<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 8-K

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


     PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

       Date of Report (Date of earliest event reported): August 7th, 1998.




                              DATA DIMENSIONS, INC.

             (Exact name of registrant as specified in its charter)


<TABLE>

<S>                                <C>                       <C>       
            DELAWARE                      0-4748                           06-0852458
(State or other jurisdiction of    (Commission File No.)     (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>



             One Bellevue Center, 411 108th Avenue N.E., Suite 2100,
                           Bellevue, Washington 98004

                    (Address of principal executive offices)



        Registrant's telephone number, including area code: 425-688-1000



 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =


                                     Page 1


<PAGE>   2


                                      INDEX

Item 2.    Acquisition of Assets                                          3

Item 7.    Financial Statements and Exhibits

           a) Financial statements of ST Labs, Inc.                       4

           b) Pro forma financial information                            16

           c) Exhibits - The following exhibits are filed as a part of this 
              report

                2.1     Agreement and Plan of Reorganization by and among Data
                        Dimensions, Inc., DS Acquisition Corporation, Robert
                        Arnold, Jr., Tye V. Minckler, and ST Labs, Inc. dated
                        July 28, 1998.

                        [The following exhibits and schedules to the Agreement 
                        and Plan of Reorganization have been omitted:]

                        Exhibit 1.3    Articles of Merger
                        Exhibit 2      Disclosure Schedule
                        Exhibit 5.11   Stock Option Assumption Agreement
                        Exhibit 6.2.3  Legal Opinion of Garvey, Schubert & Barer
                        Exhibit 6.3.4  Legal Opinion of Summit Law group, PLLC
                        Exhibit 6.3.13 U.S. Bank Warrant Agreement

                        [The Registrant undertakes to furnish supplementally to
                        the Commission a copy of any omitted schedule upon 
                        Commission request.]


                4.1     Stock Restriction and Registration Rights Agreement.
                4.2     Indemnification and Escrow Agreement.

                23.1    Consent of independent accountants.




                                     Page 2

<PAGE>   3

Item 2. Acquisition of Assets

           On July 28, 1998, Data Dimensions, Inc. (the "Company") entered into
a definitive agreement with ST Labs, Inc. ("ST Labs") and certain of its
shareholders, pursuant to which, on August 6, 1998, the Company acquired all of
the outstanding common stock of ST Labs in exchange for 515,300 shares of 
Company common stock. In addition, the Company assumed all options outstanding
under ST Labs' Option Plans. If fully excercised, such options will result in 
the issuance of approximately 158,000 additional shares of the Company's common
stock. The value of the Company shares exchanged in the Merger, combined with 
the shares issuable under the Option Plans, is approximately $9.7 million. ST 
Labs provides information technology services to its customers including 
recruiting contract test engineers, test automation training, and software 
testing in its own or customer locations, and testing facilities management. 
As a result of the transaction, ST Labs became a wholly-owned subsidiary of 
the Company. The Company intends to continue to use the assets acquired in the 
manner used by ST Labs prior to the acquisition.

Item 7. Financial statements and exhibits

(a)     Financial statements of business acquired

                Included herewith are ST Labs audited financial statements as of
        December 31, 1997 and for the year then ended and the unaudited
        financial statements as of March 31, 1998 and for each of the three
        month periods ended March 31, 1997 and 1998.

(b)     Pro forma financial information

                Included herewith is a pro forma condensed consolidated balance
        sheet as of March 31,1998, presented on the basis as if the Company's
        acquisition of ST Labs had occurred on March 31, 1998, and condensed
        consolidated statements of operations for each of the years ended
        December 31, 1995, 1996 and 1997 and each of the three month periods
        ended March 31, 1997 and 1998, presenting results of operations as the
        combined results of the Company and ST Labs.

                This business combination will be accounted for as a
        "pooling-of-interests" for financial reporting purposes. The
        pooling-of-interests method of accounting is intended to present as a
        single interest two or more common shareholder interests which were
        previously independent. Consequently, the historical financial
        statements for periods prior to the consummation of the combination will
        be restated as though the companies had been combined for all periods
        presented.

(c) Exhibits - The following exhibits are filed as a part of this report:

                2.1     Agreement and Plan of Reorganization by and among Data
                        Dimensions, Inc., DS Acquisition Corporation, Robert
                        Arnold, Jr., Tye V. Minckler and ST Labs, Inc. dated
                        July 28, 1998.

                        [The following exhibits and schedules to the Agreement 
                        and Plan of Reorganization have been omitted:]

                        Exhibit 1.3    Articles of Merger
                        Exhibit 2      Disclosure Schedule
                        Exhibit 5.11   Stock Option Assumption Agreement
                        Exhibit 6.2.3  Legal Opinion of Garvey, Schubert & Barer
                        Exhibit 6.3.4  Legal Opinion of Summit Law Group, PLLC
                        Exhibit 6.3.13 U.S. Bank Warrant Agreement



                                     Page 3

<PAGE>   4

                        [The Registrant undertakes to furnish supplementally to
                        the Commission a copy of any omitted schedule upon 
                        Commission request.]

