price for the 10 days preceding the
conversion date.

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 December 31, 1999, 2,362,500 of the 4,050,000
common shares of Mr. Koohestani which were originally subject to escrow had been
released from escrow and 1,687,500 of the common shares held by 1329347 Ontario
Inc. remained in 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 January 31, 2000, 56,250
common shares had been released to each of Mr. Maurik, Mr. Mah and Mr. Gayle and
93,750 of their respective common shares remained in escrow.

SPECIAL WARRANT FINANCING

On June 24, 1999, we raised $14.4 million, net of the agents' commission
and offering expenses, through a private placement of special warrants. Each
special warrant entitles the holder to acquire at any time, without additional
payment, one Class C special share or, if our issued and outstanding shares have
been converted to common shares, one common share, subject to adjustment. In
connection with this offering, all of the special warrants will be exercised to
acquire common shares on the basis of 1.5 common shares for each special
warrant. See "Description of Capital Stock -- Special Warrants." Pursuant to the
special warrant offering, Mr. Amato purchased 42,000 special warrants, XDL
Delano Holdings Inc., one of our principal shareholders, purchased 124,308
special warrants, and the June H. Yates Trust under the Estate of Pearl B.
Walker, a trust affiliated with Mr. Yates, one of our officers, purchased 29,000
special warrants.

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<PAGE> 53

PRINCIPAL SHAREHOLDERS

The following table sets forth information about the beneficial ownership
of our outstanding common shares on January 31, 2000, by:

- each person or entity who is known by us to own beneficially more than
five percent of our common shares;

- each of the named executive officers;

- each of our directors; and

- all of our directors and executive officers as a group.

In accordance with SEC rules, beneficial ownership includes any shares as
to which a person or entity has sole or shared voting power or investment power
and any shares as to which the person or entity has the right to acquire
beneficial ownership within 60 days after January 31, 2000 through the exercise
of options, conversion of securities or otherwise. Except as noted below, we
believe that the persons named in the table have sole voting and investment
power with respect to the shares of common stock set forth opposite their names.
Percentage of beneficial ownership before the offering is based on 23,424,598
common shares outstanding as of January 31, 2000, including common shares into
which our outstanding redeemable convertible special shares will convert upon
completion of this offering, common shares issuable upon exercise of our
outstanding special warrants in connection with the completion of this offering,
and 5,500,000 common shares outstanding at January 31, 2000. Percentage of
beneficial ownership after the offering is based on 29,174,598 common shares
outstanding immediately after the offering and the completion of the private
placement in Canada of 500,000 common shares to Nortel Networks. All shares
included below under "Outstanding Shares" represent shares and shares subject to
outstanding special shares or special warrants. All shares included below under
"Right to Acquire" represent outstanding shares subject to outstanding stock
options or warrants. The address of our executive officers and directors is in
care of Delano Technology Corporation, 40 West Wilmot Street, Richmond Hill,
Ontario L4B 1H8, Canada.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------ -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
XDL Delano Holdings Inc................. 10,133,832 -- 10,133,832 43.26% 34.74%
Dennis Bennie........................... 10,133,832 -- 10,133,832 43.26 34.74
Bahman Koohestani....................... 3,900,000 -- 3,900,000 16.65 13.37
John Foresi............................. 1,039,474 394,737 1,434,211 5.96 4.92
Albert Amato............................ 213,000 37,500 250,500 1.07 *
J. (Ian) Giffen......................... -- 15,000 15,000 * *
Donald Woodley.......................... -- -- -- -- --
All current directors and executive
officers as a group (13 persons)...... 15,286,306 659,106 15,945,412 65.51 54.66
</TABLE>

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

* Less than 1%.

The shares reflected as beneficially owned by XDL Delano Holdings and Mr.
Bennie consist of shares held of record by XDL Delano Holdings, of which Mr.
Bennie is the President, a director and a beneficial shareholder. XDL Delano
Holdings was formed as an investment vehicle to hold Delano securities. Pursuant
to an existing contractual arrangement, we will amalgamate with XDL Delano
Holdings in connection with the completion of this offering, with the result
that the Delano shares currently held by XDL Delano Holdings will be cancelled
and the persons and entities that currently hold shares of XDL Delano Holdings
will acquire shares in the amalgamated company on the amalgamation. Common
shares in the amalgamated company will be identical to common shares of Delano
in all material respects. The following table provides supplemental information
with respect to the distribution of the shares currently held by XDL Delano

50
<PAGE> 54

Holdings on a pro forma basis, as if the amalgamation had occurred on January
31, 2000 and based upon the initial public offering price of $18.00.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Dennis Bennie............................ 969,352 -- 969,352 4.14% 3.32%
Albert Amato............................. 277,617 37,500 315,117 1.35 1.08
Strategic Investment Holdings Inc. ...... 1,991,203 -- 1,991,203 8.50 6.83
Canadian Imperial Bank of Commerce....... 1,292,475 -- 1,292,475 5.52 4.43
All current directors and executive
officers as a group (12 persons)....... 6,186,443 659,106 6,845,549 29.22 23.46
</TABLE>

The shares reflected as beneficially owned by Mr. Koohestani consist of
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 1,687,500 of these shares are subject to escrow.
See "Transactions with Related Parties -- Escrow arrangements."

The shares reflected as beneficially owned by Mr. Foresi include 789,474
common shares held of record by Tofino Venture Capital Inc., of which Mr. Foresi
is the voting trustee.

To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government.

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<PAGE> 55

DESCRIPTION OF SHARE CAPITAL

GENERAL

Our authorized share capital consists of an unlimited number of common
shares, an unlimited number of Class A special shares, an unlimited number of
Class B special shares, an unlimited number of Class C special shares and an
unlimited number of preference shares issuable in series. As of January 31,
2000, there were 5,500,000 common shares issued and outstanding, as well as a
warrant issued to John Foresi, expiring on the date which Mr. Foresi ceases to
be employed by us or January 5, 2002, whichever is earlier, exercisable into
394,737 common shares at an exercise price of $0.44 per share. In addition,
there were 4,000,000 Class A special shares and 3,789,476 Class B special shares
issued and outstanding as well as special warrants to acquire 4,326,924 Class C
special shares. As at January 31, 2000, there were no Class C special shares or
preference shares issued and outstanding.

Upon completion of this offering, all of our then-outstanding Class A
special shares, Class B special shares and Class C special shares will be
converted into common shares, and these classes of special shares will be
cancelled. In addition, in connection with the completion of this offering, our
outstanding special warrants will be exercised to purchase common shares. Based
on shares outstanding as of January 31, 2000, after giving effect to the
exercise of outstanding special warrants and the conversion of all special
shares into common shares, but prior to giving effect to this offering or the
private placement in Canada of 500,000 common shares to Nortel Networks and
assuming no exercise of currently outstanding options or the warrant held by Mr.
Foresi, there will be 23,674,598 common shares outstanding held of record by 42
shareholders. After giving effect to this offering and the private placement in
Canada of 500,000 common shares to Nortel Networks but assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or the outstanding warrant, there will be 29,174,598 common shares outstanding.

