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

                                   FORM 10-K
                            ------------------------

     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
        SECURITY EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

     [ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                         COMMISSION FILE NUMBER 0-4748

                             DATA DIMENSIONS, INC.
                  (NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>
                     DELAWARE                                           06-0852458
          (STATE OR OTHER JURISDICTION OF                            (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)
</TABLE>

                           STERLING PLAZA, 3RD FLOOR
                           3535 FACTORIA BOULEVARD SE
                               BELLEVUE, WA 98006
                                 (425) 688-1000
         (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

      SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
                                      NONE

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                    COMMON STOCK, PAR VALUE $.001 PER SHARE
                                (TITLE OF CLASS)
                            ------------------------

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

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K.  [X]

     The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of February 29, 2000 was approximately
$53.8 million.

     As of February 29, 2000, there were 13,558,306 shares of Common Stock, par
value $.001 per share, outstanding.
                            ------------------------

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III.

--------------------------------------------------------------------------------
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<PAGE>   2

                             DATA DIMENSIONS, INC.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I

Item 1.   Business....................................................    3
Item 2.   Properties..................................................    8
Item 3.   Legal Proceedings...........................................    8
Item 4.   Submission of Matters to a Vote of Security Holders.........    8

                                  PART II

Item 5.   Market for Common Equity and Related Stockholder Matters....    9
Item 6.   Selected Financial Data.....................................   10
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   11
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   18
Item 8.   Financial Statements and Supplementary Data.................   18
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   18

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant..........   19
Item 11.  Executive Compensation......................................   19
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   19
Item 13.  Certain Relationships and Related Transactions..............   19

                                  PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   20
Signatures............................................................   22
</TABLE>

                                        2
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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

     The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Forward-Looking
Statements and Associated Risks."

GENERAL

     Data Dimensions, Inc. and its subsidiaries ("Data Dimensions" or the
"Company") provide a range of information technology ("IT") services
collectively referred to as Enterprise Integration Solutions ("EIS"). These
services include IT consulting, managed services, and quality assurance and
testing. From 1991 through 1999, the Company derived the majority of its revenue
by providing solutions specifically related to the millennium date change (Year
2000). The Company's clients consist primarily of large organizations in the
health care, information technology, manufacturing, financial services and
pharmaceutical industries as well as utilities and state and local governments.
The Company was incorporated under Delaware law in 1968.

     The Company is organized into four divisions: Field Consulting, Test
Centers (formerly ST Labs, Inc.), Information Services (formerly Pyramid
Information Services, Inc.) and International. Each division has a mission to
provide services that support specific market segments as well as to work in
concert to provide comprehensive client solutions.

INDUSTRY BACKGROUND

     Today's commercial and governmental organizations are confronted with a
diverse set of information technology options that increasingly must be
integrated, extended and maintained in order to respond to changing business
requirements. Demands for improved customer service levels, lower costs, reduced
time-to-market, and adapting to new forms of competition and competing in the
marketplace must be addressed within compressed time frames and tight budgets.
The on-going adoption of Internet-enabled business models, often referred to as
e-Business, has further highlighted the need for organizations to combine the
ubiquity and efficiency of the Internet with both existing and emerging
technologies across their enterprise and with partners, suppliers and customers.

     Within this environment, organizations must increasingly adapt to rapid,
fundamental changes in technology. Improvements in IT systems and strategies are
viewed as a critical step in achieving greater productivity and efficiency
through the identification, integration and operation of IT assets in a cost
effective manner. Although emerging technologies often provide the promise of
greater functionality and flexibility, their implementation presents major
challenges and requires skilled individuals knowledgeable in many diverse
technologies and architectures.

     The Company believes the following factors are driving the market demand
for its services:

     The need to align IT infrastructures with business goals. Interoperability,
or the need to resolve incompatibilities between computing platforms and
communications protocols, has been an IT issue for many years. The issue
however, has evolved to one of cooperative coexistence and sharing of critical
data -- building enterprise-wide IT infrastructures to connect organizations
with their clients, suppliers, and partners in support of critical business
initiatives.

     The need to leverage investments in legacy systems. Legacy systems include
a wide range of applications, environments and hardware and include internally
developed, proprietary systems as well as comprehensive, packaged applications.
These operational production systems often represent the majority of business
transactions and data that must be integrated with newer technologies to provide
a true enterprise computing solution.

     Ubiquity and Complexity of Software. The effective and consistent
functioning of software applications has become critical to business success.
The challenge facing many organizations is that the growth in demand

                                        3
<PAGE>   4

for software is surpassing their internal staff's ability to design, build and
test these applications, within narrow time-to-market windows. Increasingly,
these organizations are seeking to address this challenge by applying more
rigorous quality assurance practices and structured testing methodologies to the
development process, often in an outsourced manner.

     The emergence of e-Business. The adoption of Internet-enabled business
models has created a new competitive environment for traditional and emerging
organizations. Enabling the seamless flow of information across the organization
and between customers, suppliers and partners for e-Business processes has
numerous implications for IT infrastructures. Companies need a combination of
integration technologies, security, business process optimization and thorough
testing to fully capture the benefits of e-Business initiatives.

     A shortage of IT skills. Many organizations are finding it difficult to
expand their IT staffs with individuals knowledgeable in the diverse
technologies and architectures required to design, develop, implement and test
contemporary information systems while maintaining and enhancing operational
legacy applications.

     Acceptance of outsourcing and managed services. The number of companies
opting to outsource all or part of their IT function continues to grow as
organizations focus on core business initiatives and utilize external expertise
to reduce the growing burden on in-house IT staffs, deliver increased
efficiencies and best-of-breed practices, while often reducing total costs.
Application Service Providers ("ASP"s) have further sparked interest in a new
class of managed service that, in its simplest form, allows the delivery of
application functionality via the Internet to any user with a Web browser.

STRATEGY

     The Company's objective is to expand its position in the IT services
industry by providing its clients with services which address the operation,
integration, and testing of technology assets. These services include:
e-Business transformation and systems integration; applications and
infrastructure outsourcing; and software and Web site testing. The Company's
strategies include the following key elements:

     Focus on Testing Services. The Company's software quality assurance and
test services have largely been delivered to product development organizations
and independent software vendors through the Company's test lab facilities. The
Company intends to further expand its test and quality assurance services that
address Internet and Web-based applications, delivered through both its Test
Centers and Field Consulting divisions.

     Expand e-Business Offerings. Electronic business is transforming the way
organizations conduct business and establish and maintain relationships. The
Company seeks to address this market through providing enabling services in
areas such as Legacy-to-Web integration, e-Business assessment, Web testing and
enterprise application integration.

     Extend Year 2000 Customer Relationships. As a result of providing its
clients with assessment, remediation and testing services as part of Data
Dimensions' Year 2000 offerings, the Company has gained unique knowledge of its
clients' applications, systems and processes. The Company believes that this
knowledge can provide a competitive advantage in securing other IT services
business from these clients.

     Managed services. The market for outsourcing, or managed services,
continues to be influenced by the desire of clients to avoid continuous
technology upgrades, the need to attract and retain IT staff across new and
emerging technologies, and the appeal of a given service level for a defined
price. The Company intends to address this market through both its data center
services and applications maintenance capabilities.

     Develop technology partnerships. In addressing the needs of organizations
to fully integrate, deploy and test their data, applications and systems, the
Company intends to develop partnerships with leading software tool vendors
providing middle-ware and automated testing technologies.

                                        4
<PAGE>   5

COMPANY SERVICES

     FIELD CONSULTING. The Company's consulting services provide a broad range
of contemporary Enterprise Integration Solutions.

     IT solutions. Data Dimensions' consulting offerings focus on helping its
clients derive maximum value from critical technology assets. The Company's
approach is to actively capture and internalize project metrics, methodologies,
and best practices in a formal and structured manner. The Company may later be
able to leverage this accumulated knowledge through its application to new EIS
projects. Representative consulting offerings include project management,
technology upgrades, and data migration.

     e-Business services. Creating or enhancing an organization's e-Business
strategy requires the application of Internet-enabled technologies in concert
with well defined goals, supporting inter-enterprise processes, and integrated
business systems organized and executed within diminishing windows of
opportunity. Data Dimensions offers its clients a comprehensive range of
e-Business solutions, including:

     - e-Business assessments

     - Legacy-to-Web integration

     - Web site testing

     - Enterprise application integration

     HIPAA Assessment and Compliance. The Healthcare Insurance Portability and
Accountability Act ("HIPAA") was passed in 1996 and included provisions for
national uniform standards for electronic transmission of many administrative
and financial health care transactions that are currently conducted manually.
The Company provides consulting services to help health care organizations
assess and implement measures to achieve compliance with the federally
legislated HIPAA mandates.

     OUTSOURCING SERVICES. Data Dimensions Information Services ("DDIS")
provides system outsourcing and managed services through its secure,
multi-platform data center located in Los Angeles, California. DDIS offers both
traditional and transitional mid-range and mainframe outsourcing services on
either a long- or short-term basis. In addition to infrastructure outsourcing
services, the Company offers:

     Managed hosting. Applications hosting and management for Independent
Software Vendors looking to deploy software functionality over a network.

     Network design and administration. Design, implementation and management of
network operations.

     Production overflow capabilities. Providing clients with temporary needs,
such as increased processing power, DASD space and advanced technology.

     Application outsourcing services. Outsourcing legacy applications can
significantly reduce a client's operations costs and/or free up its staff to
work more efficiently. The Company, through its Solution Center in Galway,
Ireland and on-site consultants, provides clients with applications maintenance
and development across a range of platforms and operating environments.

     SOFTWARE TESTING AND QUALITY ASSURANCE. The Company provides comprehensive
software quality assurance and test solutions for product development and
commercial organizations from the Company's test labs and through field-based
projects, including:

     Comprehensive quality assurance. Data Dimensions' consultants offer
assistance with the entire quality assurance ("QA") process. Services include
the design, planning, and implementation of QA solutions based on each client's
business objectives. Solutions often include comprehensive consulting, testing,
and technical training services.

     Software testing. Application and system testing are critical steps in the
release of a new product or implementation of a new enterprise system. In-house
testing exposes companies to a greater risk of data contamination and can even
interfere with business-critical operations. The Company offers complete test
and training centers that result in production-quality products and systems.
During the process, the Company gains
                                        5
<PAGE>   6

further insight into the latest products, technologies and platforms, from
Windows NT to Internet technologies to embedded systems for handheld computers
and computing appliances. Specialized test practice areas include: Web sites,
printers and peripherals, Microsoft Windows CE operating system, and publishing
and education.

     OTHER. The Company has offered its Year 2000 technology throughout the
world through product sales and on a fee- and royalty-basis to suppliers of
consulting services. As more fully described in Note 3 to the Consolidated
Financial Statements, during 1999 the Company discontinued its product-based
business and consequently does not anticipate future product, fee- or
royalty-based revenue.

SALES, MARKETING AND CLIENTS

     The Company's marketing strategy is to maintain an image as a specialized
services organization providing high quality contemporary IT solutions. The
Company markets its services through its direct sales force located in branch
offices throughout the continental United States and in London, England. The
Company focuses its marketing efforts on organizations with significant IT needs
that can be addressed by the Company's testing, consulting and outsourcing
services. While the Company performs work for organizations in a wide variety of
industries, most of its revenue is derived from the following industry groups:
health care, information technology, manufacturing, financial services,
pharmaceuticals and utilities.

     The Company has historically derived, and may in the future derive, a
significant percentage of its total revenue from a relatively small number of
clients. The Company's ten largest clients accounted for approximately 55% and
46% of the Company's total revenue during the years ended December 31, 1998 and
1999, respectively. One client, Kaiser Permanente, Inc., accounted for more than
10 percent of the Company's consolidated revenue in 1998 and 1999.

     Year 2000 remediation services accounted for approximately 79% and 70% of
the Company's total revenue during the years ended December 31, 1998 and 1999,
respectively. The Company expects that future Year 2000 related revenue will be
minimal, and believes this client base represents one source of potential
business for its other IT services. Further, the Company seeks to employ a
"cross selling" approach where appropriate to expand the number of services
utilized by a single client.