                4.1     Stock Restriction and Registration Rights Agreement.
                4.2     Indemnification and Escrow Agreement.

                23.1    Consent of independent accountants.



                                  ST LABS, INC.
                              FINANCIAL STATEMENTS


                                     Page 4

<PAGE>   5



                       Report of Independent Accountants



To the Board of Directors
and Shareholders of
ST Labs, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flow present fairly,
in all material respects, the financial position of ST Labs, Inc. at December
31, 1997 and the results of its operations and its cash flows for the year, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit on these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
accompanying financial statements, the Company has incurred recurring losses
from operations and has a net capital deficiency and a net working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. The Company has signed a letter of intent to merge with another
corporation. This merger transaction and management's plans in regard to these
matters are also described in Note 8 to the accompanying financial statements.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.


PricewaterhouseCoopers  LLP
Seattle, Washington
July 13, 1998




                                     Page 5

<PAGE>   6



                                  ST LABS, INC.
                                 BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                        ASSETS

                                                                                       December 31,      March 31,
                                                                                           1997             1998
                                                                                         -------           -------
                                                                                                         (unaudited)
<S>                                                                                    <C>               <C>
Current assets
   Cash and cash equivalents                                                             $    40
   Accounts receivable, less allowance of $90                                              1,588           $ 2,142
   Prepaid and other current assets                                                           87                67
                                                                                         -------           -------

      Total current assets                                                                 1,715             2,209

Equipment and furniture, net (Note 2)                                                      1,561             1,487
Other assets                                                                                  83                83
                                                                                         -------           -------

       Total assets                                                                      $ 3,359           $ 3,779
                                                                                         =======           =======


                                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Line of credit borrowings (Note 4)                                                    $ 1,200           $ 1,447
   Accounts payable                                                                          768             1,075
   Accrued compensation and commissions                                                      350
   Other accrued expenses                                                                    738             1,040
   Notes payable to related parties                                                          215               215
   Current portion of notes payable (Note 4)                                               1,182             1,182
                                                                                         -------           -------

      Total current liabilities                                                            4,453             4,959

Notes payable, net of current portion (Note 4)                                               491               447
Other noncurrent liabilities                                                                 166               148
                                                                                         -------           -------

        Total liabilities                                                                  5,110             5,554
                                                                                         -------           -------
</TABLE>

                                     Page 6

<PAGE>   7

<TABLE>
<S>                                                                                      <C>               <C>  
Commitments and contingencies (Notes 4 and 7)

Stockholders' equity
   Common stock and additional paid in capital; no par value; 25 million shares
    authorized; 5,615 and 5,715 shares issued and outstanding                              1,275             1,375
   Accumulated deficit                                                                    (3,026)           (3,150)
                                                                                         -------           -------

       Total stockholders' equity                                                         (1,751)           (1,775)
                                                                                         -------           -------

      Total liabilities and stockholders' equity                                         $ 3,359           $ 3,779
                                                                                         =======           =======

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                     Page 7
<PAGE>   8


                                  ST LABS, INC.
                            STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                      Year Ended             Three Months Ended
                                                      December 31,               March 31,
                                                      ------------      ------------------------------
                                                          1997               1997             1998
                                                      ------------       ------------     ------------
                                                                          (unaudited)      (unaudited)

<S>                                                   <C>                <C>                <C>     
Revenue                                               $ 12,987           $  2,835           $  3,315

Direct costs                                             7,615              1,808              1,848
                                                      --------           --------           --------

Gross margin                                             5,372              1,027              1,467

General, administrative and selling expenses             7,793              1,395              1,519
                                                      --------           --------           --------

Loss before income tax                                  (2,421)              (368)               (52)

Interest expense                                           471                 50                 72
                                                      --------           --------           --------

Net loss                                              $ (2,892)          $   (418)          $   (124)
                                                      ========           ========           ========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                     Page 8
<PAGE>   9

                                  ST LABS, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                   Common stock and             Accumulated
                                                              Additional paid in capital           deficit            Total
                                                            -----------------------------       ------------        ---------
                                                               Shares           Amount

<S>                                                            <C>             <C>               <C>               <C>    
Balance, January 1, 1997                                        4,858           $   341           $  (134)          $   207

Issuance of common stock                                          500               500                                 500
Exercise of stock options                                         257                38                                  38
Capital contribution                                                                 67                                  67
Compensation expense recognized on issuance of stock
   options                                                                          329                                 329

Net loss                                                                                           (2,892)           (2,892)
                                                              -------           -------           -------           -------

Balance, December 31, 1997                                      5,615             1,275            (3,026)           (1,751)

Issuance of common stock (unaudited)                              100               100                                 100

Net loss (unaudited)                                                                                 (124)             (124)
                                                              -------           -------           -------           -------

Balance, March 31, 1998 (unaudited)                             5,715           $ 1,375           $(3,150)          $(1,775)
                                                              =======           =======           =======           =======
</TABLE>




    The accompanying notes are an integral part of these financial statements.