COMMON SHARES

Holders of common shares are entitled to receive notice of and to attend
all meetings of shareholders and to vote at all such meeting together as a
single class, except in respect of matters where only the holders of shares of a
specified class or specified series of shares are entitled to vote separately.
The common shares carry one vote per share. Holders of common shares are
entitled, subject to the rights, privileges, restrictions and conditions
attaching to any other class of our shares, to receive any dividend declared by
our board of directors. In the event of any liquidation, dissolution or
winding-up of Delano or other distribution of assets of Delano among our
shareholders for the purpose of winding-up our affairs, subject to the rights,
privileges, restrictions and conditions attaching to any other class of our
shares, the assets and funds of Delano shall be distributed among the holders of
common shares and the holders of any other class of our shares. This
distribution shall be made pro rata based on the number of common shares held by
each holder, assuming conversion into common shares of all other classes of our
shares, and any other participating outstanding series or class of our shares
convertible into common shares. All outstanding common shares are fully paid and
nonassessable, and the common shares to be issued following this offering will
be fully paid and nonassessable.

PREFERENCE SHARES

Our articles of incorporation provide that the board of directors has the
authority, without further action by the shareholders, to issue up to an
unlimited number of preference shares in one or more series. The preference
shares are entitled to dividend and liquidation preferences over the common
shares. The board may also fix the designations, rights, powers, preferences,
privileges and relative, participating, optional or special rights of any
preference shares issued, including any qualifications, limitations or
restrictions. Special rights which may be granted to a series of preference
shares may include dividend rights, conversion rights, voting rights, terms of
redemption and liquidations preferences, any of which may be superior to the
rights of the common shares. Preference share issuances could decrease the
market price of the common shares and may adversely affect the voting and other
rights of the holders of common shares. The issuance of preference
52
<PAGE> 56

shares also could have the effect of delaying or preventing a change of control
of our company. We currently do not have any plans to issue preference shares.

REGISTRATION RIGHTS

On January 27, 1999, we entered into a registration rights agreement with
our then-existing shareholders under which, at any time after 120 days from the
completion of this offering, either XDL Delano Holdings Inc. individually or a
group of the other shareholders holding more than 50% of our outstanding common
shares, may make up to three requests to have us register all or any portion of
their shares under the Securities Act or under Canadian securities laws.

In addition, these share holders have "piggyback" registration rights. If
we propose to register any common shares under the Securities Act or qualify any
common shares under a Canadian prospectus, other than in connection with this
offering or in connection with the registration of securities issued under an
employee benefits plan or in consideration of an acquisition, each of these
shareholders may require us to include all or a portion of the common shares
held by them in the registration or qualification, as the case may be.

We are responsible for paying the expenses of any such registrations. Each
participating shareholder would bear its proportionate share of all underwriting
commissions. These registrations rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares.

SPECIAL WARRANTS

Pursuant to an agency agreement dated June 24, 1999 between Delano and
Griffiths McBurney & Partners, National Bank Financial Corp. and Charles Schwab
Canada Co., we issued and sold by way of private placement, special warrants for
proceeds of $14.4 million, net of the agents' commission and offering expenses.
Each special warrant entitles the holder to acquire at any time, without payment
of any additional compensation, one Class C special share or, if our outstanding
special shares have been converted to common shares, one common share, subject
to adjustment. Our outstanding special warrants will be exercised to purchase an
aggregate of 6,490,386 common shares in connection with the completion of this
offering.

OWNERSHIP RESTRICTIONS

There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of common shares,
other than withholding tax requirements. See "Tax Considerations."

There is no limitation imposed by Canadian law or by the Articles of
Incorporation or other charter documents of the Company on the right of a
non-resident to hold or vote Common Shares, other than as provided by the
Investment Canada Act, the North American Free Trade Agreement Implementation
Act (Canada) and the World Trade Organization Agreement Implementation Act. The
Investment Canada Act requires notification and, in certain cases, advance
review and approval by the Government of Canada of the acquisition by a
"non-Canadian" of "control" of a "Canadian business," all as defined in the
Investment Canada Act. Generally speaking, the threshold for review will be
higher in monetary terms for a member of the World Trade Organization or North
American Free Trade Agreement.

TRANSFER AGENT AND REGISTRAR

The registrar and transfer agent for our common shares is Montreal Trust
Company of Canada. Its address is 151 Front Street, 8th Floor, Toronto, Ontario
M5J 2N1, and its telephone number at this location is (416) 981-9500. American
Securities Transfer and Trust Incorporated will act as co-transfer agent. Its
address is 1 Liberty Plaza, New York, New York 10006, and its telephone number
at this location is (800) 663-9097.

53
<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering and the private placement in Canada of
500,000 common shares to Nortel Networks, which will occur concurrently with the
completion of this offering, a total of 29,174,598 of our common shares will be
outstanding, assuming no exercise of the underwriters' over-allotment option or
of any outstanding options. The sale of substantial numbers of common shares in
the public market, or the possibility of such a sale, could adversely affect
prevailing market prices for our common shares.

All of the common shares sold in the offering will be freely tradable
without restriction under the U.S. Securities Act, except by "affiliates" as
defined in Rule 144 under the U.S. Securities Act, or applicable Canadian
securities laws, except by "control persons" as defined under those laws.

For the reasons set forth below, we believe that the following presently
outstanding common shares will be eligible for resale in the public market in
the United States at the following times and by the following persons:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
At the date of this prospectus.............................. --
180 days after the date of this prospectus.................. 23,937,755
Later than 180 days after the date of this prospectus....... 236,843
</TABLE>

Holders of 24,174,598 common shares, including Nortel Networks, have
entered into lock-up agreements pursuant to which they have agreed not to
dispose of or hedge any of their common shares for 180 days following the date
of the prospectus without the consent of FleetBoston Robertson Stephens Inc. on
behalf of the underwriters. See "Underwriting."

We intend to file with the SEC a registration statement on Form S-8 90
days after the date of this prospectus. The S-8 registration statement will
allow holders of common shares that are issued under equity incentive
arrangements, in connection with option exercises or under our share purchase
plan to resell those shares in the public market, subject to the lock-up
agreements and any restrictions imposed by Canadian law.

U.S. RESALE RESTRICTIONS

Upon completion of this offering, 236,843 common shares will be held by
U.S. residents or others. As a result of the lock-up agreements and the
provisions of Rule 144 under the U.S. Securities Act, such shares will be
available for sale in the public market in the United States as set forth in the
table above, subject in some cases to Rule 144 limitations.

In general, under Rule 144, as in effect on the date of this prospectus,
any person, including any of our affiliates, who has beneficially owned common
shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that, together with sales of any common shares with
which such person's sales must be aggregated, does not exceed the greater of:

- 1% of the then outstanding common shares; and

- the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding
the date on which such sale is made.

Sales of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of current
public information about Delano. Persons who are our affiliates must also comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell common shares in the public market
which are not restricted securities.

For a description of the rights of some of our holders to require us to
register their common shares under the U.S. Securities Act, see "Description of
Share Capital -- Registration Rights."