     The Company relies on its sales force to generate new clients as well as
pursue potential leads. To this end, the Company's sales personnel are
encouraged to engage in direct marketing techniques including visits to
businesses within the Company's target market. In addition, the sales force
responds to requests for proposals, follows-up on client referrals and pursues
leads resulting from Company sponsored seminars, direct mail campaigns and
industry conferences.

     The Company has previously utilized independent sales representatives in
connection with marketing its Year 2000 products and services. These parties
generally entered into agreements with the Company that governed the terms under
which they would market the Company's services. Such agreements defined an
approved territory and typically contained one-year terms. The Company expects
to enter into a limited number of such agreements in the future.

     The Company has previously entered into license agreements with certain
domestic and international organizations whereby these licensees could resell
agreed upon Company products, as well as utilize the Company's methodology in
performing Year 2000 project work. These licenses were generally exclusive to a
specific geographical territory. As more fully described in Note 3 to the
Consolidated Financial Statements, during 1999 the Company discontinued its
product-based business and consequently does not expect to utilize such license
agreements in the future.

INTELLECTUAL PROPERTY

     The Company's intellectual property consists primarily of the Millennium
Process and Ardes 2k which are related to its Year 2000 offerings. The
Millennium Process consists of a documented set of procedures for resolving the
widespread problems caused by the inability of certain computer systems to
properly interpret

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dates for the year 2000 and beyond. The Company has licensed the use of the
Millennium Process to consulting firms located throughout the world.

     The Company's Millennium Process has not been the subject of an
infringement claim, however there can be no assurance that third parties will
not assert infringement claims against the Company in the future, that assertion
of such claims will not result in litigation, or that the Company would prevail
in such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in substantial
cost to, and diversion of effort by, the Company. Any infringement claim or
litigation against the Company could, therefore, materially and adversely affect
the Company's business, operating results and financial condition.

     As more fully described in Note 3 to the Consolidated Financial Statements,
during 1999 the Company discontinued its product-based business and consequently
does not expect additional material revenue to be derived from its Millennium
Process or Ardes 2k products. The Company continues to apply a knowledge
management methodology to its other services offerings similar to that found in
its Ardes 2k product, but does not expect to license such methodology in the
future.

PRODUCT AND TECHNOLOGY DEVELOPMENT

     The Company invested approximately $2.0 million, $52,000 and zero dollars
in capitalized product development costs in 1997, 1998 and 1999, respectively.
These costs consisted of personnel and other related expenses to develop Ardes
2k and Interactive Vendor Review. These products have been sold directly to
clients and to third-party providers, including computer and software companies,
and consultants. The Company recorded product and technology development
expense, including amortization of the capitalized costs, of $3.1 million,
$672,000 and $900,000 in 1997, 1998 and 1999, respectively. These amounts
include write-downs of capitalized product development of $1.5 million and
$388,000 in 1997 and 1999, respectively, which are included in non-recurring
charges in the Consolidated Statement of Operations. In September of 1999, the
Company discontinued sales of the Ardes 2k and Interactive Vendor Review
products and as such, wrote off all remaining capitalized costs associated with
these products.

COMPETITION

     The market for IT consulting services is highly competitive and served by
numerous firms. The Company believes the primary competitive factors in the IT
services consulting industry are service, price and most importantly, the
expertise and experience of the personnel provided to clients and the ability of
such personnel to provide the skills and knowledge necessary to solve IT
problems.

     The Company's competitors represent a variety of market participants,
including systems integrators, facilities management companies, regional testing
organizations, professional services firms, application software development
firms, and the professional services divisions of larger organizations such as
International Business Machines, Unisys Corporation, Andersen Consulting, and
Deloitte Touche Tohmatsu. The Company's competitors also include companies such
as Keane Inc., Computer Horizons, Inc., and Ciber Inc. In addition, new market
entrants offering e-Business consulting, or Internet integration, also compete
with the Company. Some of the Company's competitors are more established,
benefit from greater name recognition and have substantially greater financial,
technical and marketing resources than the Company. Moreover, other than the
need for technical expertise, there are no significant proprietary or other
barriers to entry in the IT consulting industry.

EMPLOYEES

     As of February 29, 2000, the Company employed approximately 407 full-time
employees. None of the Company's employees are represented by a labor union, and
the Company has never experienced a work stoppage. The Company considers its
relationship with its employees to be good. The Company supplements its
full-time employees, when necessary, with administrative and technical
contractors and temporary personnel. As of February 29, 2000, the Company
engaged 42 contractors and temporary personnel.
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ITEM 2. PROPERTIES

     The Company maintains its headquarters in a leased facility in Bellevue,
Washington. The Company also has a leased facility in Los Angeles, California,
which houses its Information Services operations. These leases will expire in
2002. In addition, the Company maintains leased office space for testing labs,
small regional offices and direct sales personnel located throughout the United
States. The Company also leases facilities in Thame, England and Galway,
Ireland. Most of the Company's leases have terms of one year. The Company
believes its facilities are in good condition.

ITEM 3. LEGAL PROCEEDINGS

     As of February 29, 2000, there were no material pending legal proceedings
to which the Company is a party. From time to time, the Company becomes involved
in ordinary, routine or regulatory legal proceedings incidental to its business.

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

     No matters were submitted to a vote of the Company's Stockholders during
the quarter ended December 31, 1999.

                                        8
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                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is listed on the NASDAQ National Market System
under the symbol "DDIM."

     The stock prices presented are the high and low bid prices as quoted on the
NASDAQ National Market System.

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    ------
<S>                                                           <C>       <C>
1998
First Quarter ended March 31, 1998..........................  $19.00    $12.00
Second Quarter ended June 30, 1998..........................   18.94     10.50
Third Quarter ended September 30, 1998......................   17.25      7.50
Fourth Quarter ended December 31, 1998......................   16.25      6.88
</TABLE>

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    ------
<S>                                                           <C>       <C>
1999
First Quarter ended March 31, 1999..........................  $ 9.38    $ 3.75
Second Quarter ended June 30, 1999..........................    4.88      2.81
Third Quarter ended September 30, 1999......................    4.38      1.38
Fourth Quarter ended December 31, 1999......................    5.00      1.13
</TABLE>

     On February 29, 2000, the closing price of the Common Stock on the NASDAQ
National Market System was $5.00 per share. As of February 29, 2000, there were
approximately 668 holders of record of the Company's Common Stock.

     The Company has not paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The Company intends to retain earnings for use in its business and to support
growth. In connection with the acquisition of ST Labs in 1998, the Company
issued approximately 515,000 shares of unregistered Common Stock. These shares
were issued in reliance upon the exemption from registration provided by
Regulation D and Rule 506 thereunder.

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ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected financial data and other operating
information of the Company. The selected financial data in the table are derived
from the Company's financial statements. The data should be read in conjunction
with the financial statements, related notes and other financial information
included herein. (Amounts in thousands, except per share data.)

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                         -----------------------------------------------------
                                          1995       1996       1997        1998        1999
                                         -------    -------    -------    --------    --------
<S>                                      <C>        <C>        <C>        <C>         <C>
Revenue................................  $14,855    $27,777    $60,444    $114,544    $102,106
Income (loss) from operations..........    1,182      1,152     (2,117)     15,354        (306)
Net income (loss)......................    1,328      1,525     (2,873)      9,202         843
Basic earnings (loss) per share........     0.17       0.14      (0.22)       0.69        0.06
Diluted earnings (loss) per share......     0.16       0.13      (0.22)       0.69        0.06
Total assets...........................    4,015     25,074     34,713      51,937      39,638
Long term debt, net of current
  portion..............................       --        761        491          --          --
Capital lease obligations, net of
  current portion......................       --         --        483       1,976       1,941
</TABLE>

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     This Annual Report contains certain forward-looking statements, including,
among others, (i) anticipated trends in the Company's financial condition and
results of operations (including expected changes in the Company's gross margin
and general, administrative and selling expenses); (ii) the Company's business
strategies for expanding its presence in the computer services industry
(including expanding its testing and e-Business offerings, the ability to secure
technology partnerships and capturing additional outsourcing clients); and (iii)
the Company's ability to distinguish itself from its current and future
competitors.

     These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. Important
factors to consider in evaluating such forward-looking statements include (i)
changes in external competitive market conditions that might impact trends in
the Company's results of operations; (ii) the absence of long-term contracts;
(iii) unanticipated working capital or other cash requirements; (iv) the
Company's ability to attract and retain qualified technical personnel; (v)
changes in the Company's business strategies or an inability to execute its
strategies to transition from consulting on the Year 2000 problem to supplying
Enterprise Integration Solutions (EIS); and (vi) various competitive factors
that may prevent the Company from competing successfully in the marketplace. In
view of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this Annual Report will, in fact,
transpire.

OVERVIEW

     The Company provides a range of information technology ("IT") services
collectively referred to as Enterprise Integration Solutions ("EIS"). These
services include IT consulting, managed services, and quality assurance and
testing. The Company is organized in four divisions to support its clients and
grow the business. The four divisions are Field Consulting, Test Centers,
Information Services and International. Each division has a mission to provide
services that support specific market segments as well as to work in concert to
provide comprehensive client solutions.

     Since 1991, Data Dimensions has focused on assisting major organizations to
plan and execute programs for resolving the Year 2000 technology problem. Using
proven methods and practices gained in its Year 2000 projects, the Company is
pursuing other mainstream IT consulting and outsourcing services. The Company
performs work for organizations in a wide variety of industries, with most of
its revenue being derived from the following industry groups: health care,
information technology, manufacturing, financial services, pharmaceuticals and
utilities.

     In November 1997, the Company acquired Pyramid Information Services, Inc.
("Pyramid"), a Los Angeles, California based company that provides computer
mainframe outsourcing services, including data processing, operations and
systems support, network and production control, and application hosting.
Pyramid became a wholly-owned subsidiary of the Company and changed its name to
Data Dimensions Information Services, Inc. ("DDIS").

     In August 1998, the Company acquired ST Labs, Inc. ("ST Labs"), a Bellevue,
Washington based company that provides information technology quality assurance
and testing services to its customers, including quality assurance and test
automation training, software testing in its own or customer locations, and Web
site testing. At the time of the merger ST Labs became a wholly-owned subsidiary
of the Company. On February 1, 1999, ST Labs was merged into Data Dimensions,
Inc. and the business of ST Labs, along with the other testing services, is now
conducted by the Company using the name Data Dimensions Test Centers.

     Both of these business combinations have contributed revenue not related to
Year 2000 and were accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements and other financial information
included in this Annual Report have been presented as though the companies had
been combined for all periods presented.

                                       11
<PAGE>   12

     The Company markets its services in the United States through a direct
sales force. The Company has previously leveraged its Year 2000 technology by
licensing the right to use its Year 2000 consulting process to over twenty
consulting firms operating in more than fifty countries worldwide. It is not
expected that such licensing will be applicable in the future. The Company has
an office near London, England to provide the Company's services to the United
Kingdom and European markets.

     The Company's Field Consulting and Test Centers revenue consists primarily
of billable hours for services provided by its technical consultants multiplied
by contract rates, and this revenue is recognized when services are performed.
Direct costs consist primarily of salaries, benefits, commissions and other
costs directly related to services provided. Outsourcing revenue performed by
the Company's Information Services division consists primarily of billable
machine time and storage capacity. Direct costs consist primarily of equipment,
facilities and employee salary and benefit costs.

     The level of gross margin primarily depends on the productivity of the
Company's billable personnel. Productivity is based on the number of billable
personnel and their billing rates, the number of working days in a period and
the number of hours worked per day. Billable personnel are paid salaries;
however, clients are most often charged a time-based rate. As the Company
expands its service offerings to include more applications and infrastructure
outsourcing, quality assurance and testing, and applications integration, gross
margin may vary due to the different gross margin of each activity.

     General, administrative and selling expenses consist primarily of
administrative personnel compensation and benefits, recruiting, marketing,
promotion, investor relations, office expenses, travel, and other general
overhead.

RESULTS OF OPERATIONS

     The following table sets forth certain data for the three years ended
December 31 as a percentage of revenue.