                                     Page 9

<PAGE>   10


                                  ST LABS, INC.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                Year Ended              Three Months Ended
                                                               December  31,                March 31,
                                                               ------------       --------------------------
                                                                   1997                1997          1998
                                                               ------------       ------------    ----------
                                                                                 (unaudited)     (unaudited)

<S>                                                             <C>               <C>             <C>     
Cash flows from operating activities
   Net loss                                                     $(2,892)          $  (418)          $  (124)
   Adjustments to reconcile net loss to net
    cash used by operating activities:
      Depreciation and amortization                                 626                94               164
      Compensation expense on stock options                         329                --                --
      Changes in operating assets and liabilities:
        Increase in accounts receivable                            (118)             (233)             (554)
        Increase in accounts payable                                390               287               307
        Increase (decrease) in other accrued expenses               748               129               (65)
      Other                                                           3               (87)               20
                                                                -------           -------           -------

Net cash used by operating activities                              (914)             (228)             (252)
                                                                -------           -------           -------

Cash flows from investing activities
   Purchases of equipment and furniture                          (1,212)             (952)              (90)
                                                                -------           -------           -------

Net cash used by investing activities                            (1,212)             (952)              (90)
                                                                -------           -------           -------

Cash flows from financing activities
   Proceeds from revolving line of credit, net                      702               193               247
   Proceeds from long-term debt                                   1,150             1,000                --
   Repayment on long-term debt                                     (236)              (25)              (45)
   Proceeds from sale of common stock                               538                --               100
                                                                -------           -------           -------

Net cash provided by financing activities                         2,154             1,168               302
                                                                -------           -------           -------

Net increase (decrease) in cash                                      28               (12)              (40)

Cash, beginning of period                                            12                12                40
                                                                -------           -------           -------

Cash, end of period                                             $    40           $    --           $    --
                                                                =======           =======           =======
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                    Page 10
<PAGE>   11



                                  ST LABS, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business - ST Labs, Inc. (the "Company"), formerly Software
Testing Laboratories, Inc., was incorporated in July 1993, in the State of
Washington. The Company provides services which include recruiting contract test
engineers, test automation training, software testing in Company facilities and
at customer locations, and managing a testing facility on behalf of one
particular customer.

Fair value disclosures - Recorded amounts of cash, accounts receivable, prepaid
and other current assets, accounts payable, and other amounts included in
current liabilities meeting the definition of financial instruments approximate
fair value.

Revenue recognition - Revenues are recognized in the period in which they are
earned, when services are provided.

Concentration of credit risk and significant customers - Financial instruments
that potentially subject the Company to concentration of credit risk include
primarily accounts receivable. Accounts receivable consists of account balances
due from several relatively large companies dispersed primarily across the
northwestern United States with industry concentration in information
technology. The Company performs ongoing credit evaluations of its customer's
financial condition and generally requires no collateral from its own customers.
Revenues from major customers exceeding 10% of total revenue included three
customers in 1997 accounting for 20%, 14%, and 11%, respectively, of total
revenue. These customers represented 12%, 14%, and 5% of accounts receivable at
December 31, 1997.

Equipment and furniture - Equipment and furniture are stated at cost and are
depreciated using the straight-line method over estimated useful lives of three
to five years. Leasehold improvements are amortized over the lesser of the lease
term or estimated useful life.

Income taxes - Income taxes are accounted for utilizing the liability method.
Deferred income taxes are provided to represent the tax consequences on future
years for temporary differences between tax and financial reporting basis of
assets and liabilities. A valuation allowance has been provided for the total
amount of deferred tax assets which would otherwise be recorded for income tax
benefits, primarily relating to operating loss carryforwards, as realization is
not considered more likely than not.

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

Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), encourages, but does not
require companies to record compensation cost for stock-based employee
compensation. The Company has chosen to continue to account for stock-based
compensation utilizing the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Pro forma net loss is
presented on the basis as if the compensation has been determined pursuant to
FAS 123.


                                    Page 11
<PAGE>   12

                                  ST LABS, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

Interim Financial Statements - The interim financial data at March 31, 1998 and
for the three months ended March 31, 1997 and 1998 is unaudited; however, in the
opinion of the Company management, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of results for the interim periods. The interim results of operations for the
three months ended March 31, 1998 are not necessarily indicative of results
expected for the entire year.

NOTE 2 - EQUIPMENT AND FURNITURE

Equipment and furniture consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                 December 31,       March 31,
                                                     1997             1998
                                                 -----------     -------------
                                                                  (unaudited)

<S>                                              <C>              <C>    
Computers and equipment                            $ 1,928           $ 1,966
Furniture and fixtures                                 288               291
Leasehold improvements                                 279               329
                                                   -------           -------
                                                     2,495             2,586
Accumulated depreciation and amortization             (934)           (1,099)
                                                   -------           -------
Equipment and furniture, net                       $ 1,561           $ 1,487
                                                   =======           =======
</TABLE>

NOTE 3 - RELATED PARTY TRANSACTIONS

The Company provides temporary employee placement services, testing facility
management, and software testing courses on a subcontract basis to a company
which is a shareholder of approximately 15% of the Company's common stock (a
"Significant Shareholder"). Revenues for these services amounted to
approximately $1.1 million in 1997, and related accounts receivable at December
31, 1997 approximated $76,000. In addition, the Significant Shareholder provides
temporary labor services to the Company, which during 1997 amounted to
approximately $1 million, and related accounts payable approximated $141,000 at
December 31, 1997.