54
<PAGE> 58

TAX CONSIDERATIONS

In this section we describe the material anticipated United States and
Canadian federal income tax considerations relevant to a purchase of common
shares in this offering by individuals and corporations which:

- for purposes of the United States Internal Revenue Code, the Income Tax
Act (Canada) and the Canada-United States Income Tax Convention (1980),
are resident in the United States, or are otherwise subject to United
States federal income taxation without regard to source, and not in
Canada;

- hold the common shares as capital assets for purposes of the Internal
Revenue Code and capital property for purposes of the Income Tax Act
(Canada);

- deal at arm's length with us for purposes of the Income Tax Act
(Canada);

- do not use or hold the common shares in carrying on a business in
Canada and are not an insurer which carries on business in Canada and
elsewhere; and

- in the case of individual holders, are also U.S. citizens.

We will refer to persons who satisfy the above conditions as "Unconnected U.S.
Shareholders."

We will assume, for purposes of this discussion, that you are an
Unconnected U.S. Shareholder. The tax consequences of a purchase of common
shares by persons who are not Unconnected U.S. Shareholders may differ
substantially from the tax consequences discussed in this section. The Income
Tax Act (Canada) contains rules relating to securities held by some financial
institutions. We do not discuss these rules and holders that are financial
institutions should consult their own tax advisors.

This discussion is based upon:

- the current provisions of the Income Tax Act (Canada) and regulations
under the Income Tax Act (Canada);

- the current provisions of the Internal Revenue Code and regulations
under the Internal Revenue Code;

- the current provisions of the Canada-United States Income Tax
Convention (1980);

- our understanding of the current administrative policies and practices
published by the Canada Customs and Revenue Agency;

- all specific proposals to amend the Income Tax Act (Canada) and the
regulations under the Income Tax Act (Canada) that have been publicly
announced by or on behalf of the Minister of Finance (Canada) prior to
the date of this prospectus;

- the administrative policies published by the U.S. Internal Revenue
Service; and

- judicial decisions,

all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.

WE INTEND THIS DISCUSSION TO BE A GENERAL DESCRIPTION OF THE U.S. FEDERAL
AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS MATERIAL TO A PURCHASE OF COMMON
SHARES. THIS DISCUSSION DOES NOT DEAL WITH ALL POSSIBLE TAX CONSEQUENCES
RELATING TO AN INVESTMENT IN OUR COMMON SHARES. WE HAVE NOT TAKEN INTO ACCOUNT
YOUR PARTICULAR CIRCUMSTANCES AND DO NOT ADDRESS CONSEQUENCES PECULIAR TO YOU
UNDER PROVISIONS OF U.S. OR CANADIAN INCOME TAX LAW. THEREFORE, YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR CONSEQUENCES TO YOU OF
PURCHASING COMMON SHARES IN THIS OFFERING.

55
<PAGE> 59

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following sets forth the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, U.S. counsel to Delano, as to the material United States federal
income tax consequences of an investment in the common shares applicable to
Unconnected U.S. Shareholders who purchase shares in this offering.

As an Unconnected U.S. Shareholder, you will include in income dividend
distributions paid by us to the extent of our current or accumulated earnings
and profits. You must include in income an amount equal to the U.S. dollar value
of such dividends on the date of receipt based on the exchange rate on such
date, without reduction for the Canadian withholding tax. You will be entitled
to a foreign tax credit, or deduction for U.S. federal income tax purposes, in
an amount equal to the Canadian tax withheld. To the extent dividend
distributions paid by us exceed our current or accumulated earnings and profits,
they will be treated first as a return of capital up to your adjusted tax basis
in the shares, and then as a gain from the sale or exchange of the shares.

Dividends paid by us will constitute "passive income" for purposes of the
foreign tax credit, which could reduce the amount of foreign tax credit
available to you. The Internal Revenue Code applies various limitations on the
amount of foreign tax credit that may be available to a U.S. taxpayer. Because
of the complexity of those limitations, you should consult your own tax advisor
with respect to the potential consequences of those limitations.

Dividends paid by us on the shares will not be eligible for the "dividends
received" deductions. An Unconnected U.S. Shareholder which is a corporation
may, under some circumstances, be entitled to a 70% deduction of the U.S. source
portion of dividends received from us if such Unconnected U.S. Shareholder owns
shares representing at least 10% of our voting power and value.

If you sell the shares, you will recognize gain or loss in an amount equal
to the difference, if any between the amount realized on the sale and your
adjusted tax basis in the shares. Any gain or loss you recognize upon the sale
of shares held as capital assets will be long-term or short-term capital gain or
loss, depending on whether the shares have been held by you for more than one
year.

A U.S. Shareholder should not recognize any gain or loss with respect to
the amalgamation with XDL Delano Holdings and the U.S. Shareholder's holding
period and basis in Delano shares should be the same as the holding period and
basis in the shares held prior to the amalgamation.

Under current U.S. tax regulations, dividends paid by us on the shares
will not be subject to U.S. information reporting or the 31% backup withholding
tax unless they are paid in the United States through a U.S. or U.S.-related
paying agent, including a broker. If you furnish the paying agent with a duly
completed and signed Form W-9 such dividends will not be subject to the backup
withholding tax. You will be allowed a refund or a credit equal to any amounts
withheld under the U.S. backup withholding tax rules against your U.S. federal
income tax liability, provided you furnish the required information to the
Internal Revenue Service.

PERSONAL HOLDING COMPANIES

We could be classified as a personal holding company for U.S. federal
income tax purposes if both of the following tests are satisfied:

- if at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value
of our shares; and

- we receive 60% or more of our U.S. related gross income from specified
passive sources, such as royalty payments.

A personal holding company is taxed on a portion of its undistributed U.S.
source income, including specific types of foreign source income which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe we are a personal
holding

56
<PAGE> 60

company presently, and we do not expect to become one. However, we can not
assure you that we will not qualify as a personal holding company in the future.

FOREIGN PERSONAL HOLDING COMPANIES

We could be classified as a foreign personal holding company if in any
taxable year both of the following tests are satisfied:

- five or fewer individuals who are United States citizens or residents
own or are deemed to own more than 50% of the total voting power of all
classes of our shares entitled to vote or the total value of our
shares; and

- at least 60%, 50% in some cases, of our gross income consists of
"foreign personal holding company income," which includes passive
income such as dividends, interests, gains from the sale or exchange of
shares or securities, rent and royalties.

If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we can not assure you that we will not qualify as a foreign personal holding
company in the future.

PASSIVE FOREIGN INVESTMENT COMPANIES

The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. 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, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295, the
above-described rules will not apply. Instead, the Unconnected U.S. Shareholder
would include annually in his gross income his pro rata share of our ordinary
earnings and net capital gain, regardless of whether such income or gain was
actually distributed. Tax on this income, however, may be deferred.

In addition, subject to specific limitations, Unconnected U.S.
Shareholders owning actually or constructively marketable shares in a passive
foreign investment company may make an election to mark that stock to market
annually, rather than being subject to the above-described rules. Amounts
included in or deducted from income under this mark to market election and
actual gains and losses realized upon disposition, subject to specific
limitations, will be treated as ordinary gains or losses.

In addition, special rules apply if we qualify as both a passive foreign
investment company and a "controlled foreign corporation," as defined below, and
an Unconnected U.S. Shareholder owns, actually or constructively, 10% or more of
the total combined voting power of all classes of our shares entitled to vote.