<TABLE>
<CAPTION>
                                                          1997       1998       1999
                                                          -----      -----      -----
<S>                                                       <C>        <C>        <C>
Revenue.................................................  100.0%     100.0%     100.0%
Direct Costs............................................   57.0       57.6       65.7
                                                          -----      -----      -----
Gross Margin............................................   43.0       42.4       34.3
General, administrative and selling expenses............   39.9       28.3       32.8
                                                          -----      -----      -----
Income from operations before non-recurring charges.....    3.1       14.1        1.5
Non-recurring charges...................................    6.7        0.7        1.8
                                                          -----      -----      -----
Income (loss) from operations...........................   (3.6)      13.4       (0.3)
Other income (expense)..................................    0.0       (0.2)       1.7
                                                          -----      -----      -----
Income (loss) before income tax.........................   (3.6)      13.2        1.4
Income tax provision....................................    1.2        5.2        0.6
                                                          -----      -----      -----
Net income (loss).......................................   (4.8)%      8.0%       0.8%
                                                          =====      =====      =====
</TABLE>

     As more fully described in Note 1 to the Consolidated Financial Statements,
the Company conducts its business through four operating divisions consisting of
Field Consulting, Test Centers, Information Services and International. The
revenue from these operating divisions are depicted as lines of business
consisting of:

     Field Consulting: Consulting offerings focus on helping clients derive
maximum value from critical technology assets. Services include e-Business
services, HIPAA assessment and compliance, enterprise application integration,
project management and technology upgrades.

     Test Centers: Test Centers provide comprehensive software quality assurance
and test solutions for product development and commercial organizations
including practice areas of printers and peripherals, publishing and education,
embedded systems and Web testing.

     Outsourcing Services: Outsourcing services include mainframe and mid-range
systems outsourcing, managed hosting, network design and applications
outsourcing.

                                       12
<PAGE>   13

     Other: Other revenue primarily consists of license and royalty income
associated with the Company's Year 2000 related products and services and the
sale of the Company's line of products. As more fully described in Note 3 to the
Consolidated Financial Statements, during 1999 the Company discontinued its
product-based business and consequently expects future revenue of this type to
be immaterial.

  Comparison of 1999 to 1998

     The Company's 1999 total revenue of $102.1 million decreased 11 percent
from revenue of $114.5 million in 1998. Revenue from Field Consulting decreased
14 percent to $73.2 in 1999, and represented 72 percent of the Company's
revenue. The decline in Field Consulting revenue can largely be attributed to a
decline in Year 2000 remediation projects, which provided the majority of 1999
and 1998 revenue. Outsourcing Services revenue of $13.6 million increased 6
percent from revenue of $12.8 million in 1998 due largely to increased
applications outsourcing revenue. Test Centers' revenue of $12.3 million
decreased 11 percent from $13.7 million in 1998. The decrease in Test Centers'
revenue represented an overall reduction in average revenue per project,
partially offset by an increase in Web related testing. Other revenue declined
to $3.0 million from $3.3 million in 1998.

     Gross margin as a percentage of revenue decreased from 42 percent in 1998
to 34 percent in 1999. Contributing to the decrease was a lower utilization rate
of the Company's field consultants as Year 2000 projects were completed, without
a corresponding increase in non-Year 2000 business. As more fully described in
Note 3 to the Consolidated Financial Statements, the Company initiated a
restructuring plan in the third quarter of 1999 to better align its expenses
with revenue expectations. Also contributing to the lower gross margin was a
higher percentage of revenue being generated by outsourcing services which has
higher direct costs than the Company's other services.

     General, administrative and selling expense of $33.5 million increased 3
percent over the $32.5 million in 1998. The increase was primarily due to an
increase in the number of employees in sales and administrative functions in the
first half of the year. As more fully described in Note 3 to the Consolidated
Financial Statements, the Company initiated a restructuring plan in the third
quarter of 1999 to better align its expenses with revenue expectations,
producing lowered general, administrative and selling expenses in the second
half of 1999. General, administrative and selling expense represented 33 percent
of total revenue in 1999 compared to 28 percent in 1998.

     Non-recurring charges in 1999 were $1.8 million compared to $757,000 in
1998. The 1999 charge, more fully described in Note 3 to the Consolidated
Financial Statements, resulted from the Company's transition from providing
products and consulting services addressing Year 2000 remediation to providing
information technology consulting and other services. The 1999 charge was for
severance costs and asset write-downs associated with the Company's
restructuring efforts as part of this transition. The 1998 charge was for merger
related costs for the ST Labs acquisition in August 1998.

     The income from litigation settlement of $1.9 million in 1999 represents a
settlement with an international licensee concerning royalties owed the Company
related to Year 2000 work performed under license agreements.

     Income before income tax decreased from $15.1 million in 1998 to $1.4
million in 1999. The decrease in 1999 resulted from reduced gross margins and
higher general, administrative and selling expenses in relation to revenue. A
significant increase in revenue in 1998 over 1997, combined with controlling the
growth in expenses, generated the income in 1998.

     The annual effective tax rate in 1999 was 39.0 percent and 39.2 percent in
1998. This is higher than the statutory rate due largely to state income tax
provisions. This is offset, to some extent, by income generated by foreign
entities operating in jurisdictions which have lower tax rates. The Company has
net operating loss carryforwards as a result of the acquisition of ST Labs
during 1998. At December 31, 1999, the Company had net operating loss
carryforwards which are available to offset future taxable income of
approximately $2.5 million. Limitations on utilization may diminish net
operating loss carryforwards available to offset future taxable income.

                                       13
<PAGE>   14

  Comparison of 1998 to 1997

     The Company's total 1998 revenue of $114.5 million increased 90 percent
over the revenue of $60.4 million in 1997. Revenue from Field Consulting
increased 136 percent to $84.7 million in 1998, which represented 74 percent of
the Company's revenue. Field Consulting consisted primarily of Year 2000 problem
resolution services in 1998 and 1997. Outsourcing Services revenue increased 74
percent to $12.8 million in 1998 primarily as the result of Year 2000 related
testing projects. Test Centers revenue of $13.7 million increased 6 percent over
1997 revenue of $12.9 million. Other revenue, which largely consisted of the
Ardes 2k and Interactive Vendor Review products, decreased 21 percent from $4.2
million in 1997.

     Gross margin as a percentage of revenue decreased slightly from 43 percent
in 1997 to 42 percent in 1998. Contributing to the decrease was a higher
percentage of revenue being generated by infrastructure outsourcing and systems
testing, which have higher direct costs than other services.

     General, administrative and selling expense of $32.5 million increased 35
percent over the $24.1 million in 1997. The increase was primarily due to an
increase in the number of employees in sales and administrative functions
necessary to support the growth in revenue. General, administrative and selling
expense was 28 percent of revenue in 1998 compared to 40 percent in 1997. This
reflects the Company's efforts to limit the growth in expenses while revenue
grew substantially.

     Non-recurring charges in 1998 were $757,000 compared to $4.0 million in
1997. The 1998 charge was for merger related costs in connection with the ST
Labs acquisition in August 1998. The 1997 charge is described in Note 3 to the
Consolidated Financial Statements.

     Income (loss) before income tax increased from a loss of $2.2 million in
1997 to income of $15.1 million in 1998. The loss in 1997 resulted from the
non-recurring charges and higher general, administrative and selling expenses in
relation to revenue. The significant increase in revenue, combined with
controlling the growth in expenses, generated the income in 1998.

     The annual effective tax rate in 1998 was 39.2 percent. This is higher than
the statutory rate due to non-deductible merger costs and state income tax
provisions. This was offset, to some extent, by income generated by foreign
entities operating in jurisdictions which have lower tax rates. The tax
provision in 1997 was $700,000 as a result of the ST Labs loss which could not
be carried back to prior periods. There was also a $285,000 deferred tax
provision recorded as of the Pyramid merger date pertaining to deferred taxes
not previously recorded by Pyramid due to its being a Subchapter S corporation
for federal income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1999, the Company had $22.9 million of working capital, of
which $10.4 million was cash and cash equivalents. The Company acquired through
purchase or capital lease $4.2 million, $6.4 million and $3.8 million of
equipment and furniture, primarily computer equipment and office furniture, in
1997, 1998 and 1999, respectively. The Company expects to spend a lesser amount
on equipment and furniture in 2000 than in 1999. The Company's Days Sales
Outstanding ("DSO") was reduced in 1999 resulting in a positive impact on cash
flow. The Company has initiated steps to further improve DSO's in 2000.

     The Company has a $10 million, two-year, working capital, revolving line of
credit with a bank that was utilized in 1999 for periodic working capital needs.
The line of credit contains certain covenants that the Company must meet. At
December 31, 1999, all covenants had been met. The line of credit expires in
June 2000. The Company expects that cash generated from operating activities and
occasional use of the line of credit will provide adequate liquidity for the
foreseeable future.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In November 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment
Charges." This pronouncement reiterates existing literature and provides
additional guidance on how the staff interprets and applies existing accounting
literature concerning restructuring and impairment charges. The Company assessed
and addressed the

                                       14
<PAGE>   15

requirements of this pronouncement and incorporated those criteria into the
financial statements for the year ended December 31, 1999.

     In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This pronouncement summarizes certain of the SEC staff's views on
applying generally accepted accounting principles to revenue recognition. The
Company is required to adopt SAB No. 101 for our fiscal year ending December 31,
2001. The Company is currently reviewing the requirements of SAB No. 101, but
does not expect such adoption to have an impact on the results of operations,
financial position, or cash flows.

YEAR 2000 COMPLIANCE

     The Year 2000 issue is the result of computer programs that were written
using two digits rather than four to identify the applicable year. Any of the
Company's computer equipment, software and devices with embedded technology that
are time-sensitive may mistakenly identify a date field using "00" as the year
1900, rather than the year 2000.

  State of Readiness

     The Company provided Year 2000 consulting services to Fortune 500 companies
and government agencies and employed the same methods and processes to complete
its own internal Year 2000 project that it provided to its customers. The
Company established a Year 2000 task force, comprised of members representing
the different business operations of the Company, to assess and remediate the
impact of the Year 2000 on its IT and non-IT systems, material third party
relationships, and service and product offerings. As identified by the task
force, the Year 2000 issues facing Data Dimensions that may have a material
impact on its ability to continue its business practices as usual through the
change of the century include: internal business systems; Internet and intranet
service; telecommunications; power; and the compliance and readiness of the
Company's third party suppliers, vendors, and customers.

     The task force divided the Company's Year 2000 project into three major
phases: (1) assessment and planning; (2) implementation; and (3) verification
and contingency planning. The Company completed its Year 2000 project in the
fourth quarter of 1999. Through this process, the Company did not become aware
of any information which indicated the magnitude of the Company's Year 2000
problem to be material. During the implementation phase of the project, the
Company replaced obsolete systems and updated (or repaired) the hardware,
applications and data so they are Year 2000 compliant. During the verification
and contingency planning phase of the project, the Company performed acceptance
testing and returned updated applications to production as well as removed any
unused and outdated hardware and software.

     In addition to its own compliance efforts, the Company conducted an
assessment of third parties with which it has material relationships to
determine if they were Year 2000 compliant. The Company contacted its key
vendors and suppliers by the distribution of questionnaires. A majority of the
vendors and suppliers responded to the questionnaire with assurance that they
were Year 2000 compliant. The Company developed contingency plans for those
vendors and suppliers that indicated they may not be fully Year 2000 compliant.

     Prior to the start of the Company's Year 2000 project, implementation of a
new enterprise-wide integrated accounting package to provide for the financial
needs of the organization was completed. This software has been warranted by the
vendor to be Year 2000 compliant. Similarly, the operating system used by Data
Dimensions Information Services, Inc., the Company's subsidiary which outsources
mainframe computer processing services, also has been warranted by the vendor to
be Year 2000 compliant. Finally, the Company has replaced its phone and
voicemail systems with new, Year 2000 compliant systems to better provide for
the expanding communication needs of the organization.

  Costs to Address Year 2000 Issues

     The total cost of the project was approximately $1.0 million. These costs
consisted primarily of the cost of labor needed to complete the Company's
readiness and compliance project. The decision by the Company to acquire new
accounting and phone software and equipment, and the timing thereof, arose in
the ordinary course of the growth of the Company, and is not considered a cost
associated with the Year 2000 issue.