 In April 1996, the Company borrowed $115,000 from related parties under terms
of loan and warrant purchase agreements. The notes bear interest at 18% per
annum payable monthly and are due in April 1998. The loans are unsecured and are
subordinated to notes payable to bank and are outstanding at June 30, 1998. The
loan agreements provide the holders with warrants to purchase 23,000 shares of
the Company's common stock for $.45 per share through April 1999.

In May 1997, the Company borrowed $100,000 from a related party under terms of a
loan and warrant purchase agreement. The note bears interest at 15% per annum
payable monthly, and is due in May 1998. The loan is unsecured and subordinated
to notes payable to bank and is outstanding at June 30, 1998. The agreement
provides the holder with warrants to purchase 2,000 shares of the Company's
common stock for $1.00 per share through January 2001.

In October 1997, the Company loaned $42,000 to certain shareholders bearing
interest at 12% per annum. The notes mature in October 1998 and may be extended
one year at the option of the holders.


                                    Page 12
<PAGE>   13


                                  ST LABS, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 - REVOLVING LINE OF CREDIT AND NOTES PAYABLE

The Company has a revolving line of credit with commercial bank (the "Bank").
Amounts available under the line of credit are limited to a borrowing ceiling
calculated as a percentage of eligible accounts receivable and to a maximum
borrowing outstanding of $1.5 million. The line of credit bears interest at
prime plus 1% (9.50% at December 31, 1997). This agreement contains certain
restrictive covenants with which the Company was not in compliance at December
31, 1997. The Company has not received a waiver of these covenant violations
from the Bank. However, in April 1998, the Company's revolving line of credit
agreement was amended to, among other things, increase the maximum available
borrowing to $2 million and revise certain restrictive covenants. Subsequently,
the Company became in violation of the revised restrictive covenants and such
non-compliance continues through July 13, 1998.

In February 1997, the Company entered into a term loan agreement with the Bank
providing for maximum borrowings of $2 million over an 18 month period. The
Company borrowed $1 million with the remainder becoming available to borrow,
subject to certain performance targets. Amounts outstanding under the agreement
bear interest at 12% per annum. In connection with this loan, the Company issued
to the Bank a warrant to purchase 10% of the Company's common stock under
certain future conditions, including if the loan is not paid in full upon
maturity. The Company is obligated under certain circumstances to pay $75,000 if
repayment occurs prior to August 28, 1998 and $150,000 thereafter.

At December 31, 1997, the Company has three equipment notes payable to the Bank
which bear interest between 10% and 11% annually and are due in monthly
installments through February 2002.

The revolving line of credit, term loan and equipment loans are secured by
substantially all assets of the Company and are guaranteed by the Company's two
principal shareholders. Interest paid on Bank borrowings was $407,000 during
1997. Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>

                                               December 31,     March 31,
                                                  1997            1998
                                               -----------    -----------
                                                              (unaudited)
<S>                                            <C>            <C>    
Term loan, due December 31, 1998                $ 1,000           $ 1,000
Equipment loan, due September 30, 1998               42                40
Equipment loan, due July 15, 2001                   190               178
Equipment loan, due February 28, 2002               441               411
                                                -------           -------
                                                  1,673             1,629

Current portion                                  (1,182)           (1,182)
                                                -------           -------
                                                $   491           $   447
                                                =======           =======
</TABLE>

Future maturities on notes payable at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>

           Related Party       Bank           Total
           -------------     -------          ------
<S>        <C>               <C>             <C>   
1998          $  215          $1,182          $1,397
1999                             147             147
2000                             163             163
2001                             156             156
2002                              25              25
              ------          ------          ------
              $  215          $1,673          $1,888
              ======          ======          ======
</TABLE>

                                    Page 13

<PAGE>   14

                                  ST LABS, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - INCOME TAXES

Deferred income taxes recorded for significant temporary differences between tax
and financial reporting basis of assets and liabilities approximate $910,000 at
December 31, 1997 and primarily relate to operating loss carryforwards. A
valuation allowance has been recorded for the full amount of deferred taxes as
realization of such deferred tax asset is not considered to be more likely than
not. The change in the valuation allowance approximated $850,000 in 1997.

Deferred tax assets at December 31, 1997 are summarized as follows (in
thousands):
<TABLE>

<S>                                                      <C>  
Net operating loss carry-forwards                        $ 640
Cash vs. accrual basis of accounting                       170
Depreciation                                               100
                                                         -----
                                                           910
Valuation allowance                                       (910)
                                                         -----
Deferred tax assets, net of valuation allowance          $  --
                                                         =====
</TABLE>

For income tax purposes, at December 31, 1997, the Company had net operating
loss carry-forwards of approximately $1.7 million which expire in 2008 through
2012. As a result of changes in ownership, utilization of net operating loss
carryforwards are subject to annual limitations.