We believe that we will not be a passive foreign investment company for
the current fiscal year and we do not expect to become a passive foreign
investment company in future years. You should be aware, however, that if we are
or become a passive foreign investment company we may not be able to satisfy

57
<PAGE> 61

record-keeping requirements that would permit you to make a qualified electing
fund election. You should consult your tax advisor with respect to how the
passive foreign investment company rules affect your tax situation, including
the advisability of making an election to treat us as a qualified electing fund
or making a mark to market election.

CONTROLLED FOREIGN CORPORATION

If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including requiring such
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined by the Internal Revenue Code. In addition, gain from the
sale or exchange of shares by an Unconnected U.S. Shareholder who is or was a
10% or greater shareholder at any time during the five-year period ending with
the sale or exchange will be ordinary dividend income to the extent of our
earnings and profits attributable to the shares sold or exchanged.

We do not believe that we are a controlled foreign corporation and we do
not anticipate that we will become a controlled foreign corporation as a result
of the offering. However, we can not assure you that we will not qualify as a
controlled foreign corporation in the future.

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following sets forth the opinion of Osler, Hoskin & Harcourt LLP,
Canadian counsel to Delano, as to the material Canadian federal income tax
considerations generally applicable to Unconnected U.S. Shareholders who
purchase shares in this offering.

You will be considered to have disposed of your common shares and to have
acquired new common shares as a result of the amalgamation of Delano with XDL
Delano Holdings Inc. but will not realize a gain or loss under the Income Tax
Act (Canada) as a result of this disposition.

Under the Income Tax Act (Canada), assuming you are an Unconnected U.S.
Shareholder and provided the common shares are listed on a prescribed stock
exchange, which includes Nasdaq, you will be exempt from Canadian tax on a
capital gain realized on an actual or deemed disposition of the common shares
unless you alone or together with persons with whom you did not deal at arm's
length for the purposes of the Income Tax Act (Canada) owned or had interests in
or rights to acquire 25% or more of our issued shares of any class or series at
any time during the five year period before the disposition.

Dividends paid, credited or deemed to have been paid or credited on the
common shares to Unconnected U.S. Shareholders will be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act (Canada) on the gross
amount of the dividend. Under the Canada-United States Income Tax Convention
(1980), the rate of withholding tax applicable to Unconnected U.S. Shareholders
who beneficially own the dividends is reduced to 15%. In the case of Unconnected
U.S. Shareholders that are companies that beneficially own at least 10% of our
voting shares, the rate of withholding tax on dividends is reduced to 5% and in
the case of Unconnected U.S. Shareholders that are certain religious,
scientific, charitable and similar tax exempt organizations and certain pension
organizations exempt from tax in the United States, the rate of withholding tax
is reduced to nil, provided certain administrative procedures are followed.

Canada does not currently impose any estate taxes or succession duties,
however, if you die, there is a deemed disposition of the common shares held at
that time for proceeds of disposition equal to the fair market value of the
shares immediately before the death. Capital gains realized on the deemed
disposition, if any, will generally have the income tax consequences described
above.

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<PAGE> 62

UNDERWRITING

The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc., have
severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us the number of common shares set
forth opposite their names below. The underwriters are committed to purchase and
pay for all of the shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc. and FleetBoston
Robertson Stephens International Limited.................. 2,990,000
U.S. Bancorp Piper Jaffray Inc. ............................ 1,610,000
First Albany Corporation ................................... 100,000
Griffiths, McBurney & Partners ............................. 100,000
Punk, Ziegel & Company, L.P. ............................... 100,000
C.E. Unterberg, Towbin ..................................... 100,000
---------
Total.................................................. 5,000,000
=========
</TABLE>

We have been advised that the underwriters propose to offer our common
shares to the public at the public offering price located on the cover page of
this prospectus and to dealers at that price less a concession of not in excess
of $0.76 per share, of which $0.10 may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and reallowance
to dealers may be reduced by the representatives. No reduction in this price
will change the amount of proceeds to be received by us as indicated on the
cover page of this prospectus.

The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.

Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional common shares to cover over-allotments, if
any, at the same price per share as we will receive for the 5,000,000 shares
that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of common shares to be purchased by it shown in the above
table represents as a percentage of the 5,000,000 shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 5,000,000 shares are being sold. We will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 common shares
offered by this prospectus.

Underwriting commissions. The underwriting commissions will be an amount
equal to the public offering price per share, less the amount paid per share by
the underwriters to us. The underwriting commissions equal 7% of the public
offering price. The following table shows the per share and total underwriting
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.

<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Initial public offering price....................... $18.00 $90,000,000 $103,500,000
Underwriting commissions............................ 1.26 6,300,000 7,245,000
------ ----------- ------------
Estimated proceeds, before expenses, to us.......... $16.74 $83,700,000 $ 96,255,000
====== =========== ============
</TABLE>

The expenses of the offering, other than underwriting commissions, payable
by us are estimated at $800,000. FleetBoston Robertson Stephens Inc. expects to
deliver the common shares to purchasers on February 14, 2000.

59
<PAGE> 63

Griffiths McBurney & Partners, which will act as one of the underwriters
of this offering, served as a placement agent in connection with the Company's
private placement of special warrants in June 1999. See "Description of Share
Capital -- Special Warrants." Griffiths McBurney & Partners received a fee of
Cdn$725,950 (approximately US$502,720) for its services in connection with this
private placement. Under the rules of the National Association of Securities
Dealers, Inc., the placement fee paid to Griffiths McBurney & Partners may be
deemed to be underwriting compensation in connection with this offering.

Directed Share Program. The underwriters have reserved up to five percent
of the common shares to be issued by us and offered for sale in this offering,
at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Delano. The number of
common shares available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.

In addition, the underwriters have reserved up to 400,000 common shares
for sale to Canada Life Assurance at the initial public offering price. Canada
Life Assurance has not committed to purchasing these common shares.

Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Agreements Not to Sell Shares. Holders of a total of 24,174,598 common
shares, including all of our executive officers and directors, have agreed that,
during the period ending 180 days after the date of this prospectus, subject to
limited exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any common shares
or any options or warrants to purchase any common shares, or any securities
convertible into or exchangeable for common shares owned as of the date of this
prospectus or later acquired directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to these agreements not to sell shares. There are
no existing agreements between the representatives of the underwriters and any
of our shareholder providing consent to the sale of shares prior to the
expiration of the respective periods.

Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by shareholders subject to
agreements not to sell shares prior to the expiration of the respective periods,
(b) issue, sell, contract to sell, or otherwise dispose of, any common shares,
any options to purchase any common shares or any securities convertible into,
exercisable for or exchangeable for common shares other than our sale of shares
in this offering, the issuance of common shares upon the exercise of outstanding
options, and the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the 180-day
period or (c) issue up to 1,000,000 common shares in connection with
acquisitions of businesses or assets of businesses or in connection with
strategic alliances; provided that

- each person receiving common shares enters into a lock-up agreement
pursuant to which they agree not to dispose of or hedge any of their
common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. on behalf of
the underwriters; and

- we do not grant any rights that are exercisable for a period of six
months from the date we sign the purchase agreement with the
underwriters entitling the persons receiving common shares to require
us to register their shares under the U.S. Securities Act.