                                       15
<PAGE>   16

  Risks of Year 2000 Issues

     The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. If such failure were to occur, the Company's results of operations,
liquidity, and financial condition could be materially and adversely affected
and the Company may be required to incur unanticipated expenses to remedy any
problems not addressed by the Company's compliance efforts. Additionally, if any
of the Company's material suppliers or vendors are not fully Year 2000
compliant, it is possible that a system failure or miscalculations causing
disruptions in the Company's operations or potential problems with its product
and service offerings could result.

  Contingency Plans

     Part of the Company's Year 2000 project included the preparation of
contingency plans. The Company completed its contingency planning in the fourth
quarter of 1999.

  Year 2000 Status

     As of February 29, 2000, the Company has experienced no material Year 2000
related problems. However, there can be no assurances that the Company will not
experience such problems in the future.

OUTLOOK -- ISSUES AND UNCERTAINTIES

     The Company does not provide forecasts of future financial performance.
While the Company's management is optimistic about the Company's long-term
prospects, the following issues and uncertainties, among others, should be
considered.

  Fluctuations in quarterly operating results

     The Company has experienced, and may experience in the future, fluctuations
in its quarterly operating results. Several factors may influence revenue,
including the number and requirements of client engagements, employee
productivity rates, the Company's ability to retain key personnel, the ability
of the Company to develop, introduce and successfully market new and enhanced
services, and general economic conditions which may affect clients' decisions
about the extent and timing of investments in their information systems.
Unanticipated termination of a significant project or client decision not to
proceed to further project stages could result in decreased revenues, lower
employee productivity rates and lower profits. Additionally, varying factors
affecting gross margins include the number and project phase of services
provided during a particular period, employee productivity, staffing mix, and
salary and other compensation related costs necessary to attract and retain
qualified personnel.

  Retention and recruitment of technical personnel

     The Company's business is labor intensive and depends to a significant
extent on its ability to attract, train and retain highly skilled professionals.
Qualified technical professionals are in great demand and are likely to remain a
limited resource for the foreseeable future. Furthermore, the information
services industry has experienced high employee turnover rates. The manner and
extent to which companies respond to recruiting and retention pressures will
likely result in increases in the amounts and types of compensation being
offered to employees. There can be no assurance that the Company will be
successful in attracting a sufficient number of qualified technical personnel or
in retaining existing and future employees.

  Dependence on Field Consulting business

     The Company's Field Consulting business has accounted for approximately 59
percent, 74 percent and 72 percent of revenue in 1997, 1998 and 1999,
respectively. As a result, the Company's future operating results depend to a
significant extent on the growth and profitability of that business. The volume
of work performed for specific clients varies from period to period, and a major
client in one year may not be a major client in a subsequent period. There can
be no assurance that in the future one or more of the Company's major clients
will not terminate a contract, reduce the scope of a large project or elect not
to proceed to a stage of a project as anticipated by the Company. The
cancellation or significant reduction in the scope of large projects could have
a material effect on the Company's business, operating results and financial
condition.

                                       16
<PAGE>   17

  Dependence on major clients

     The Company has depended on a limited number of large clients to generate a
significant portion of its revenue. In 1999 the ten largest clients accounted
for approximately 46 percent of the Company's revenue. The dependence on a few
clients exposes the Company to potentially significant financial consequences if
one or more of these clients elect to terminate their contract, reduce the scope
of a large project, or elect not to proceed to a project stage in accordance
with the Company's expectations. Any such action by one or more of these clients
could have a material adverse effect on the Company's financial performance.

  Risks associated with new services

     The Company derived the majority of its revenue from Year 2000 services in
1999. The demand for these services significantly declined in the second half of
1999 and is not expected to be material in 2000. There can be no assurance that
the Company's revenue in future years will approach the levels attained in prior
years or, to the extent that business increases, that the Company will be able
to meet the demand for such services on a timely basis. The Company is
transitioning to providing a range of new service offerings collectively
referred to as Enterprise Integration Solutions, that include consulting,
testing and outsourcing. The Company's ability to successfully transition its
business by providing these new services depends on a number of factors,
including its ability to identify and integrate such services into the Company's
existing organizational structure, implement effective sales and marketing
initiatives, and staff and execute such projects. Additionally, there can be no
assurance that the Company will be successful in generating additional business
from its Year 2000 clients for other services or that the financial performance
of any new offerings will meet expectations.

  Competition

     The markets for the Company's services are highly competitive and
characterized by rapid change and uncertainty due to new and emerging
technologies. The market for consulting services is fragmented, regionalized and
no company holds a dominant position. As a result, in addition to competing with
larger national and international service providers, the Company also competes
with large regional providers. Also, in many instances the Company finds itself
competing with the internal information systems resources of its clients and
prospective clients. Competition is expected to intensify as the market for
information technology services continues to develop. There can be no assurance
that other companies will not develop services that will be more successful than
those of the Company. The Company believes that distinguishing competitive
factors in the industry include, among others, strong client relationships,
quality of services, price, project management capability, and technical and
business expertise. Many of the Company's current and potential competitors have
significantly greater financial, technical, marketing and other resources than
the Company. There can be no assurance that the Company will continue to compete
successfully with its current and future competitors.

  Volatility of stock price

     The Company's Common Stock has been subject to extreme price and volume
fluctuations in the past. Additionally, the stock market has experienced
significant price fluctuations, particularly among technology companies, which
often have been unrelated to the operating performance of specific companies.
Any announcement with respect to any unfavorable variance in revenues or net
income from levels generally expected by securities analysts or investors would
have an immediate and significant effect on the trading price of the Common
Stock. In addition, factors such as announcements of technological innovations
or new services by the Company, its competitors or other third parties, rumors
of such innovations or new services or products, changing market conditions in
the industry, changes in estimates by securities analysts, announcements of
unusual events, or general economic conditions may have a significant impact on
the market price of the stock.

                                       17
<PAGE>   18

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company had no market risk sensitive instruments, positions or
transactions at December 31, 1999.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See "Consolidated Financial Statements" on pages F-2 through F-19 of this
Annual Report on Form 10-K.

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

     (a) On March 26, 1998, the Company notified BDO Seidman, LLP that it
         intended to engage another accounting firm as the Company's independent
         accountants for the fiscal year ending December 31, 1998. The decision
         to change independent accountants was approved by the Board of
         Directors of Data Dimensions, Inc. on March 26, 1998.

         The report of BDO Seidman, LLP on the Company's consolidated financial
         statements for the years ended December 31, 1997 contained no adverse
         opinion and was unmodified, except for the inclusion of a disclosure
         that the consolidated financial statements give retroactive effect to
         the merger of Data Dimensions, Inc. and Pyramid Information Services,
         Inc., which merger has been accounted for as a pooling of interests.

         There have been no disagreements with BDO Seidman, LLP on any matter of
         accounting principles or practices, financial statement disclosure or
         auditing scope or procedure which, if not resolved to the satisfaction
         of BDO Seidman, LLP, would have caused BDO Seidman, LLP to make
         reference to the matter in their report.

     (b) On March 26, 1998, the Company appointed PricewaterhouseCoopers LLP as
         its independent accountants for the fiscal year ending December 31,
         1998, pursuant to the approval of the Company's Board of Directors.

                                       18
<PAGE>   19

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

     The information concerning Directors and Executive Officers of the Company
set forth in the Proxy Statement to be delivered to the stockholders in
connection with the Company's 2000 Annual Meeting of Stockholders (the "Proxy
Statement") under the heading "Directors and Executive Officers" is incorporated
herein by reference, as is the information concerning the Directors, Officers,
and more than 10% stockholders of the Company under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION

     The information concerning executive compensation set forth in the Proxy
Statement under the heading "Executive Compensation" is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information concerning security ownership of certain beneficial owners
and management set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information concerning certain relationships and related transactions
set forth in the Proxy Statement under the heading "Certain Relationships and
Related Transactions" is incorporated herein by reference.

                                       19
<PAGE>   20

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Consolidated Balance Sheets at December 31, 1998 and          F-3
  December 31, 1999.........................................
Consolidated Statements of Operations for the Years Ended     F-4
  December 31, 1997, December 31, 1998 and December 31,
  1999......................................................
Consolidated Statements of Comprehensive Income for the       F-4
  Years Ended December 31, 1997, December 31, 1998 and
  December 31, 1999.........................................
Consolidated Statements of Stockholders' Equity for the       F-5
  Years Ended December 31, 1997, December 31, 1998 and
  December 31, 1999.........................................
Consolidated Statements of Cash Flows for the Years Ended     F-6
  December 31, 1997, December 31, 1998 and December 31,
  1999......................................................
Footnotes to the Consolidated Financial Statements..........  F-7
</TABLE>

(a) 2. FINANCIAL STATEMENT SCHEDULES

<TABLE>
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts............  S-1
</TABLE>

(a) 3. THE FOLLOWING EXHIBITS ARE FILED HEREWITH OR INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION OF EXHIBIT
-------                       ----------------------
<C>        <S>
  2.1      Agreement and Plan of Reorganization by and among Data
           Dimensions, Inc., DP Acquisition Corporation, Eugene M.
           Stabile, and Pyramid Information Services, Inc. dated
           October 30, 1997. (Incorporated by reference to the
           Company's October 30, 1997 Current Report on Form 8-K.)
  2.2      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.
           (Incorporated by reference to the Company's August 7, 1998
           Current Report on Form 8-K.)
  3.1      Certificate of Incorporation and all amendments thereto.
           (Incorporated by reference to the Company's Registration
           Statement on Form SB-2. Reg. No. 333-841.)
  3.2      Second Amended and Restated Bylaws. (Incorporated by
           reference to the Company's Annual Report on Form 10-KSB for
           the year ended December 31, 1996.)
  4.1      Form of Common Stock Certificate. (Incorporated by reference
           to the Company's Registration Statement on Form SB-2.) See
           Exhibits 3.1 and 3.2 for provisions in the Certificate of
           Incorporation and Second Amended and Restated Bylaws of the
           Company defining the rights of the holders of Common Stock.
 10.1      1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock
           Option Plan. (Incorporated by reference to the Company's
           Registration Statement on Form SB-2. Reg. No. 333-841.)
 10.2      1997 Stock Option Plan. (Incorporated by reference to the
           Company's Annual Report on Form 10-KSB for the year ended
           December 31, 1996.)
 10.3      Lease Agreement for Registrant's Facility in Bellevue,
           Washington. (Incorporated by reference to the Company's
           Annual Report on Form 10-KSB for the year ended December 31,
           1996.)
 10.4      Agreement between the Company and Peter A. Allen dated
           December 7, 1998. (Incorporated by reference to the
           Company's Annual Report on Form 10-K for the year ended
           December 31, 1998.)
 10.5      Agreement between the Company and Timothy P. Hicks dated
           September 24, 1998. (Incorporated by reference to the
           Company's Annual Report on Form 10-K for the year ended
           December 31, 1998.)
 10.6      Agreement between the Company and Laurence C. Leslie dated
           September 23, 1999.
</TABLE>

                                       20
<PAGE>   21

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION OF EXHIBIT
-------                       ----------------------
<C>        <S>
 10.7      Agreement between the Company and Stephen W. Moses dated
           December 9, 1999.
 10.8      Agreement between the Company and Nigel G. Martin-Jones
           dated December 9, 1999.
 10.9      Agreement between the Company and John W. Cramer dated
           December 9, 1999.
 16.1      Letter on change in certifying accountant. (Incorporated by
           reference to the Company's Annual Report on Form 10-KSB for
           the year ended December 31, 1997.)
 21.1      Subsidiaries of the Registrant.
 23.1      Consent of PricewaterhouseCoopers LLP, Independent
           Accountants.
 23.2      Consent of BDO Seidman, LLP, Independent Certified Public
           Accountants.
 24.1      Power of Attorney of Thomas W. Fife.
 24.2      Power of Attorney of Robert T. Knight.
 24.3      Power of Attorney of Lucie J. Fjeldstad.
 24.4      Power of Attorney of Dennis W. Walsh.
 27.1      Financial Data Schedules.
</TABLE>

(b) NO REPORTS ON FORM 8-K WERE FILED IN THE QUARTER ENDED DECEMBER 31, 1999

                                       21
<PAGE>   22

                                   SIGNATURES

     In accordance with the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 21st day of March, 2000.