NOTE 6 - COMMON STOCK AND STOCK OPTIONS

In February 1997, the Company amended its Articles of Incorporation to authorize
the issuance of 25 million shares of common stock and the Board of Directors
declared a ten-for-one stock split on the Company's common stock effected in the
form of stock dividend to holders of record on that date. All share information
has been restated to reflect this split.

During 1997, the Company extended the exercise period for stock options granted
to certain terminated employees and recorded compensation expense of $329,000.

During 1997, certain shareholders of the Company made a capital contribution of
approximately $67,000 to enable the Company to pay an employee severance
obligation.

The Company adopted a Stock Option Plan (the 1995 Plan) in 1995 for key
employees, under which 2 million shares of common stock are reserved for stock
option grants. The vesting period, exercise price and expiration period of
options are established at the discretion of the Board of Directors, except that
incentive stock options must be granted with exercise prices of not less than
100% of fair market value of the underlying common stock on the date of grant.
Options issued under the 1995 Plan become fully vested upon the completion of a
change in control transaction. In 1997, the Company established a 1997 Stock
Option Plan (the 1997 Plan) for key employees under which 500,000 shares of
common stock are reserved for stock option grants. Most terms are comparable to
the 1995 Plan. Stock options vest and become exercisable over periods of one to
three years and expire ten years from the date of grant. Outstanding stock
options at December 31, 1997 had a weighted average contractual life of 8.1
years.

The per share weighted average fair value of stock options granted during 1997
was $0.27 on the date of grant using the minimum value method with the following
weighted average assumptions: expected dividend yield of zero; risk-free
interest rate of 6.6% and an expected life of 5 years.

                                    Page 14

<PAGE>   15


                                  ST LABS, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 - COMMON STOCK AND STOCK OPTIONS (CONTINUED)

The Company applies APB Opinion No. 25 in accounting for employee stock options
and, accordingly, compensation cost has been recognized in the financial
statements only to the extent that the option exercise price is less than the
fair value of the underlying stock on the measurement date. Had the Company
determined compensation cost based on fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have been increased
from $2.89 million to a pro forma loss of $2.93 million. The full impact of
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss amount because compensation cost is amortized over the
options' vesting period of three years.

The following summarizes stock option activity:
<TABLE>
<CAPTION>

                                                                                   WEIGHTED AVERAGE
                                                                                -----------------------
                                        EXERCISE                                EXERCISE         FAIR
                                         PRICE             OUTSTANDING           PRICE           VALUE
                                      ------------         ------------         ---------       -------
<S>                                   <C>                  <C>                  <C>             <C>    
Balances at January 1, 1997            $ .15 - .83           1,708,500           $    .22       $   .06
        Options granted                       1.00             583,000               1.00           .27
        Options exercised                      .15            (256,660)               .15           .04
        Options cancelled               .15 - 1.00            (294,180)               .26           .07
                                                            ----------                                 
Balances at December 31, 1997          $.15 - 1.00           1,740,660           $    .48       $   .11
                                                            ==========                                 
</TABLE>

The following summarizes information about stock options outstanding at December
31, 1997:
<TABLE>
<CAPTION>

                                   WEIGHTED 
                                   AVERAGE
 EXERCISE                         REMAINING
  PRICES        OUTSTANDING          LIFE           EXERCISABLE
----------      -----------        ---------        ------------
<S>             <C>               <C>               <C>    
$   0.15         910,000          7.2 years            846,667
$   0.45         211,000          8.2 years             70,333
$   0.83          30,000          8.8 years             10,000
$   1.00         589,660          9.5 years                  0
               ---------                             ---------
               1,740,660                               927,000
               =========                             =========
</TABLE>

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company is from time to time involved in various claims and legal
proceedings of a nature considered by Company management to be routine and
incidental to its business. In the opinion of management, after consultation
with outside legal counsel, the ultimate disposition of such matters is not
expected to have a material adverse effect on the Company's financial position,
results of operation or liquidity.


                                    Page 15
<PAGE>   16



                                  ST LABS, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company leases its corporate headquarters in Bellevue, Washington, under
terms of a noncancelable operating lease that expires in August 2003, subject to
extensions at the Company's option. The Company is responsible for its share of
any property tax and operating costs higher than forecasted for this location.
The Company also has two other noncancelable testing facilities leases expiring
in 2002. The Company has subleased one of these sites to a third party through
March 1999. The Company also leases computer equipment under two operating
leases expiring in 1999 and 2000. Rent expense under noncancelable operating
leases approximated $1.36 million in 1997.

At December 31, 1997, future minimum rental payments under the leases are as
follows (in thousands):
<TABLE>
Years ending December 31,
<S>                     <C>   
          1998          $1,385
          1999           1,385
          2000           1,292
          2001           1,333
          2002           1,110
    Thereafter             687
                        ------
                        $7,192
                        ======
</TABLE>

In February 1998, the Company entered into a five-year noncancelable lease for a
testing facility. Future minimum lease obligations under this lease aggregate
$387,000.