See "Shares Eligible for Future Sale."

60
<PAGE> 64

Listing. Our common shares have been approved for quotation on the Nasdaq
National Market under the symbol "DTEC."

No Distribution in Canada. The common shares may be offered in Canada by
the underwriters or their Canadian affiliates pursuant to a prospectus
qualifying the common shares for distribution in certain provinces of Canada or
pursuant to prospectus exemptions under applicable securities legislation. Each
of the underwriters has agreed that it will only distribute common shares in
Canada in accordance with prospectus and registration requirements of applicable
securities legislation or exemptions from these requirements.

No Prior Public Market. Prior to this offering, there has been no public
market for our common shares. Consequently, the initial public offering price
for the common stock offered by this prospectus was determined through
negotiations among us and the representatives. Among the factors considered in
these negotiations were prevailing market conditions, our financial information,
market valuations of other companies that we and the representatives believed to
be comparable to us, estimates of our business potential, the present state of
our development and other factors deemed relevant.

Stabilization. The representatives have advised us that, under Regulation
M under the U.S. Securities Exchange Act, some participants in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common shares at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common shares on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common shares. A
"syndicate covering transaction" is the bid for or the purchase of the common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common shares originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.

61
<PAGE> 65

LEGAL MATTERS

Osler, Hoskin & Harcourt LLP, Toronto, Ontario, will pass upon the
legality of the common shares offered by this prospectus. Skadden, Arps, Slate,
Meagher & Flom LLP, Toronto, Ontario and New York, New York, is acting as our
United States counsel with respect to the offering. Foley, Hoag & Eliot LLP,
Boston, Massachusetts, is acting as United States counsel to the underwriters.

EXPERTS

The consolidated financial statements of Delano as of March 31, 1999 and
December 31, 1999 and for the period from May 7, 1998 (inception) to March 31,
1999, the period from May 7, 1998 to December 31, 1998 and the nine months ended
December 31, 1999 included in this prospectus have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this prospectus in reliance upon the authority of
KPMG LLP as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC, 450 Fifth Street N.W., Washington, D.C. 20549,
a registration statement on Form F-1 covering the common shares being sold in
this offering. We have not included in this prospectus all the information
contained in the registration statement, and you should refer to the
registration statement and its exhibits for further information.

Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document is deemed to
modify the description contained in this prospectus. You must review the
exhibits themselves for a complete description of the contract or document.

You may review a copy of the registration statement, including exhibits
and schedules filed with it, at the SEC's public reference facilities in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of such
materials from the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You
may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as Delano, that file electronically with the SEC.

You may read and copy any reports, statements or other information that we
file with the Commission at the addresses indicated above, and you may also
access them electronically at the web site set forth above. These SEC filings
are also available to the public from commercial document retrieval services.

Prior to this offering, we have not been required to file reports with the
SEC. Following consummation of the offering, we will be required to file reports
and other information with the SEC under the U.S. Securities Exchange Act. As a
foreign private issuer, we are exempt from the rules under the U.S. Securities
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the U.S.
Securities Exchange Act. Under the U.S. Securities Exchange Act, we are not
required to publish financial statements as frequently or as promptly as United
States companies.

62
<PAGE> 66

DELANO TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Form of Independent Auditors' Report........................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Deficiency......... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 67

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Delano Technology Corporation

We have audited the accompanying consolidated balance sheets of Delano
Technology Corporation as of March 31, 1999 and December 31, 1999 and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for the period from May 7, 1998 (date of inception) to March 31, 1999, the
period from May 7, 1998 (date of inception) to December 31, 1998 and the nine
months ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 1999 and December 31, 1999 and the results of its operations and
its cash flows for the period from May 7, 1998 (date of inception) to March 31,
1999, the period from May 7, 1998 (date of inception) to December 31, 1998 and
the nine months ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States.

Chartered Accountants

Toronto, Canada /s/ KPMG LLP
January 12, 2000 (except for note 16
which is as of February 7, 2000)

F-2
<PAGE> 68

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

<TABLE>
<CAPTION>
DECEMBER 31,
1999
PRO FORMA
MARCH 31, DECEMBER 31, SHAREHOLDERS'
1999 1999 EQUITY (NOTE 7)
--------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,989 $ 11,940
Accounts receivable trade, net of allowance for doubtful
accounts of $200 at December 31, 1999.................. -- 2,662
Investment tax credits receivable........................ 201 155
Prepaid expenses and other............................... 65 657
-------- --------
Total current assets................................... 2,255 15,414
Property and equipment..................................... 318 1,176
-------- --------
Total assets............................................... $ 2,573 $ 16,590
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities................. $ 518 $ 2,591
Deferred revenue......................................... 100 427
Current portion of obligations under capital leases...... 30 209
-------- --------
Total current liabilities.............................. 648 3,227
Long-term liabilities:
Obligations under capital leases......................... 66 267
-------- --------
Total liabilities.......................................... 714 3,494
Class A redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
4,000,000 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $1,000 plus 8% cumulative
dividends......................................... 1,047 1,158 --
Class B redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
3,789,476 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $2,400 plus 8% cumulative
dividends......................................... 2,434 2,693 --
Special warrants:
Issued and outstanding:
4,326,924 warrants at December 31, 1999
Redemption amount -- $2,740 plus 8% cumulative
dividends......................................... -- 14,703 --
Shareholders' deficiency:
Capital stock:
Common shares:
Authorized:
Unlimited number of shares
Issued and outstanding:
6,000,000 shares at March 31, 1999 and 5,250,000
shares at December 31, 1999..................... 433 6,318 $ 24,872
Warrant.................................................. 126 126 126
Deferred stock-based compensation........................ (386) (5,502) (5,502)
Accumulated other comprehensive losses................... (5) (152) (152)
Deficit.................................................. (1,790) (6,248) (6,248)
-------- -------- --------
Total shareholders' deficiency......................... (1,622) (5,458) $ 13,096
-------- -------- ========
Total liabilities and shareholders' deficiency............. $ 2,573 $ 16,590
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 69

DELANO TECHNOLOGY CORPORATION

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

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues:
Products......................................... -- -- $ 5,061
Services......................................... -- -- 296
-------- -------- --------
Total revenues................................ -- -- 5,357
Cost of revenues:
Products......................................... -- -- 20
Services......................................... -- -- 701
-------- -------- --------
Total cost of revenues........................ -- -- 721
-------- -------- --------
Gross profit....................................... -- -- 4,636
-------- -------- --------
Operating expenses:
Sales and marketing.............................. $ 554 $ 144 5,456
Research and development......................... 797 486 2,244
General and administrative....................... 180 45 767
Amortization of deferred stock-based
compensation.................................. 171 2 769
-------- -------- --------
Total operating expenses...................... 1,702 677 9,236
-------- -------- --------
Loss from operations............................... (1,702) (677) (4,600)
Interest income, net............................... 13 -- 354
-------- -------- --------
Loss before provision for income taxes............. (1,689) (677) (4,246)
Provision for income taxes......................... -- -- --
-------- -------- --------
Loss for the period................................ (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Basic and diluted loss per common share............ $ (2.40) $ (1.35) $ (1.85)
======== ======== ========
Shares used in computing basic and diluted loss per
common share (in thousands)...................... 746 503 2,415
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70