                                          DATA DIMENSIONS, INC.
                                          (Registrant)

                                          By:      /s/ PETER A. ALLEN
                                            ------------------------------------
                                                       Peter A. Allen
                                                  Chief Executive Officer

     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <C>                              <S>
                 /s/ PETER A. ALLEN                     President and Chief Executive   March 21, 2000
-----------------------------------------------------         Officer, Director
                   Peter A. Allen                       (Principal Executive Officer)

               /s/ LAURENCE C. LESLIE                  Executive Vice President, Chief  March 21, 2000
-----------------------------------------------------  Financial Officer and Secretary
                 Laurence C. Leslie                       (Principal Financial and
                                                             Accounting Officer)

                 /s/ THOMAS W. FIFE                               Director              March 21, 2000
-----------------------------------------------------
                   Thomas W. Fife

               /s/ LUCIE J. FJELDSTAD                             Director              March 21, 2000
-----------------------------------------------------
                 Lucie J. Fjeldstad

                /s/ ROBERT T. KNIGHT                              Director              March 21, 2000
-----------------------------------------------------
                  Robert T. Knight

                 /s/ DENNIS W. WALSH                              Director              March 21, 2000
-----------------------------------------------------
                   Dennis W. Walsh

             By: /s/ LAURENCE C. LESLIE                                                 March 21, 2000
  -------------------------------------------------
        Laurence C. Leslie, Attorney-In-Fact
</TABLE>

                                       22
<PAGE>   23

                             DATA DIMENSIONS, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                                          INDEX

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Reports of Independent Accountants..........................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations and Comprehensive
  Income....................................................  F-4
Consolidated Statements of Stockholders' Equity.............  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   24

                       REPORTS OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Data Dimensions, Inc.

     In our opinion, the accompanying consolidated financial statements and
financial statement schedules listed in the index appearing under Item 14(a)(1)
and 14(a)(2) and on page F-1 present fairly, in all material respects, the
financial position of Data Dimensions, Inc. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the two years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States 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 audits provide a reasonable basis
for the opinion expressed above. The financial statements of Data Dimensions,
Inc. for the year ended December 31, 1997 was audited by other independent
accountants whose report dated February 17, 1998 expressed an unqualified
opinion on those statements.

                                       PRICEWATERHOUSECOOPERS LLP

Seattle, Washington
January 28, 2000

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

Board of Directors and Shareholders
Data Dimensions, Inc.

     We have audited the consolidated statements of operations, comprehensive
income, stockholders' equity, and cash flows of Data Dimensions, Inc. and its
subsidiaries as of December 31, 1997. Our audit also included the financial
statement schedule amounts for 1997 listed in the index at Item 14(a) 2. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit. The consolidated financial
statements give retroactive effect to the merger of Data Dimensions, Inc. and
its subsidiaries and ST Labs, Inc., which has been accounted for as a pooling of
interests as described in Note 2 to the consolidated financial statements. We
did not audit the statements of operations, stockholders' equity and cash flows
of ST Labs, Inc., for the year ended December 31, 1997, which statements reflect
total revenues of $13.0 million for the year ended December 31, 1997. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it related to the amounts included for ST Labs,
Inc. for 1997, is based solely on the reports of such auditors.

     We conducted our audit 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 audit and the reports of the other auditors provide a
reasonable basis for our opinion.

     In our opinion, based on our audit and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of Data Dimensions, Inc. and its subsidiaries
operations and their cash flows for the year ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

                                       BDO SEIDMAN, LLP

Seattle, Washington
February 17, 1998

                                       F-2
<PAGE>   25

                             DATA DIMENSIONS, INC.

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Current assets
  Cash and cash equivalents.................................  $   776    $10,390
  Accounts receivable, net..................................   36,876     16,278
  Income tax receivable.....................................       --      2,551
  Prepaid expenses and other current assets.................    2,850      2,393
  Deferred income taxes.....................................    1,140        602
                                                              -------    -------
          Total current assets..............................   41,642     32,214
Equipment and furniture, net................................    8,467      7,039
Investment in product development, net......................    1,016         --
Other assets................................................      812        635
                                                              -------    -------
          Total assets......................................  $51,937    $39,888
                                                              =======    =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable..........................................  $ 4,571    $ 1,433
  Advance billings..........................................      300         12
  Accrued compensation and commissions......................    6,157      3,938
  Other accrued liabilities.................................    3,067      1,762
  Dividends payable.........................................      229         --
  Income taxes payable......................................    5,997         --
  Deferred income taxes.....................................      797        250
  Current portion of capital lease obligations..............    1,161      1,965
                                                              -------    -------
          Total current liabilities.........................   22,279      9,360
Capital lease obligations, net of current portion...........    1,976      1,941
Other long term liabilities.................................      180        181
                                                              -------    -------
          Total liabilities.................................   24,435     11,482
                                                              -------    -------
Commitments and contingencies
Stockholders' equity
  Common stock, $.001 par value; 20,000 shares authorized;
     13,633 and 13,665 shares issued and outstanding........       13         14
  Additional paid in capital................................   24,539     24,679
  Treasury stock, at cost (112 shares in 1998 and 1999).....   (3,034)    (3,034)
  Cumulative comprehensive loss.............................     (120)      (200)
  Retained earnings.........................................    6,104      6,947
                                                              -------    -------
          Total stockholders' equity........................   27,502     28,406
                                                              -------    -------
          Total liabilities and stockholders' equity........  $51,937    $39,888
                                                              =======    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-3
<PAGE>   26

                             DATA DIMENSIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1997        1998        1999
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
Revenue
  Field Consulting..........................................  $35,864    $ 84,664    $ 73,180
  Outsourcing Services......................................    7,378      12,811      13,643
  Test Centers..............................................   12,987      13,720      12,256
  Other.....................................................    4,215       3,349       3,027
                                                              -------    --------    --------
          Total revenue.....................................   60,444     114,544     102,106
Direct costs................................................   34,435      65,957      67,089
                                                              -------    --------    --------
Gross margin................................................   26,009      48,587      35,017
General, administrative and selling expenses................   24,102      32,476      33,485
Non-recurring charges.......................................    4,024         757       1,838
                                                              -------    --------    --------
Income (loss) from operations...............................   (2,117)     15,354        (306)
                                                              -------    --------    --------
Other income (expense)
  Interest expense..........................................     (471)       (424)       (353)
  Other income, net.........................................      415         193         156
  Income from litigation settlement.........................       --          --       1,885
                                                              -------    --------    --------
          Total other income (expense)......................      (56)       (231)      1,688
                                                              -------    --------    --------
Income (loss) before income tax.............................   (2,173)     15,123       1,382
Income tax provision........................................      700       5,921         539
                                                              -------    --------    --------
Net income (loss)...........................................  $(2,873)   $  9,202    $    843
                                                              =======    ========    ========
Earnings (loss) per share-basic.............................  $ (0.22)   $   0.69    $   0.06
                                                              =======    ========    ========
Earnings (loss) per share-diluted...........................  $ (0.22)   $   0.69    $   0.06
                                                              =======    ========    ========
Weighted average shares outstanding-basic...................   12,772      13,347      13,537
                                                              =======    ========    ========
Weighted average shares outstanding-diluted.................   12,772      13,412      13,555
                                                              =======    ========    ========
</TABLE>

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                                1997       1998     1999
                                                              --------    ------    ----
<S>                                                           <C>         <C>       <C>
Net Income (loss)...........................................  $ (2,873)   $9,202    $843
Other comprehensive income (loss) -- foreign currency
  translation adjustments...................................        90      (210)    (80)
                                                              --------    ------    ----
Comprehensive income (loss).................................  $ (2,783)   $8,992    $763
                                                              ========    ======    ====
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-4
<PAGE>   27

                             DATA DIMENSIONS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              CUMULATIVE
                                                     COMMON STOCK    ADDITIONAL              COMPREHENSIVE   RETAINED
                                                     -------------    PAID IN     TREASURY      INCOME       EARNINGS
                                                     SHARES     $     CAPITAL      STOCK        (LOSS)       (DEFICIT)    TOTAL
                                                     ------    ---   ----------   --------   -------------   ---------   -------
<S>                                                  <C>       <C>   <C>          <C>        <C>             <C>         <C>
Balance at December 31, 1996.......................  12,482    $12    $18,369     $   (83)          --        $   903    $19,201
Issuance of common stock:
  Issuance of shares...............................      36     --        500          --           --             --        500
  Exercise of warrants.............................     266     --      2,772          --           --             --      2,772
  Exercise of options..............................     366      1        657          --           --             --        658
Income tax benefit from stock options..............      --     --        497          --           --             --        497
Acquisition of treasury stock in connection with
  exercise of options and warrants.................      --     --         --      (2,888)          --             --     (2,888)
Capital contribution...............................      --     --         67          --           --             --         67
Compensation expense recognized on issuance of
  options..........................................      --     --        448          --           --             --        448
Declared dividends to Pyramid stockholder..........      --     --         --          --           --         (1,128)    (1,128)
Other comprehensive income.........................      --     --         --          --           90             --         90
Net loss...........................................      --     --         --          --           --         (2,873)    (2,873)
                                                     ------    ---    -------     -------        -----        -------    -------
Balance at December 31, 1997.......................  13,150    $13    $23,310     $(2,971)       $  90        $(3,098)   $17,344
Issuance of common stock:
  Exercise of options..............................     466     --        945          --           --             --        945
  Exercise of warrants.............................      17     --        186          --           --             --        186
Compensation expense recognized on issuance of
  options..........................................      --     --         98          --           --             --         98
Acquisition of treasury stock in connection with
  exercise of options..............................      --     --         --         (63)          --             --        (63)
Other comprehensive loss...........................      --     --         --          --         (210)            --       (210)
Net income.........................................      --     --         --          --           --          9,202      9,202
                                                     ------    ---    -------     -------        -----        -------    -------
Balance at December 31, 1998.......................  13,633    $13    $24,539     $(3,034)       $(120)       $ 6,104    $27,502
Exercise of warrants...............................      32      1         43          --           --             --         44
Compensation expense recognized on issuance of
  options..........................................      --     --         97          --           --             --         97
Other comprehensive loss...........................      --     --         --          --          (80)            --        (80)
Net income.........................................      --     --         --          --           --            843        843
                                                     ------    ---    -------     -------        -----        -------    -------
Balance at December 31, 1999.......................  13,665    $14    $24,679     $(3,034)       $(200)       $ 6,947    $28,406
                                                     ======    ===    =======     =======        =====        =======    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-5
<PAGE>   28

                             DATA DIMENSIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1997        1998       1999
                                                              -------    --------    -------
<S>                                                           <C>        <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(2,873)   $  9,202    $   843
  Adjustments to reconcile net income (loss) to net cash
     provided (used) by operating activities Depreciation
     and amortization.......................................    1,558       4,391      5,650
  Deferred income tax provision (benefit)...................      680         (96)      (547)
  Compensation expense on stock options.....................      448          98         97
  Non-cash portion of non-recurring charges.................    1,373          --      1,055
  Write off of furniture and equipment......................       --          --        392
  Changes in operating assets and liabilities:
     Accounts receivable....................................  (10,165)    (18,146)    20,598
     Prepaid expenses and other current assets..............      252      (2,999)    (2,428)
     Advance billings.......................................      319      (1,131)      (288)
     Accounts payable.......................................    2,639         655     (3,138)
     Accrued compensation and commissions...................    2,662       2,679     (2,219)
     Income taxes payable...................................       --       5,997     (5,997)
     Accrued software license obligations...................      435        (674)        --
     Accrued liabilities....................................    1,067       1,213     (1,305)
  Other.....................................................      228         727        142
                                                              -------    --------    -------
Net cash provided (used) by operating activities............   (1,377)      1,916     12,855
                                                              -------    --------    -------
Cash flows from investing activities:
  Proceeds from sale of investment securities...............    7,691         986         --
  Purchase of equipment and furniture.......................   (3,181)     (3,588)    (1,521)
  Investment in product development.........................   (2,001)        (52)        --
  Other.....................................................   (1,469)         --         --
                                                              -------    --------    -------
Net cash provided (used) by investing activities............    1,040      (2,654)    (1,521)
                                                              -------    --------    -------
Cash flows from financing activities:
  Proceeds from short term debt.............................      701          --         --
  Proceeds from issuance of long term debt..................    1,150          --         --
  Net proceeds from issuance of common stock................    1,041       1,068         44
  Payment of capital lease obligation.......................      (87)       (429)    (1,535)
  Distributions to Pyramid stockholder......................     (128)       (771)      (229)
  Repayment of notes payable................................     (235)     (3,088)        --
                                                              -------    --------    -------
Net cash provided (used) by financing activities............    2,442      (3,220)    (1,720)
                                                              -------    --------    -------
Net increase (decrease) in cash and cash equivalents........    2,105      (3,958)     9,614
Cash and cash equivalents, beginning of year................    2,629       4,734        776
                                                              -------    --------    -------
Cash and cash equivalents, end of year......................  $ 4,734    $    776    $10,390
                                                              =======    ========    =======
Cash paid during the year for:
  Interest..................................................  $   407    $    427    $   369
  Income tax................................................  $    55    $     45    $ 9,077
Non cash investing and financing activities:
  Equipment acquired under capital lease....................  $   985    $  2,796    $ 2,304
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-6
<PAGE>   29

                             DATA DIMENSIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     Basis of Presentation -- The consolidated financial statements include the
accounts of Data Dimensions, Inc., a Delaware corporation, and its subsidiaries
("Data Dimensions" or the "Company"). As more fully described in Note 2, the
Company acquired Pyramid Information Services, Inc. in 1997 and ST Labs, Inc. in
1998. Both transactions were business combinations accounted for as a pooling of
interests. The historical financial statements for periods prior to consummation
of the business combinations have been restated as though the companies had been
combined for all periods presented.