NOTE 8 - LIQUIDITY

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. To date, the Company incurred recurring
operating losses and has a net capital deficiency and a working capital deficit.
Additionally, as disclosed in Note 4, the Company is in violation of its debt
covenants and substantially all of its outstanding Bank debt is due by the end
of 1998. Based on the Company's current projected earnings and cash flow,
Company management does not believe that cash generated from operations alone
will be sufficient to pay its debt by December 31, 1998. Management is
considering financing alternatives which include, among other things, a business
combination, sale of assets, or a refinancing of the bank debt.

In June 1998 the Company signed a letter of intent to combine with another
corporation. The merger is a stock for stock combination and is intended to be
accounted for as a pooling of interests transaction.

If the above transaction or other financing alternative does not occur, and the
Company is unable to make required payments due December 31, 1998, it may be
unable to continue its operations, except to the extent permitted by the Bank.

                                    Page 16
<PAGE>   17

                              DATA DIMENSIONS, INC.
                         PRO FORMA FINANCIAL INFORMATION

The accompanying pro forma financial information gives effect to the business
combination of Data Dimensions, Inc. (the "Company") and ST Labs, Inc. ("ST
Labs"). This business combination will be accounted for as a
"pooling-of-interests" for accounting and financial reporting purposes. The
pooling-of-interests method of accounting is intended to present as a single
interest two or more common shareholder interests which were previously
independent. Consequently, the historical financial statements for periods prior
to the consummation of the combination will be restated as though the companies
had been combined for all periods presented.

The pro forma financial statements included herein should be read in conjunction
with the Company's audited, annual financial statements included in the
Company's December 31, 1997 Annual Report on Form 10-KSB and its unaudited
interim financial statements included in the Company's March 31, 1998 Quarterly
Report on Form 10-Q, and the ST Labs financial statements, which are included in
this Form 8-K.

The accompanying pro forma condensed consolidated balance sheet presents the
financial position of the combined businesses as of March 31, 1998, giving
effect to the business combination utilizing the pooling-of-interests method of
accounting.

The accompanying pro forma condensed consolidated statements of operations for
each of the years ended December 31, 1995, 1996 and 1997 and each of the three
month periods ended March 31, 1997 and 1998 give effect to the business
combination utilizing the pooling-of-interests method of accounting. These
unaudited pro forma condensed consolidated statements of operations may not be
indicative of results to be expected in the future.


                                    Page 17

<PAGE>   18

                              DATA DIMENSIONS, INC.
                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                              Data
                                                           Dimensions          ST Labs           Pro Forma
                                                            --------           --------           --------
<S>                                                        <C>                 <C>               <C>
Current Assets:
  Cash and cash equivalents                                 $  5,897                              $  5,897
  Accounts receivable, net                                    15,616           $  2,142             17,758
  Prepaid and other current assets                             1,264                 67              1,331
                                                            --------           --------           --------

     Total current assets                                     22,777              2,209             24,986
Equipment and furniture, net                                   3,717              1,487              5,204
Investment in product development, net                         1,496                                 1,496
Other assets                                                     969                 83              1,052
                                                            --------           --------           --------
     Total assets                                           $ 28,959           $  3,779           $ 32,738
                                                            ========           ========           ========

Current liabilities:
  Line of credit borrowings                                                    $  1,447           $  1,447
  Accounts payable                                          $  2,191              1,075              3,266
  Accrued compensation and commissions                         2,745                                 2,745
  Other accrued liabilities                                    1,900              1,040              2,940
  Dividends payable                                              939                                   939
  Current portion of capital lease obligations                   252                                   252
  Deferred income taxes                                          391                                   391
  Current portion of notes payable                                                1,397              1,397
                                                            --------           --------           --------

     Total current liabilities                                 8,418              4,959             13,377
Notes payable, net of current portion                                               447                447
Capital lease obligations, net of current portion                448                                   448
Other non current liabilities                                                       148                148
                                                            --------           --------           --------

      Total Liabilities                                        8,866              5,554             14,420
                                                            --------           --------           --------

Stockholders' equity:
  Common stock and paid in capital                            22,251              1,375             23,626
  Treasury stock                                              (3,008)                               (3,008)
  Retained earnings (accumulated deficit)                        924             (3,150)            (2,226)
  Cumulative translation adjustment                              (74)                                  (74)
                                                            --------           --------           --------
     Total stockholders' equity                               20,093             (1,775)            18,318
                                                            --------           --------           --------
     Total liabilities and stockholders' equity             $ 28,959           $  3,779           $ 32,738
                                                            ========           ========           ========
</TABLE>



The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.