DELANO TECHNOLOGY CORPORATION

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

<TABLE>
<CAPTION>
ACCUMULATED
COMMON SHARES DEFERRED OTHER TOTAL
------------------- STOCK-BASED COMPREHENSIVE SHAREHOLDERS'
NUMBER AMOUNT WARRANT COMPENSATION LOSSES DEFICIT DEFICIENCY
--------- ------- ------- ------------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Currency translation
adjustment.................. -- -- -- -- $ (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)
Deferred stock-based
compensation................ -- 5,885 -- (5,885) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 769 -- -- 769
Repurchase of common shares... (750,000) -- -- -- -- -- --
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- (212) (212)
Currency translation
adjustment.................. -- -- -- -- (147) -- (147)
Loss for the period........... -- -- -- -- -- (4,246) (4,246)
--------- ------- ------- ------- ------- ------- -------
Balances, December 31, 1999... 5,250,000 $6,318 $ 126 $(5,502) $ (152) $(6,248) $(5,458)
========= ======= ======= ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71

DELANO TECHNOLOGY CORPORATION

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

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period.............................. $(1,689) $ (677) $(4,246)
Depreciation and amortization which does not
involve cash.................................. 33 20 125
Amortization of deferred stock-based
compensation.................................. 171 2 769
Changes in non-cash operating working capital:
Accounts receivable trade..................... -- -- (2,601)
Investment tax credits receivable............. (200) -- 54
Prepaid expenses and other.................... (65) (68) (576)
Accounts payable and accrued liabilities...... 516 48 2,003
Deferred revenue.............................. 99 -- 315
------- ------- -------
Net cash used in operating activities............ (1,135) (676) (4,157)
Financing activities:
Issuance of redeemable convertible special
shares........................................ 3,375 992 --
Issuance of common shares........................ 2 2 --
Issuance of special warrants..................... -- -- 14,436
Proceeds from bank loan.......................... -- -- 156
Repayment of bank loan........................... -- -- (156)
Repayment of obligations under capital leases.... (2) -- (182)
------- ------- -------
Net cash provided by financing activities........ 3,375 994 14,254
Investing activities:
Additions to property and equipment.............. (251) (140) (464)
------- ------- -------
Cash used in investing activities................ (251) (140) (464)
Effect of currency translation of cash balances.... -- 61 318
------- ------- -------
Increase in cash and cash equivalents.............. 1,989 116 9,951
Cash and cash equivalents, beginning of period..... -- -- 1,989
------- ------- -------
Cash and cash equivalents, end of period........... $ 1,989 $ 116 $11,940
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-6
<PAGE> 72

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 communications software that enables companies
to use e-mail and the internet for business interactions.

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 and its wholly owned subsidiaries. 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 revenue 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.

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:

<TABLE>
<S> <C>
Furniture and office equipment.............................. 30%
Computer hardware........................................... 33%
Computer software........................................... 50%
</TABLE>

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 writedown is charged to the statement of operations.

(d) Revenue Recognition

The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and related
provisions. The Company's revenues are derived from product elements, comprised
primarily of license fees and upgrades, and service elements, which include
postcontract 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 and
upgrades, is recognized pursuant to a contract or purchase order, when each
element is delivered to the customer and collection of the

F-7
<PAGE> 73
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

(e) Currency Translation

Monetary assets and liabilities of the Company and of its wholly owned
subsidiaries, which are integrated foreign operations, that are denominated in
foreign currencies are translated into Canadian dollars (which is considered to
be the measurement currency) at the exchange rate prevailing at the balance
sheet date. Non-monetary assets and liabilities are translated at the historical
exchange rate. Transactions included in operations are translated at the average
rate for the period. Exchange gains and losses resulting from the translation of
these foreign denominated amounts are reflected in the consolidated statement of
operations in the period in which they occur. As the Company's reporting
currency is the U.S. dollar, the Company translates 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 translation
adjustments are included as a separate component of shareholders' deficiency.

(f) 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 have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.

(g) Investment Tax Credits

The Company is entitled to Canadian federal and provincial investment tax
credits which 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 until such time as
the Company loses its status as a Canadian controlled private corporation. All
other investment tax credits are available to be applied against future income
tax liabilities, subject to a 10-year carryforward 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.

(h) Income Taxes

Under the asset and liability method of Statement of Accounting Standards
No. 109, "Accounting for Income Taxes" ("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
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
F-8
<PAGE> 74
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

(i) 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.

(j) Loss Per Common Share

Loss per common share has been calculated on the basis of earnings 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, 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. Pro forma basic and diluted loss per common
share has been calculated to give effect to the conversion, at the later of the
beginning of the period or their date of issuance, of all outstanding redeemable
convertible special shares and the exercise of all outstanding special warrants
upon the completion of the share offering.

(k) Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable trade. Cash equivalents consist of deposits with, or guaranteed by,
major commercial banks, the maturities of which are three months or less from
the date of purchase. 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.

(l) Fair Values of Financial Assets and Financial Liabilities

The carrying values of cash and cash equivalents, 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, redeemable convertible
special shares and special warrants approximate their fair values. The following
methods and assumptions were used to estimate the fair value of the following
financial instruments:

F-9
<PAGE> 75
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(i) Redeemable convertible special shares and special warrants -- at the
present value of contractual future payments of dividends and capital,
discounted at the current market rates of interest available to the
Company for the same or similar instrument.

(ii) 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.

(m) 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. Comprehensive loss for the period from
May 7, 1998 (inception) to March 31, 1999, the period from May 7, 1998
(inception) to December 31, 1998 and the nine months ended December 31, 1999,
was not materially different from net loss for the periods.

(n) Recent Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 was
adopted by the Company in 1998. SFAS No. 131 establishes standards for
disclosures about operating segments, product and services, geographic areas and
major customers. The Company operates in a single reportable operating segment,
that is the developing and marketing of interaction-based e-business
communications applications.

In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use," ("SOP No. 98-1"). SOP No. 98-1 requires entities to capitalize
certain costs related to internal use software once certain criteria have been
met. SOP 98-1 was adopted by the Company in 1998. The adoption of SOP No. 98-1
did not have a material impact on the Company's financial position or results of
operations.

In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5") which provides guidance on
the financial reporting of start-up costs. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 was
adopted by the Company in 1998. As the Company had not capitalized such costs,
the adoption of SOP 98-5 did not have an impact on the Company's financial
position or results of operations.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. Management
believes the adoption of SFAS No. 133 will not have a material effect on the
Company's financial position or results of operations.

In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition with respect to
Certain Transactions" ("SOP No. 98-9"). SOP No. 98-9 amends SOP No. 97-2 to
require the entity to recognize revenue for multiple element arrangements by
means of the "residual method" when:

(a) there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;

(b) vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and

F-10
<PAGE> 76
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(c) all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.

SOP No. 98-9 was adopted by the Company commencing April 1, 1999. The
adoption of SOP 98-9 did not have a material effect on the Company's financial
position or results of operations.

3. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Furniture and office equipment.............................. $ 33 $ 36
Computer hardware........................................... 96 106
Computer software........................................... 15 15
Assets under capital leases:
Furniture and office equipment............................ 6 332
Computer hardware......................................... 198 799
Computer software......................................... 3 46
--------- -------
351 1,334
Less accumulated depreciation and amortization.............. 33 158
--------- -------
$ 318 $ 1,176
========= =======
</TABLE>

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accounts payable............................................ $ 304 $ 936
Accrued bonuses............................................. -- 743
Accrued financing costs..................................... -- 196
Other accrued liabilities................................... 214 716
--------- -------
$ 518 $ 2,591
========= =======
</TABLE>

5. BANK LOAN

The bank loan bears interest at bank prime plus 2.5% per annum and was
repaid in December 1999 upon the Company's receipt of its investment tax
credits.

The Company also has a lease line of credit available to a maximum of
$679,000 (Cdn$1,000,000). Refer to note 6 for details as to the amounts utilized
under this line of credit as at December 31, 1999. The lease line of credit is
collateralized with cash for the amount of the line that is used for leasing
equipment.

F-11
<PAGE> 77
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. OBLIGATIONS UNDER CAPITAL LEASES

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

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
March 31, 2000.............................................. $ 59
March 31, 2001.............................................. 209
March 31, 2002.............................................. 205
March 31, 2003.............................................. 52
-------
525
Less amount representing interest (at rates ranging from
7.7% to 8.5%)............................................. 49
-------
Balance of obligation....................................... 476
Less current portion........................................ 209
-------
$ 267
=======
</TABLE>

7. 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 holders of the special shares are entitled to receive dividends, when
declared by the Board of Directors, that will provide the holder with an 8%
cumulative compounding rate of return. To date, there have been no dividends
paid or declared by the Company. The holders of the Class A special shares rank
in preference to the Class B and Class C special shareholders in the event of
liquidation, dissolution or winding-up of the Company. The special shares rank
in preference to the common shares in the event of liquidation, dissolution or
winding-up of the Company.

Each holder of special shares is entitled to that number of votes equal to
the number of common shares into which the special shares are convertible.

The special shares are convertible into common shares at the option of the
holder, initially on a one-for-one basis and, thereafter based on a formula and
subject to adjustments for future dilution. Special shares automatically convert
into common shares at the then applicable conversion rate, upon a public
offering of the Company's common shares at a per share price of not less than a
specified amount, subject to adjustments for future dilution, with aggregate
proceeds in excess of $13,600,000.

In addition, the special shares may not be redeemed by the Company at any
time; however, they may be redeemed by the holder as follows:

(i) After July 31, 2002, up to 50% of the outstanding Class A special
shares may be redeemed at the option of the holder. All of the
outstanding Class A special shares may be redeemed after July 31,
2003. The redemption price for the Class A special shares is $0.255,
plus all accrued but unpaid dividends.

(ii) After December 31, 2002, up to 50% of the outstanding Class B
special shares may be redeemed at the option of the holder. All of the
outstanding Class B special shares may be redeemed after

F-12
<PAGE> 78
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2003. The redemption price for the Class B special shares
is $0.65 per share, plus all accrued but unpaid dividends.

(iii) After June 22, 2003, up to 50% of the outstanding Class C special
shares may be redeemed at the option of the holder. All of the
outstanding Class C special shares may be redeemed after June 22,
2004. The redemption price for the Class C special shares is $0.65 per
share, plus all accrued but unpaid dividends.

The increase in the balance of redeemable convertible special shares for
the periods ended March 31, 1999 and December 31, 1999 is attributable to the
accretion of dividends, as well as the impact of the movement in the Canadian to
U.S. dollar exchange rate at the end of each period.

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. Each special warrant entitles the
holder, upon exercise and without payment of further consideration, to acquire
one Class C special share of the Company, unless all of the issued and
outstanding Class A and Class B special shares of the Company have been
converted into common shares, in which case each special warrant shall be
exercisable for that number of common shares which is equal to the number of
common shares each Class C special share is then convertible into in accordance
with the articles of the Company.

As part of the special warrant transaction, the Company is required to
file a final prospectus in each jurisdiction in which special warrant holders
are resident, qualifying the shares of the Company to be issued upon exercise of
the special warrants, on or before May 15, 2000. If the final prospectus is not
filed by May 15, 2000, the holder of a special warrant shall be entitled to
acquire, upon exercise of the special warrant, 1.1 Class C special shares,
subject to the same conditions noted above.

On December 7, 1999, the Company's Board of Directors authorized the
initial filing of a registration statement with the Securities and Exchange
Commission that would permit the Company to sell shares of the Company's common
stock in connection with a proposed initial public offering ("IPO"). If the IPO
is consummated under the terms presently anticipated, in connection with the
closing of the proposed IPO, all of the then outstanding shares of the Company's
redeemable convertible special shares and special warrants will automatically
convert into common shares based on their respective conversion ratios. The
effect of the conversion has been reflected as unaudited pro forma shareholders'
equity in the accompanying consolidated balance sheet as at December 31, 1999.
The pro forma basic and diluted loss per common share after giving effect to the
conversion, at the later of the beginning of the period or their date of
issuance, of the redeemable convertible special shares and the special warrants
is as follows (in thousands, except per share amounts):

F-13
<PAGE> 79
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- ------------
<S> <C> <C>
Pro forma basic and diluted loss per common share........... $ (0.30) $ (0.24)
======= =======
Numerator for pro forma basic and diluted
loss per common share:
Loss for the period.................................... $(1,689) $(4,246)
======= =======
Denominator for pro forma basic and diluted loss per common
share:
Weighted average number of common shares.................. 746 2,415
Add:
Weighted average number of common shares on conversion
of redeemable convertible special shares and special
warrants............................................. 5,264 16,169
------- -------
6,010 18,584
======= =======
</TABLE>

8. SHAREHOLDERS' DEFICIENCY

The Company's share capital and loss per common share information has been
restated to reflect a 3-for-2 split of the Company's common shares, which was
approved by the Company's shareholders on January 11, 2000.

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 4,500,000 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 annually over a four-year period. Options issued prior to March 5, 1999
vest annually over a three-year period.

F-14
<PAGE> 80
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Details of stock option transactions are as follows:

<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 NINE MONTHS ENDED
(INCEPTION) TO MARCH 31, 1999 DECEMBER 31, 1999
----------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE
---------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period......... -- -- 1,779,000 $0.13
Granted.................................. 1,779,000 $0.13 1,815,675 $1.58
---------
Outstanding, end of period............... 1,779,000 $0.13 3,594,675 $0.88
========= =========
Options exercisable at end of period..... -- -- 319,376 $0.14
Weighted average fair value of options
granted during the period with exercise
prices equal to fair value at date of
grant.................................. $0.02 --
Weighted average fair value of options
granted during the period with exercise
prices less than fair value at date of
grant.................................. $0.29 $3.31
Weighted average fair value of options
granted during the period with exercise
prices greater than fair value at date
of grant............................... -- --
</TABLE>

The stock options expire at various dates between May 2003 and December
2004.