     Description of Business -- The Company conducts its business through four
operating divisions as follows:

     - Field Consulting provides consulting expertise in the areas of
       e-business, health care (HIPAA), application maintenance, testing, and
       enterprise integration to customers located in the United States.

     - Information Services provides system outsourcing and enterprise testing
       services through its multi-platform data center. In addition, the
       division offers facilities management, network design and administration,
       production overflow capabilities and applications hosting.

     - Test Centers provide in-lab testing on client software applications,
       consumer products, and web sites as well as quality and assurance
       training and consulting.

     - International provides, in the United Kingdom, direct services for all of
       the Company's divisions. In addition, the Company's technology is offered
       throughout the world on a fee- and royalty-basis to suppliers of
       consulting services. Royalty revenue is included in Other revenue and
       direct services are included in Field Consulting revenue on the Statement
       of Operations.

     Principles of Consolidation -- The financial statements include the
accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.

     Foreign Operations -- The Company operates a solution center in Ireland
through its wholly-owned subsidiary, Data Dimensions Ireland Limited. The
Company delivers consulting services in the United Kingdom through its
wholly-owned subsidiary, Data Dimensions (UK) Limited. The financial results of
Data Dimensions Ireland Limited and Data Dimensions (UK) Limited are included in
Field Consulting. All asset and liability accounts of foreign operations are
translated into U.S. dollars at current exchange rates. Revenues and expenses
are translated using the average exchange rate during the period. Foreign
currency translation adjustments are reported as a component of comprehensive
income and stockholders' equity in the Consolidated Balance Sheet. Gains and
losses resulting from foreign currency transactions are included in income
currently.

     Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to concentration of credit risk primarily include cash and
cash equivalents, and accounts receivable. The Company places its cash deposits
and certain short-term investments in bank deposits and money market funds with
high credit quality financial institutions; at times deposits exceed
federally-insured limits. The Company places its cash equivalents in investment
grade, short-term debt instruments and limits the amount of credit exposure to
any one issuer. Accounts receivable consists of account balances due from
several relatively large companies dispersed primarily across the United States,
with no significant geographic concentration, and industry concentrations in
financial institutions and health care. The Company performs ongoing credit
evaluations of its customer's financial condition and generally requires no
collateral from its customers.

     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
financial

                                       F-7
<PAGE>   30
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

statements, and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.

     Fair Value Disclosures -- Recorded amounts of cash and cash equivalents,
investment securities, receivables, prepaid expenses and other current assets,
capital lease obligations, long term debt, accounts payable and other amounts
included in current liabilities meeting the definition of financial instruments
approximate fair value.

     Cash and Cash Equivalents -- Cash and cash equivalents represent funds on
deposit with banks or invested in a variety of highly liquid short-term
instruments with original maturities of less than three months.

     Deferred Expenses -- Certain costs incurred in connection with providing
computer mainframe outsourcing services are deferred and recognized over the
period services are provided. Recurring costs deferred for existing customers,
primarily software license fees, are recorded in prepaid expenses and are
typically recognized over 12 months. Costs deferred for new customers, primarily
installation and conversion costs, are included in other assets and are
recognized over service contract lives of up to five years.

     Equipment and Furniture -- Equipment and furniture are stated at cost and
are depreciated for book purposes utilizing straight-line methods over estimated
useful lives of 3 to 5 years. Assets are depreciated for tax purposes using
various accelerated methods. Leasehold improvements are amortized over the
lesser of the lease term, or useful lives. Repairs and maintenance expenditures
are expensed as incurred.

     Investment in Product Development -- Costs related to conceptual
formulation and design of Company products were expensed as incurred. Costs
incurred subsequent to establishment of technological feasibility, but prior to
the product being available for general release to customers, were capitalized
and amortized over estimated productive lives, which ranged from two to three
years. The Company evaluates its investment in product development as events or
changes in circumstances may arise, for the purpose of determining whether the
carrying amount of such assets may exceed the net realizable value of the
products. In the event that capitalized costs of a product exceed the estimated
net realizable value of the product, such excess amount is expensed. Due to the
discontinuation of the Company's product offering, the investment in product
development was written off in 1999.

     Capitalized Software -- Included in equipment and furniture are direct
costs of computer software developed or obtained for internal use. Costs
incurred are capitalized and amortized over periods not exceeding three years.

     Impairment of Long-Lived Assets -- The Company evaluates its long-lived
assets for financial impairment and continues to evaluate them as events or
changes in circumstances indicate that the carrying amount of such assets may
not be fully recoverable. The Company evaluates the recoverability of long-lived
assets by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with these assets. At the time such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their fair values.

     Revenue Recognition -- Consulting and Test Centers revenue consist of
billable hours for services provided by the Company's technical consultants
valued at contract rates, and is recognized as services are performed. Product
revenue and license fees earned under technology license agreements are
generally recognized when the technology has been delivered and there are no
significant obligations remaining. The Company also receives royalty revenue
from licensees, which is recognized as services are provided by the licensee.
Outsourcing Services revenue is recognized as services are performed. Advance
billings are provided for by certain contracts and are recognized as revenue
when the related services are performed.

     Grant Accounting -- The Company's subsidiary in Ireland has received an
employment grant from the Industrial Development Authority of Ireland.
Employment grants, which relate to employee hiring and

                                       F-8
<PAGE>   31
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

training, are recognized as a reduction of expense during the period in which
the related expenditures are incurred by the Company.

     Pre-Operating and Start-up Costs -- Pre-operating and start-up costs
incurred in connection with the organization and development of new business
activities are expensed as incurred and are included in general, administrative
and selling expenses. During 1997, such costs were incurred in connection with
establishing a consulting services subsidiary in the United Kingdom and a
software factory/solution center in the United States. Similar costs were
incurred to establish solution centers in 1998. The Company's accounting of
start-up costs is consistent with the treatment required by AICPA SOP 98-5.

     Income Taxes -- Deferred taxes are provided for temporary differences in
the basis of assets and liabilities for financial reporting and tax purposes. To
the extent that it is not considered to be more likely than not that all of the
Company's deferred tax assets will be realized, a valuation allowance is
recorded to reduce the deferred tax asset to its estimated net realizable value.

     Stock-Based Compensation -- Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 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 income and
earnings per share are presented in Note 8 on the basis as if compensation had
been determined pursuant to SFAS 123.

     Earnings Per Share -- Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") requires presentation of earnings per share on
a basic and diluted earnings per share basis.

     Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. 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 additional common shares that would have been outstanding if dilutive
potential common share equivalents had been issued. See Note 12 for additional
disclosure.

     Segment Reporting -- The Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") in 1998. SFAS 131 requires disclosures of the
Company's segments based on how information is reported to management. See Note
11 for disclosure regarding the Company's segments.

     Reclassifications -- Certain amounts have been reclassified in prior year
financial statements to conform with current year presentations.

NOTE 2 -- ACQUISITIONS

ST LABS, INC.

     In August 1998, the Company completed the acquisition of ST Labs, Inc. ("ST
Labs"), in which the Company acquired all of the outstanding Common Stock of ST
Labs in exchange for approximately 515,000 shares of Data Dimensions Common
Stock. In addition, the Company assumed all options outstanding under ST Labs'
Option Plans. If fully exercised, such options will result in the issuance of
approximately an additional 158,000 shares of the Company's Common Stock. The
value of the Company's shares exchanged in the merger, combined with the shares
issuable under the Option Plans, was approximately $9.7 million at the time of
the merger. ST Labs provides information technology quality assurance and
testing services to its customers, including quality assurance and test
automation training, software testing in its own or customer

                                       F-9
<PAGE>   32
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

locations, and Web site testing. As a result of the transaction, ST Labs became
a wholly-owned subsidiary of the Company.

     The business combination was accounted for as a pooling of interests for
accounting and financial reporting purposes. Consequently, the historical
financial statements for periods prior to the consummation of the combination
have been restated as though the companies had been combined for all periods
presented. These restated results of operations are not necessarily indicative
of results to be expected in the future.

     All fees and expenses related to the business combination and to the
consolidation of the combining companies have been expensed as required under
the pooling of interests accounting method and included in non-recurring charges
in the Consolidated Statements of Operations. Such fees and expenses
approximated $757,000 and were comprised of direct transaction costs and the
expense of consolidating and integrating the combined companies.

     A reconciliation of results of operations for the separate companies
through the calendar quarter immediately preceding the business combination is
as follows (in thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED        SIX MONTHS ENDED
                                                      DECEMBER 31, 1997     JUNE 30, 1998
                                                      -----------------    ----------------
                                                                             (UNAUDITED)
<S>                                                   <C>                  <C>
Revenue
  Data Dimensions(1)................................       $47,457             $41,561
  ST Labs...........................................        12,987               6,800
                                                           -------             -------
     Combined.......................................       $60,444             $48,361
                                                           =======             =======
Net Income (loss)
  Data Dimensions(1)................................       $    19             $ 3,018
  ST Labs...........................................        (2,892)               (615)
                                                           -------             -------
     Combined.......................................       $(2,873)            $ 2,403
                                                           =======             =======
</TABLE>

---------------
(1) Prior period amounts for Data Dimensions have been restated to reflect the
    1997 merger with Pyramid, explained below.

PYRAMID INFORMATION SERVICES, INC.

     In November 1997, the Company acquired all of the outstanding Common Stock
of Pyramid Information Services, Inc. ("Pyramid") in exchange for approximately
540,000 shares of Data Dimensions Common Stock. As a result of the transaction,
Pyramid, a Los Angeles, California-based company that provides computer
processing and management services to its customers, became a wholly-owned
subsidiary of the Company and changed its name to Data Dimensions Information
Services, Inc. ("DDIS").

     The business combination was accounted for as a pooling of interests for
accounting and financial reporting purposes. Consequently, the historical
financial statements for periods prior to the consummation of the combination
have been restated as though the companies had been combined for all periods
presented. These restated results of operations are not necessarily indicative
of results to be expected in the future.

     All fees and expenses related to the business combination and to the
consolidation of the combining companies have been expensed as required under
the pooling of interests accounting method and included in non-recurring charges
in the Consolidated Statements of Operations. Such fees and expenses
approximated $764,000 and included commissions, professional fees and other
costs associated with consolidating and integrating the combined companies.

     Prior to the business combination, Pyramid was a Subchapter S Corporation
for federal income tax purposes and accordingly, its taxable income was not
taxed to the corporation, but directly to its shareholder.