                                    Page 18

<PAGE>   19

                              DATA DIMENSIONS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                       Data
                                                    Dimensions            ST Labs           Pro Forma
                                                    ----------          ---------           ---------
<S>                                                 <C>                 <C>                 <C>     
Revenue:
  Knowledge Consulting                                $  5,878           $  3,790           $  9,668
  Information Services                                   4,833                                 4,833
  International                                            354                                   354
                                                      --------           --------           --------

     Total revenue                                      11,065              3,790             14,855

Direct costs                                             6,494              2,611              9,105
                                                      --------           --------           --------

Gross Margin                                             4,571              1,179              5,750

General, administrative and selling expenses             3,389              1,179              4,568
                                                      --------           --------           --------

Income from operations                                   1,182                 --              1,182
                                                      --------           --------           --------

Other income (expense)
  Interest expense                                        (207)               (27)              (234)
                                                      --------           --------           --------

    Total other income (expense)                          (207)               (27)              (234)
                                                      --------           --------           --------

Earnings (loss)  before income tax                         975                (27)               948

Income tax provision (benefit)                            (380)                                 (380)
                                                      --------           --------           --------

Net income (loss)                                     $  1,355           $    (27)          $  1,328
                                                      ========           ========           ========

Net income per share - basic                          $   0.19                              $   0.17
                                                      ========                              ========
                                                                                 
Net income per share - diluted                        $   0.17                              $   0.16
                                                      ========                              ========
                                                              
Weighted average shares outstanding:
  Basic                                                  7,209              4,873              7,642
                                                      ========           ========           ========

  Diluted                                                8,091              4,873              8,524
                                                      ========           ========           ========
</TABLE>


     The accompanying notes are an integral part of the pro forma condensed
                       consolidated financial statements.


                                    Page 19

<PAGE>   20

                              DATA DIMENSIONS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                        Data
                                                     Dimensions           ST Labs           Pro Forma
                                                     ----------          --------           ---------
<S>                                                   <C>                <C>                <C>     
Revenue:
  Knowledge Consulting                                $ 13,793           $  6,941           $ 20,734
  Information Services                                   6,001                                 6,001
  International                                          1,042                                 1,042
                                                      --------           --------           --------

     Total revenue                                      20,836              6,941             27,777

Direct costs                                            12,283              3,606             15,889
                                                      --------           --------           --------

Gross Margin                                             8,553              3,335             11,888

General, administrative and selling expenses             7,397              3,339             10,736
                                                      --------           --------           --------

Income (loss) from operations                            1,156                 (4)             1,152
                                                      --------           --------           --------

Other income (expense)
  Interest expense                                         (91)              (104)              (195)
  Interest income                                          583                                   583
                                                      --------           --------           --------

    Total other income (expense)                           492               (104)               388
                                                      --------           --------           --------

Earnings (loss) before income tax                        1,648               (108)             1,540

Income tax provision (benefit)                              15                                    15
                                                      --------           --------           --------

Net income (loss)                                     $  1,633           $   (108)          $  1,525
                                                      ========           ========           ========

Net income per share - basic                          $   0.15                              $   0.14
                                                      ========                              ========
                                                                                 
Net income per share - diluted                        $   0.15                              $   0.13
                                                      ========                              ========
                                                              
Weighted average shares outstanding:
  Basic                                                 10,678              4,858             11,110
                                                      ========           ========           ========

  Diluted                                               11,230              5,501             11,719
                                                      ========           ========           ========
</TABLE>


     The accompanying notes are an integral part of the pro forma condensed
                       consolidated financial statements.

                                    Page 20
<PAGE>   21

                             DATA DIMENSIONS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>

                                                        Data
                                                     Dimensions           ST Labs          Pro Forma
                                                     ----------          ---------         ---------
<S>                                                  <C>                 <C>               <C>     
Revenue:
  Knowledge Consulting                                $ 35,864           $ 12,987           $ 48,851
  Information Services                                   7,378                                 7,378
  Knowledge Transfer                                     1,619                                 1,619
  International                                          2,596                                 2,596
                                                      --------           --------           --------

     Total revenue                                      47,457             12,987             60,444

Direct costs                                            26,820              7,615             34,435
                                                      --------           --------           --------

Gross Margin                                            20,637              5,372             26,009

General, administrative and selling expenses            16,309              7,793             24,102

Unusual Items                                            4,024                                 4,024
                                                      --------           --------           --------

Income (loss) from operations                              304             (2,421)            (2,117)
                                                      --------           --------           --------

Other income (expense)
  Interest expense                                                           (471)              (471)
  Interest income                                          415                                   415
                                                      --------           --------           --------

Total other income (expense)                               415               (471)               (56)
                                                      --------           --------           --------

 Earnings (loss) before income tax                         719             (2,892)            (2,173)

Income tax provision (benefit)                             700                                   700
                                                      --------           --------           --------

Net income (loss)                                     $     19           $ (2,892)          $ (2,873)
                                                      ========           ========           ========

Net income (loss) per share - basic                   $   0.00                              $  (0.22)
                                                      ========                              ========
                                                                                 
Net income (loss) per share - diluted                 $   0.00                              $  (0.22)
                                                      ========                              ========
                                                              
Weighted average shares outstanding:
  Basic                                                 12,308              5,219             12,772
                                                      ========           ========           ========

  Diluted                                               12,609              5,897             13,133
                                                      ========           ========           ========
</TABLE>




     The accompanying notes are an integral part of the pro forma condensed
                       consolidated financial statements.