As of December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:

<TABLE>
<CAPTION>
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
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.11................. 1,848,750 3.84 $0.11 319,376 $0.11
0.44................. 1,102,500 4.54 0.44 -- n/a
2.35-3.08............ 288,300 4.81 2.79 -- n/a
3.97-4.52............ 218,625 4.94 4.32 -- n/a
5.23-5.95............ 136,500 4.96 5.39 -- n/a
</TABLE>

The Company recorded deferred stock-based compensation amounting to
$557,000 for the period from May 7, 1998 (inception) to March 31, 1999 and $5.9
million for the nine months ended December 31, 1999. Amortization of deferred
stock-based compensation amounted to $171,000 for the period from May 7, 1998
(inception) to March 31, 1999, $2,000 for the period from May 7, 1998
(inception) to December 31, 1998 and $769,000 for the nine months ended December
31, 1999.

Compensation amounting to $39,660 arising on the issuance of 32,000 stock
options to consultants has been 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.

F-15
<PAGE> 81
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Cost of service revenues.................................... $ 18 $144
Sales and marketing......................................... 11 465
Research and development.................................... 1 73
General and administrative.................................. 141 87
---- ----
$171 $769
==== ====
</TABLE>

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:
dividend yield of 0.0%, zero volatility, a weighted average risk free interest
rate of 5.5% and a weighted average expected life of options of 3.5 years. Pro
forma information for the period indicated is as follows (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Loss -- as reported....................................... $(1,689) $(4,246)
Loss -- pro forma......................................... (1,678) (3,942)
Loss per common share -- as reported...................... (2.40) (1.85)
Loss per common share -- pro forma........................ (2.25) (1.63)
Weighted average grant date fair value of options granted
during the period......................................... 0.24 3.31
</TABLE>

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.

Repurchase of Common Shares

During August 1999, the Company acquired 750,000 common shares of the
Company from a former executive of the Company for nominal cash consideration.

Escrow Shares

At December 31, 1999, 1,968,750 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 365,625 common shares
will be released from escrow on the last day of each successive calendar quarter
subsequent to December 31, 1999. The Company may acquire for nominal
consideration any shares that are held in escrow on the date the
employee/shareholder ceases their employment with the Company. This right
expires at the time the Company's shares become publicly traded.

F-16
<PAGE> 82
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES

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

<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Loss for the period................................ $ 1,689 $ 677 $ 4,246
======= ======= =======
Computed expected tax recovery..................... $ 753 $ 302 $ 1,894
Increase (reduction) in income tax recovery
resulting from:
Permanent differences............................ (79) (10) 52
Change in beginning of the year balance of the
valuation allowance allocated to income tax
expense....................................... (718) (326) (1,975)
Additional loss carry forward due to Ontario
Superallowance................................ 44 34 29
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at March 31, 1999
and December 31, 1999 are presented below (in thousands):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- -------------
<S> <C> <C>
Future tax assets:
Non-capital loss carried forward.......................... $ 650 $ 2,154
Research and development expenses deferred for income tax
purposes............................................... 166 160
Share issue costs......................................... -- 428
------- -------
Total gross future tax assets............................. 816 2,742
Less valuation allowance.................................. 718 2,693
------- -------
Net future tax assets..................................... 98 49
Future tax liabilities:
Depreciation and amortization............................. 30 19
Investment tax credits receivable......................... 68 30
------- -------
Total gross future tax liabilities........................ 98 49
------- -------
Net future tax assets (liabilities)....................... $ -- $ --
======= =======
</TABLE>

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 which 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.

F-17
<PAGE> 83
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As at March 31, 1999, the Company had $1.8 million of losses and
deductions available to reduce future years' taxable income in Canada, of which
$1.5 million expire in 2006 and the remainder has no expiry date.

10. 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 December 31, 1999,
the Company has accrued fees aggregating $101,800 in respect of this agreement.

The Company has accrued consulting fees payable to a shareholder of the
Company amounting to nil for the periods ended March 31, 1999 and December 31,
1998 and $60,900 for the nine months ended December 31, 1999.

11. 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):

For the nine months ended December 31, 1999, one customer accounted for
26% of total revenues. As at December 31, 1999, the Company had a receivable
from two significant customers amounting to 18% and 15% of total accounts
receivable trade, respectively.

F-18
<PAGE> 84
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SUPPLEMENTARY CASH DISCLOSURES:

Supplementary cash disclosures are as follows (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 1 $ -- $ 39
======= ======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Capital lease obligations incurred for purchase
of capital assets............................. $ 99 $ -- $ 656
======= ======= =======
Deferred compensation on the grant of options to
purchase common shares with an exercise price
below fair value.............................. $ 557 $ -- $ 5,885
======= ======= =======
</TABLE>

13. LOSS PER COMMON SHARE

The following table reconciles the numerators and denominators of the
basic and diluted loss per common share computation (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Numerator for basic and diluted loss per common
share:
Loss for the period.............................. $ (1,689) $ (677) $ (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Denominator for basic and diluted loss per common
share:
Weighted average common shares................... 746 503 2,415
======== ======== ========
Basic and diluted loss per common share............ $ (2.40) $ (1.35) $ (1.85)
======== ======== ========
</TABLE>

Due to the loss for all periods presented, all potential common shares
outstanding are considered anti-dilutive and are excluded from the calculation
of diluted loss per common share.

F-19
<PAGE> 85
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. 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, 2005. Future minimum lease payments by fiscal year are as
follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 167
2001........................................................ 614
2002........................................................ 423
2003........................................................ 419
2004........................................................ 413
thereafter.................................................. 413
------
$2,449
======
</TABLE>

Rent expense was $62,274, $37,042 and $207,180 for the period from May 7,
1998 (inception) to March 31, 1999, for the period from May 7, 1998 (inception)
to December 31, 1998 and for the nine months ended December 31, 1999,
respectively.

15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.

16. SUBSEQUENT EVENTS

(a) On February 6, 2000, the Company's board of directors approved for
filing the registration statement relating to the sale and issue of
5,000,000 common shares of the Company and the prospectus in Canada
relating to the distribution of 5,000,000 common shares and 6,490,386
common shares issuable upon the exercise of the special warrants.

(b) On February 7, 2000, the Company entered into agreements with Nortel
Networks for the purchase by Nortel Networks of 500,000 common shares
in a private placement in Canada. The common shares will be purchased
at the initial public offering price. The closing of the private
placement will occur at the same time as the closing of the initial
public offering. The private placement is conditional upon the closing
of the initial public offering.

F-20
<PAGE> 86

[DESCRIPTION OF INSIDE BACK COVER ARTWORK]

[The Delano logo appears in the upper right corner. To its left appear pictures
of (1) a man and a woman shaking hands, (2) a computer screen and (3) a globe
floating above two hands.

Underneath the pictures and logo appear the following:]

DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software

DIRECTORIES --

DELANO E-BUSINESS -- IT SYSTEMS
INTERACTION SERVER AND ENTERPRISE
APPLICATIONS

DATABASES --

| |
| |
MAIL SERVER WEB SERVER

| |
- -------------------------------------------------------------------------------
| |

E-MAIL CLIENT WEB BROWSER CUSTOMERS
SUPPLIERS
PARTNERS
EMPLOYEES

Our e-business communications software integrates with and leverages
existing databases, directories and other enterprise IT systems to
permit our clients to interact over the internet and enhance their
existing e-business strategy.

<PAGE> 87

LOGO