                                      F-10
<PAGE>   33
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Upon acquisition by the Company, Pyramid is included in the Company's
consolidated income tax group. In accordance with pooling of interests
accounting the Company recorded a provision for deferred income taxes of
approximately $285,000 as of the transaction date, representing estimated future
tax liabilities relating to the excess of future net taxable income for income
tax purposes resulting primarily from cash basis accounting for tax purposes.

     Results of operations for the separate companies through the calendar
quarter immediately preceding the business combination are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                              SEPTEMBER 30, 1997
                                                              ------------------
                                                                 (UNAUDITED)
<S>                                                           <C>
Revenues
  Data Dimensions(1)........................................       $27,831
  Pyramid...................................................         5,505
                                                                   -------
     Combined...............................................       $33,336
                                                                   =======
Net income
  Data Dimensions(1)........................................       $ 2,454
  Pyramid...................................................           502
                                                                   -------
     Combined...............................................       $ 2,956
                                                                   =======
</TABLE>

---------------
(1) Prior period amounts for Data Dimensions have not been restated to reflect
    the 1998 merger with ST Labs.

NOTE 3 -- NON-RECURRING CHARGES

     The Company recorded in the Consolidated Statements of Operations
non-recurring charges of $4.0 million, $757,000 and $1.8 million in 1997, 1998
and 1999, respectively.

     In 1997, the $4.0 million before tax ($2.7 million after tax) non-recurring
charge was comprised of asset write-down charges for impairment of long-lived
assets ($2.6 million), merger costs related to the Pyramid business combination
($764,000), and costs attributable to the Company's change in organizational
structure to manage the rapid growth of its millennium consulting business
($619,000).

     The charge in 1998 of $757,000 before tax ($462,000 after tax) was for
merger related costs associated with the business combination with ST Labs in
August 1998, as described in Note 2.

     A non-recurring charge of $1.8 million before tax ($1.1 million after tax)
was recorded in the year ended December 31, 1999. The charge resulted from the
Company's transition from providing products and consulting services addressing
Year 2000 remediation to providing information technology consulting and other
services. The non-recurring charge consists of (in thousands):

<TABLE>
<S>                                                           <C>
Capitalized product development.............................  $  388
Asset impairment............................................     667
Severance costs.............................................     783
                                                              ------
                                                              $1,838
                                                              ======
</TABLE>

     The write-off of capitalized product development represents costs
associated with the development of the Company's Ardes 2k and IVR products. The
Company has decided to discontinue selling these products as they are no longer
a part of the Company's core business strategy.

     The asset impairment reflects the write-down of certain computer equipment
at the Company's Information Services division. This equipment was used
specifically in the testing of platforms for compliance

                                      F-11
<PAGE>   34
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

with Y2K and due to the shift in the Company's focus to enterprise integration
will not be fully utilized. The Company has written these assets down to their
estimated net realizable value based upon third party estimates of fair value
and intends to hold these assets for potential future projects which could
require the specific equipment identified.

     The severance costs reflect a workforce reduction of approximately 240
individuals primarily in field consulting. The Company revised the number of
employees to be terminated in December of 1999 resulting in a reduction in the
severance charge of $85,000. This reduction was a result of additional voluntary
terminations in the fourth quarter of 1999. Of the non-recurring amount,
approximately $416,000 is included in Accrued Compensation and Commissions at
December 31, 1999 and reflects severance costs for terminations scheduled for
the first quarter of 2000.

NOTE 4 -- ACCOUNTS RECEIVABLE

     Accounts receivable are presented net of an allowance for doubtful accounts
of approximately $1.4 million and $1.3 million at December 31, 1998 and December
31, 1999, respectively. Included in accounts receivable are costs and accrued
revenue in excess of amounts billed at the balance sheet date, relating
primarily to services provided to customers which have been subsequently billed.
Such unbilled amounts approximated $8.6 million and $3.4 million at December 31,
1998 and December 31, 1999, respectively. Included in prepaid expenses and other
current assets at December 31, 1998 and December 31, 1999 are approximately
$556,000 and $200,000, respectively, of amounts retained by customers in
accordance with contract terms. Amounts billed to customers in excess of
revenues recognized are classified as current liabilities under advance
billings.

NOTE 5 -- LONG-LIVED ASSETS

     Equipment and furniture consists of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                            1998       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Computers and equipment..................................  $11,622    $13,146
Furniture and fixtures...................................    1,135      1,071
Leasehold improvements...................................      292        311
                                                           -------    -------
                                                            13,049     14,528
Accumulated depreciation.................................   (4,582)    (7,489)
                                                           -------    -------
Equipment and furniture, net.............................  $ 8,467    $ 7,039
                                                           =======    =======
</TABLE>

     Computers and equipment include equipment under capital lease of
approximately $3.8 million and related accumulated amortization of $454,000 at
December 31, 1998 and $5.0 million and related accumulated amortization of $1.6
million at December 31, 1999.

     The Company had capitalized certain product development costs. In 1999 the
Company discontinued the sale and development of its Ardes 2k and Vendor Review
products. As a result, the investment in product development was written off.
Investment in product development was $1.0 million at December 31, 1998, net of
$792,000 in accumulated amortization, and zero at December 31, 1999.

NOTE 6 -- LEASES

     The Company leases facilities and certain equipment under operating leases,
some of which contain renewal options. Rent expense was $2.7 million, $2.6
million and $2.8 million in 1997, 1998 and 1999, respectively. The Company has
entered into agreements for lease of certain computer equipment, which are
accounted for as capital leases. One of the Company's stockholders (the former
Pyramid stockholder) has personally guaranteed certain capital lease
obligations. Future annual minimum commitments under leases

                                      F-12
<PAGE>   35
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

with non-cancelable terms in excess of one year at December 31, 1999, which have
not been reduced by minimum sublease revenue of $503,000, are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           OPERATING    CAPITAL
                                                            LEASES      LEASES
                                                           ---------    -------
<S>                                                        <C>          <C>
2000.....................................................   $2,619      $2,189
2001.....................................................    2,372       1,569
2002.....................................................    1,952         479
2003.....................................................      725          --
                                                            ------      ------
Total minimum payments...................................   $7,668      $4,237
Amounts representing interest............................       --        (331)
                                                                        ------
                                                                        $3,906
Current portion..........................................       --      $1,965
                                                                        ------
Non-current portion......................................       --      $1,941
                                                                        ======
</TABLE>

NOTE 7 -- INCOME TAXES

     The income tax provision consists of the following for the years ended
December 31 (in thousands):

<TABLE>
<CAPTION>
                                                              1997     1998     1999
                                                              ----    ------    ----
<S>                                                           <C>     <C>       <C>
Current provision
  Federal...................................................  $ --    $4,995    $256
  State.....................................................    10       744      33
  Foreign...................................................    10       182     259
                                                              ----    ------    ----
                                                                20     5,921     548
Deferred provision (benefit)................................   680        --      (9)
                                                              ----    ------    ----
Income tax provision........................................  $700    $5,921    $539
                                                              ====    ======    ====
</TABLE>

     The income tax provision for the years ended December 31 differed from
amounts computed by applying the U.S. federal income tax rate to pretax income
as a result of the following (in thousands):

<TABLE>
<CAPTION>
                                                            1997      1998     1999
                                                            -----    ------    -----
<S>                                                         <C>      <C>       <C>
Tax at U.S. federal income tax rate.......................  $(739)   $5,142    $ 470
Effect of merger costs....................................    174       249       --
Effect of Pyramid Sub-S status, including the $285,000
  provision relating to Sub-S termination in 1997 (Note
  2)......................................................    127        --       --
State income tax..........................................     36       744       33
Change in valuation allowance.............................    904       499      111
Foreign differences, net..................................     33      (410)    (114)
Non-deductible expenses...................................     92       115      125
Other, net................................................     73      (418)     (86)
                                                            -----    ------    -----
Income tax provision......................................  $ 700    $5,921    $ 539
                                                            =====    ======    =====
</TABLE>

                                      F-13
<PAGE>   36
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Deferred income taxes are comprised of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Operating loss carryforwards..............................  $ 1,407    $   980
  Tax-book depreciation.....................................      265        250
  Allowance for doubtful accounts...........................      484        482
  Other.....................................................      391        408
                                                              -------    -------
          Total deferred income taxes.......................    2,547      2,120
  Valuation allowance.......................................   (1,407)    (1,518)
                                                              -------    -------
     Net deferred tax assets................................    1,140        602
                                                              -------    -------
Deferred tax liabilities:
  Investment in product development.........................     (396)        --
  Other.....................................................     (401)      (250)
                                                              -------    -------
          Total deferred tax liabilities....................     (797)      (250)
                                                              -------    -------
          Net deferred income taxes.........................  $   343    $   352
                                                              =======    =======
</TABLE>

     The Company has recorded net deferred income tax assets, including
operating loss carryforwards. Realization of the operating loss carryforwards is
dependent on generating sufficient taxable income prior to their expiration.
Utilization of operating loss carryforwards following certain changes in
ownership is subject to limitations, which may significantly diminish net
operating loss carryforwards available to offset future taxable income. A
valuation allowance has been established for these operating loss carryforwards.
At December 31, 1999, the Company has net operating loss carryforwards available
to offset future taxable income of approximately $2.5 million with expiration
dates through 2018.

NOTE 8 -- STOCKHOLDERS' EQUITY, STOCK OPTIONS AND WARRANTS

     In connection with the Company's stock offering in April 1996, the Company
issued to the representative of the underwriters of the offering a warrant to
purchase 360,000 shares of Company Common Stock at an exercise price of $7.70
(165 percent of the public offering price), exercisable for a period of four
years beginning one year from issuance. In June 1997, the Company issued 360,000
shares of its Common Stock pursuant to the cash-less exercise of this warrant
and in connection therewith received from the warrant holder approximately
95,000 of such shares.

     Prior to its business combination with the Company, Pyramid paid dividends
to its sole shareholder in amounts approximating its taxable income and, in
1997, consistent with such normal pattern, declared and accrued a $1.0 million
dividend. All dividends have been paid.

     The Company has incentive stock option plans pursuant to which options to
purchase shares of the Company's Common Stock may be granted to employees and
directors. The plans provide that the option price shall not be less than the
fair market value of the shares on the date of grant. Options vest ratably over
four or five year periods as provided for in each employee's option agreement,
and generally expire in the fifth year after the options vest. In 1998, stock
options for 400,000 shares were granted outside the Company's stock option
plans. Included in this grant, options to purchase 350,000 shares vest ratably
over four years and options to purchase 50,000 shares vest after one year. These
options, which were issued to one individual upon the commencement of
employment, expire five years after they vest. In 1999, the shareholders voted
to increase the number of shares available for issuance under the stock plans by
1,500,000 shares. At December 31, 1999,

                                      F-14
<PAGE>   37
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

there were approximately 1,381,000 shares reserved for options to be granted
under the plans. The following summarizes stock options and warrants
transactions (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                                        WEIGHTED
                                                                                        AVERAGE
                                                       SHARES    PRICE PER SHARE     EXERCISE PRICE
                                                       ------    ----------------    --------------
<S>                                                    <C>       <C>                 <C>
Outstanding at December 31, 1996.....................  1,506     $ 0.25 to $13.50        $ 3.54
  Granted............................................    560     $10.83 to $34.75        $18.57
  Exercised..........................................   (774)    $ 0.25 to $20.50        $ 4.49
  Expired or canceled................................   (151)    $ 0.88 to $20.50        $ 6.92
                                                       -----
Outstanding at December 31, 1997.....................  1,141     $ 0.25 to $34.75        $10.06
  Granted............................................    990     $ 8.31 to $17.44        $13.67
  Exercised..........................................   (446)    $ 1.62 to $17.25        $12.09
  Expired or canceled................................   (163)    $ 0.87 to $33.56        $10.04
                                                       -----
Outstanding at December 31, 1998.....................  1,522     $ 0.25 to $34.75        $14.89
  Granted............................................  1,162     $ 1.50 to $ 8.69        $ 3.60
  Exercised..........................................    (32)    $ 0.25 to $ 2.00        $ 1.38
  Expired or canceled................................   (778)    $ 1.37 to $29.19        $13.20
                                                       -----
Outstanding at December 31, 1999.....................  1,874     $0.25 to  $34.75        $ 8.79
                                                       =====
</TABLE>

     Information relating to stock options at December 31, 1999 is summarized by
exercise price as follows (thousands of shares).