                                    Page 21

<PAGE>   22
                                                          
                             DATA DIMENSIONS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1997
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                       Data
                                                    Dimensions            ST Labs          Pro Forma
                                                    ----------           ---------         ----------
<S>                                                 <C>                  <C>               <C>     
Revenue:
  Knowledge Consulting                                $  5,810           $  2,835           $  8,645
  Information Services                                   1,819                                 1,819
  Knowledge Transfer                                       267                                   267
  International                                            676                                   676
                                                      --------           --------           --------

     Total revenue                                       8,572              2,835             11,407

Direct costs                                             4,897              1,808              6,705
                                                      --------           --------           --------

Gross Margin                                             3,675              1,027              4,702

General, administrative and selling expenses             3,166              1,395              4,561
                                                      --------           --------           --------

Income (loss) from operations                              509               (368)               141
                                                      --------           --------           --------

Other income (expense)
  Interest expense                                                            (50)               (50)
  Interest income                                          147                                   147
                                                      --------           --------           --------

Total other income (expense)                               147                (50)                97
                                                      --------           --------           --------

 Earnings (loss) before income tax                         656               (418)               238

Income tax provision (benefit)                             230                                   230
                                                      --------           --------           --------

Net income (loss)                                     $    426           $   (418)          $      8
                                                      ========           ========           ========

Net income per share - basic                          $   0.04                              $   0.00
                                                      ========                              ========
                                                                                 
Net income per share - diluted                        $   0.03                              $   0.00
                                                      ========                              ========
                                                              
Weighted average shares outstanding:
  Basic                                                 11,999              4,858             12,431
                                                      ========           ========           ========

  Diluted                                               12,340              5,667             12,844
                                                      ========           ========           ========
</TABLE>


     The accompanying notes are an integral part of the pro forma condensed
                       consolidated financial statements.

                                    Page 22
<PAGE>   23

                              DATA DIMENSIONS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                        Data
                                                     Dimensions           ST Labs           Pro Forma
                                                     ----------          --------           ---------
<S>                                                  <C>                 <C>                <C>     
Revenue:
  Knowledge Consulting                                $ 15,070           $  3,315           $ 18,385
  Information Services                                   1,930                                 1,930
  Knowledge Transfer                                       617                                   617
  International                                            298                                   298
                                                      --------           --------           --------

     Total revenue                                      17,915              3,315             21,230

Direct costs                                             9,999              1,848             11,847
                                                      --------           --------           --------

Gross Margin                                             7,916              1,467              9,383

General, administrative and selling expenses             6,337              1,519              7,856
                                                      --------           --------           --------

Income (loss) from operations                            1,579                (52)             1,527
                                                      --------           --------           --------

Other income (expense)
  Interest expense                                         (27)               (72)               (99)
  Interest income                                           70                                    70
                                                      --------           --------           --------

Total other income (expense)                                43                (72)               (29)
                                                      --------           --------           --------

 Earnings (loss) before income tax                       1,622               (124)             1,498

Income tax provision (benefit)                             625                                   625
                                                      --------           --------           --------

Net income (loss)                                     $    997           $   (124)          $    873
                                                      ========           ========           ========

Net income per share - basic                          $   0.08                              $   0.07
                                                      ========                              ========
                                                                                 
Net income per share - diluted                        $   0.08                              $   0.07
                                                      ========                              ========
                                                              
Weighted average shares outstanding:
  Basic                                                 12,664              5,698             13,170
                                                      ========           ========           ========

  Diluted                                               12,855              6,228             13,408
                                                      ========           ========           ========
</TABLE>


     The accompanying notes are an integral part of the pro forma condensed
                       consolidated financial statements.

                                    Page 23
<PAGE>   24

                              DATA DIMENSIONS, INC.
         NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


(a)     All fees and expenses related to the business combination and to the
        consolidation of the combining companies will be expensed as required
        under the pooling-of-interest accounting method. These expenses have not
        been reflected in the unaudited pro forma condensed consolidated balance
        sheet or statements of operations, but will be reflected in the
        statement of operations of the Company in the period the business
        combination is consummated. Such fees and expenses are presently
        estimated to approximate $750,000.

(b)     The calculation of unaudited pro forma net income per common share for
        each period presented reflects the issuance of Company common stock in
        exchange for all of the outstanding shares of ST Labs common stock. The
        number of shares included in the basic earnings per share computation
        has been determined utilizing the exchange ratio of Company shares for
        ST Labs shares as set forth in the business combination merger agreement
        (the "Exchange Ratio") based upon the actual weighted average number of
        ST Labs common shares outstanding during the period presented, and a per
        share price of Company common stock of $14.38. The computation of
        diluted earnings per share is similar to the computation of basic
        earnings per share, except that the number of shares utilized as the
        denominator is increased to include the number of ST Labs additional
        shares that would have been outstanding if dilutive common shares had
        been issued. Outstanding options and warrants have been considered
        utilizing the Treasury stock method in calculating dilutive earnings per
        share.


                                    Page 24
<PAGE>   25


                                    SIGNATURE


           Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned hereunto duly authorized.


August 7, 1998                DATA DIMENSIONS, INC.




                                By:_____________________________________________
                                Gordon A. Gardiner, Executive Vice President,
                                Chief Financial Officer and Secretary (Principal
                                Financial and Accounting Officer)



                                    Page 25