<TABLE>
<CAPTION>
                                 OUTSTANDING                      EXERCISABLE
                    -------------------------------------   -----------------------
                                   WEIGHTED AVERAGE                     WEIGHTED
 EXERCISE PRICE              ----------------------------               AVERAGE
    PER SHARE       SHARES   LIFE (YEAR)   EXERCISE PRICE   SHARES   EXERCISE PRICE
 --------------     ------   -----------   --------------   ------   --------------
<S>                 <C>      <C>           <C>              <C>      <C>
$  0.25 to $ 3.25     426        7.4           $ 2.99         29         $ 1.94
$  3.44 to $ 5.06     548        6.3           $ 3.58        117         $ 3.65
$  7.74 to $10.83     169        8.3           $ 9.92         41         $10.20
$ 11.24 to $16.13     483        6.5           $13.33        171         $13.22
$ 17.00 to $34.75     248        6.8           $20.61         98         $22.21
                    -----                                    ---
$  0.25 to $34.75   1,874        6.9           $ 8.79        456         $11.73
</TABLE>

     The weighted average fair value of options granted for the years ended
December 31, 1997, 1998 and 1999 are $8.99, $10.08 and $3.08, respectively.
Stock options issued to employees generally have an exercise price not less than
the fair value of the Company's Common Stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Had compensation cost for stock-based compensation been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income (loss) and earnings (loss) per share for the years
ended December 31, would have been reduced to the pro forma amounts presented
below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                           1997       1998      1999
                                                          -------    ------    ------
<S>                                                       <C>        <C>       <C>
Net income (loss)
  As reported...........................................  $(2,873)   $9,202    $  843
  Pro forma.............................................  $(3,291)   $8,021    $ (827)
Earnings (loss) per share
  As reported...........................................  $ (0.22)   $ 0.69    $ 0.06
  Pro forma.............................................  $ (0.26)   $ 0.60    $(0.06)
</TABLE>

                                      F-15
<PAGE>   38
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The fair market value of option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                           1997       1998       1999
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Expected life of options................................  5 years    5 years    5 years
Risk-free interest rate.................................      6.2%       5.2%       5.6%
Dividend yield..........................................        0%         0%         0%
Expected volatility.....................................       50%        96%        97%
</TABLE>

NOTE 9 -- EMPLOYEE BENEFIT PLANS

     The Company has 401(k) plans for those employees who meet eligibility
requirements. Eligible employees may contribute up to 15% of their compensation
subject to IRS 401(k) limitations. Company contributions to the plans are
discretionary as determined by the Board of Directors. Total contributions
charged to expense for the plans approximated $39,000, $49,000 and $523,000 in
1997, 1998 and 1999, respectively.

NOTE 10 -- NOTES PAYABLE

     The Company has a $10 million two-year, working capital, collateralized,
revolving line of credit with a bank. The underlying revolving note bears
interest at the bank's prime rate, or LIBOR-based variable rates. The agreement
has financial covenants which require the Company to maintain certain minimum
levels of, among others, tangible net worth and annual net income plus non-cash
expenses. The Company was in compliance with all covenants at December 31, 1999.

NOTE 11 -- SEGMENT REPORTING

     The Company operates in four segments, of which three are reportable under
the requirements of SFAS 131. The three reportable segments are Field
Consulting, Outsourcing Services, and Test Centers. The description of these
segments and the non-reportable segment is included in the description of
business in Note 1.

                                      F-16
<PAGE>   39
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company evaluates its performance and allocates resources based on
income from operations. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies in
Note 1. The Company's reportable segments are managed separately because they
provide different services to the customer. (Amounts in thousands.)

<TABLE>
<CAPTION>
                                                       OUTSOURCING     TEST       OTHER
                                   FIELD CONSULTING     SERVICES      CENTERS    SEGMENTS     TOTAL
                                   ----------------    -----------    -------    --------    --------
<S>                                <C>                 <C>            <C>        <C>         <C>
1999
Revenue..........................      $68,336           $13,839      $12,247    $ 7,684     $102,106
Intersegment revenue.............           --             5,190            9        520        5,719
Segment profit...................       15,235              (925)       1,522       (292)      15,540
Non-recurring charges............          610               685           --        388        1,683
1998
Revenue..........................       84,023            12,811       13,720      3,990      114,544
Intersegment revenue.............           --             3,636           --         --        3,636
Segment profit...................       26,086             3,544         (488)    (3,517)      25,625
1997
Revenue..........................       35,864             7,378       12,987      4,215       60,444
Intersegment revenue.............           --             1,769           --         --        1,769
Segment profit...................        9,764             1,347       (2,421)    (1,383)       7,307
Writedown of long-lived assets...        1,100                --           --      1,500        2,600
</TABLE>

     The Company does not record interest expense, interest income,
depreciation, tax provision or assets by segment.

     The total of the segment revenue and income before income taxes does not
equal the consolidated results. The following table provides a reconciliation of
segment results to the consolidated results (in thousands):

<TABLE>
<CAPTION>
                                                       1997        1998        1999
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
REVENUE
External revenue for reportable segments............  $56,229    $110,554    $ 94,422
Intersegment revenue for reportable segments........    1,769       3,636       5,199
Other revenue.......................................    4,215       3,990       8,204
Elimination of intersegment revenue.................   (1,769)     (3,636)     (5,719)
                                                      -------    --------    --------
Consolidated revenue................................  $60,444    $114,544    $102,106
                                                      =======    ========    ========
INCOME (LOSS) BEFORE INCOME TAX
Income from operations for reportable segments......  $ 8,690    $ 29,142    $ 15,832
Other income or loss................................   (1,383)        284        (292)
Unallocated amounts:
  Corporate general, and administrative.............   (9,480)    (14,303)    (14,158)
                                                      -------    --------    --------
Consolidated income (loss) before income tax........  $(2,173)   $ 15,123    $  1,382
                                                      =======    ========    ========
</TABLE>

  Significant Customers

     In 1998 and 1999, one customer accounted for 22 and 10 percent of the
Company's revenue, respectively. No single customer accounted for more than 10
percent of revenue in 1997.

                                      F-17
<PAGE>   40
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Geographic Information

     Revenue is generated primarily from customers in the United States. No
country outside of the United States represents a significant percent of total
revenue. The revenue below is based on the location of the customer (in
thousands):

<TABLE>
<CAPTION>
                                               1997        1998        1999
                                              -------    --------    --------
<S>                                           <C>        <C>         <C>
United States...............................  $57,848    $112,249    $ 96,084
Foreign.....................................    2,596       2,295       6,022
                                              -------    --------    --------
          Total.............................  $60,444    $114,544    $102,106
                                              =======    ========    ========
</TABLE>

NOTE 12 -- EARNINGS PER SHARE

     Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") requires presentation of earnings per share on a basic and diluted
earnings per share basis. Earnings per share for prior periods presented have
been restated to reflect the adoption of SFAS 128. A reconciliation of the basic
and diluted earnings per share to the shares used is as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                         1997       1998       1999
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Weighted average shares outstanding-basic.............   12,772     13,347     13,537
Weighted effect of dilutive options and warrants......       --         65         18
                                                        -------    -------    -------
Weighted average shares outstanding-diluted...........   12,772     13,412     13,555
                                                        =======    =======    =======
Net Income (loss).....................................  $(2,873)   $ 9,202    $   843
Basic earnings (loss) per share.......................  $ (0.22)   $  0.69    $  0.06
Diluted earnings (loss) per share.....................  $ (0.22)   $  0.69    $  0.06
</TABLE>

     The Company's outstanding options and warrants have been considered
utilizing the treasury stock method in calculating diluted earnings per share.
There were 1.1 million, 890,000 and 1.2 million options outstanding at December
31, 1997, December 31, 1998 and December 31, 1999, respectively, that were anti-
dilutive and excluded from the diluted share calculation.

     As more fully described in Note 2, during 1998 and 1997 the Company issued
approximately 515,000 and 540,000 shares, respectively, of its Common Stock in
connection with business combinations accounted for as a pooling of interests.
All share and per share data presented in these financial statements have been
restated on the basis that these shares have been outstanding for all periods
presented.

NOTE 13 -- 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 Company 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 operations or liquidity. The Company has been
engaged in a lawsuit with an international licensee in which the Company claimed
that royalty was due the Company for work performed by the licensee. In 1999 the
lawsuit was settled and the Company received $1.9 million which is recorded on
the income from litigation settlement line on the Statement of Operations.

     During 1996, the Company's subsidiary in Ireland entered into a grant
agreement with Ireland's Industrial Development Authority pursuant to which,
under certain conditions, the Company may receive grant monies of up to 1.1
million Irish Pounds (approximately $1.4 million at December 31, 1999). During
the years ended December 31, 1997, 1998 and 1999, the Company recognized grant
monies of approximately $124,000, $272,000 and zero, respectively. Pursuant to
terms of the grant the Company could have an

                                      F-18
<PAGE>   41
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

obligation to repay grant funds in the event that the Company should discontinue
its Irish operations prior to the commitment period provided for in the grant
agreement, which expires in 2001.

NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED, EXCEPT FOR THE YEARS ENDED
DECEMBER 31 DATA)

     The following quarterly information is unaudited and has been restated to
give effect to the business combinations accounted for on a pooling of interests
basis, as described in Note 2 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 1999
                                   -----------------------------------------------------------------
                                                     QUARTERS ENDED
                                   --------------------------------------------------    YEAR ENDED
                                   MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31    DECEMBER 31
                                   --------    -------    ------------    -----------    -----------
<S>                                <C>         <C>        <C>             <C>            <C>
Revenue..........................  $32,218     $32,279      $21,593         $16,016       $102,106
Gross margin.....................  $12,706     $11,633      $ 5,868         $ 4,810       $ 35,017
Income (loss) from operations....  $ 2,606     $ 2,439      $(4,351)(a)     $(1,000)      $   (306)
Net income (loss)................  $ 1,542     $ 1,431      $(2,680)(a)     $   550(b)    $    843
Earnings (loss) per share(c).....  $  0.11     $  0.11      $ (0.20)(a)     $  0.04(b)    $   0.06
</TABLE>

<TABLE>
<CAPTION>
                                                                 1998
                                   -----------------------------------------------------------------
                                                     QUARTERS ENDED
                                   --------------------------------------------------    YEAR ENDED
                                   MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31    DECEMBER 31
                                   --------    -------    ------------    -----------    -----------
<S>                                <C>         <C>        <C>             <C>            <C>
Revenue..........................  $21,230     $27,131      $34,448         $31,735       $114,544
Gross margin.....................  $ 9,383     $11,480      $15,057         $12,667       $ 48,587
Income from operations...........  $ 1,527     $ 2,942      $ 6,242         $ 4,643       $ 15,354
Net income.......................  $   873     $ 1,531      $ 3,948         $ 2,850       $  9,202
Earnings per share(c)............  $  0.07     $  0.11      $  0.29         $  0.21       $   0.69
</TABLE>

---------------
(a) The third quarter of 1999 included non-recurring charge of $1.9 million.

(b) The fourth quarter of 1999 included income from a litigation settlement of
    $1.9 million recorded in non-operating income.

(c) Earnings (loss) per share for the year will not necessarily equal the sum of
    the net income (loss) per share amounts for the quarters due to different
    weighting of the diluted shares outstanding.

                                      F-19
<PAGE>   42

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

      FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                 BALANCE AT     CHARGED TO                  BALANCE AT
                                                 BEGINNING      COSTS AND                     END OF
                 DESCRIPTION                     OF PERIOD       EXPENSES     DEDUCTIONS      PERIOD
                 -----------                    ------------    ----------    ----------    ----------
<S>                                             <C>             <C>           <C>           <C>
Allowance for Doubtful Accounts
Year ended December 31, 1997..................     $  129         $  367         $109         $  387
Year ended December 31, 1998..................     $  387         $1,015         $  3         $1,399
Year ended December 31, 1999..................     $1,399         $  477         $591         $1,285
</TABLE>

                                       S-1