<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                 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, 2000

                                       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 28, 2001 was approximately
$5.4 million.

     As of February 28, 2001, there were 13,560,972 shares of Common Stock, par
value $.001 per share, outstanding.
                            ------------------------

                      DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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

                             DATA DIMENSIONS, INC.

                               TABLE OF CONTENTS

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

Item 1.   Description of 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........................................................   17
Item 8.   Financial Statements and Supplementary Data.................   17
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and
          Financial Disclosure........................................   17

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant..........   17
Item 11.  Executive Compensation......................................   19
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   24
Item 13.  Certain Relationships and Related Transactions..............   25

                                  PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   26
Signatures............................................................   28
</TABLE>

                                        2
<PAGE>   3

                                     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 comprehensive, outsourced testing, quality assurance ("QA")
and application development and maintenance ("ADM") services through a network
of test labs, field consultants and an offshore applications solution center.
From 1991 through 1999, the Company derived the majority of its revenue by
providing solutions specifically related to the millennium date change ("Y2K").
During 2000, the Company transitioned to its current focus of providing QA and
test services from a strategy of providing more general information technology
services, including Y2K and other consulting services. The Company's clients
consist primarily of product development organizations and on-line service
providers, ranging from large organizations to emerging companies in the
information technology, manufacturing, financial services and pharmaceutical
industries. The Company was incorporated under Delaware law in 1968.

     In the third quarter of 2000, the Company retained an investment banking
firm to assist in assessing various alternatives designed to increase
shareholder value. Consistent with its strategy to focus on QA and Testing
services, the Company sold its data center outsourcing business in December of
2000. In March 2001, the Company announced that it has entered into a merger
agreement with Lionbridge Technologies, Inc. The transaction will be presented
to shareholders for approval before July 31, 2001.

     The Company is organized into two divisions: Quality Assurance and Testing,
and Application Development and Maintenance. Each division has a mission to
provide services that support specific market segments and customers.

INDUSTRY BACKGROUND

     Businesses continue to expand the use of technology to manage information
and processes and to create new and increasingly complex products. Concurrently,
software has become ubiquitous -- and a more important component in the
development and delivery of products and services, ranging from traditional
business application software to the software built into cellular telephones,
automated teller machines, and point-of-sale devices. With each advance in
technology, new business products or processes are created and delivered to a
broader class of customers.

     Within this environment, many companies are challenged by the growth in the
demand for software, often outpacing their ability to design, build and test
that software. In the past, organizations have often sacrificed speed for
quality, or vice versa. However, in today's rapidly changing business
environment, as software becomes more business-critical, organizations can no
longer afford to sacrifice one for the other. It is becoming increasingly
important for businesses to adopt more effective approaches to their software
development and deployment process. Exacerbating the speed and quality
trade-off, software is becoming more complex, requiring coordinated teams of
professionals to develop and deploy it. These teams must work in unison to meet
today's increased speed and quality needs.

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

     Ubiquity and complexity of software. The effective and consistent
functioning of software applications has become critical to business success
with the ability to quickly develop and deploy high-quality software solutions
that meet customer and user needs becoming a critical competitive advantage. As
the number and complexity of software applications continue to expand, the
challenge facing many organizations is that the demand for software is
surpassing their internal staff's ability to design, build and test these
applications, within narrow time-to-market windows. Many organizations seek to
address this challenge by increasing the
                                        3
<PAGE>   4

capabilities of their development and testing environment by applying proven
techniques and practices, often in an outsourced manner.

     The growth 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 information technology ("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 relevant 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 in a cost effective and efficient
manner. The increased demand for software applications, combined with the
proliferation of sophisticated technology, is driving an unfilled need for
software professionals at every level.

     Merits of outsourcing. 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. Testing services are well suited
for outsourcing by providing specialized resources during peak demand periods,
such as product release cycles. In addition, outsourced testing services give
businesses the chance to have their applications objectively evaluated by a
third party.

     Time-to-market demands. As the pace of new product introduction
accelerates, software developers are under increased pressure to reduce
development cycles and to get new products to market earlier. Outsourced testing
services can provide a more cost effective and time sensitive solution than is
inherent in most internal IT organizations by providing specialized resources on
a scale appropriate to meet time-to-market requirements.

     Growing concerns over security and privacy. The systematic way software has
been created and deployed often produces "doors" for hackers to enter. Each time
a new software application, or update, emerges, it runs the risk of causing a
ripple effect in existing defenses. Untested software, and poor quality
processes, increases the likelihood of undiscovered entry points.

STRATEGY

     The Company's goal is to be the leading provider of outsourced quality
assurance and testing services. The Company's strategies include the following
key elements:

     Expand Quality Assurance and Testing Practice Areas. The Company intends to
further expand its QA and Testing services to address the critical nature of
today's software applications by increasing the breadth of its services to
include Web related applications, embedded devices, wireless applications and
accessibility testing. Further, the Company seeks to leverage technology
knowledge gained in one practice area by adding similar QA and Testing services
in related areas (for example, infrared and Bluetooth technologies).

     Leverage Existing Clients. The Company seeks to increase the services
provided to its existing clients by selling to other product groups within
product development organizations and expanding the scope of initial engagements
with smaller, emerging companies.

     Expand Geographic Presence. The Company intends to expand the number of its
Test Centers to provide additional testing capacity and greater proximity to
clients.

     Develop technology partnerships and alliances. The Company intends to
develop partnerships and other such relationships with leading vendors of
software testing tools to provide its clients with the most appropriate testing
platforms. Additionally, the Company intends to team with Web development firms
to provide third party testing services for end user clients.

                                        4
<PAGE>   5

COMPANY SERVICES

     The Company provides services designed to mitigate business risk and allow
its clients to gain confidence in their software applications. The Company's
services include:

     QUALITY ASSURANCE AND TESTING. The Company provides comprehensive software
QA and Testing solutions for product development organizations and on-line
service providers from the Company's Test Centers and through its field
consultants.

     Quality assurance. The Company's Quality Assurance consulting services help
client organizations identify processes within their organization to prevent
defects (QA). In addition, the Company helps implement processes that address
the client's need for defect detection (testing). These services are most often
delivered by the Company's field consultants at a client's site rather than at
the Company's Test Centers. These services include:

     - QA Evaluation -- often serving as an initial client engagement, the QA
       evaluation is designed to assist clients in documenting, improving and/or
       streamlining their QA and test function.

     - Test Planning -- assisting clients in the preparation and management of
       the overall testing process, including the review of current development
       activities, project objectives, and the business use of the
       applications/systems; developing a Test Strategy to establish the
       parameters for testing; developing a Test Plan for the testing effort;
       creating use cases, test cases, and test scripts.

     - QA Program Implementation -- enactment of operational changes related to
       testing methodologies and disciplines, change management procedures,
       quality control practices, and/or application requirements/development
       standards.

     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. Through a network of Test Centers located in
the United States and Ireland, the Company offers comprehensive testing and
training that results in production-quality products and systems. During the
process, the Company gains further insight into the latest products,
technologies and platforms. The following exemplifies the types of testing
services provided:

     - Performance -- Services include load/stress and scalability testing to
       determine whether features and functions perform within acceptable
       parameters for a positive user experience.

     - Usability -- Services include compatibility and functionality testing to
       determine whether the features and functions perform as intended and
       interoperate as required.

     - Compliance -- Services include certification and validation testing to
       determine whether the software adheres to specifications.

     - Universality -- Services include accessibility testing and localization
       to determine whether the product or service supports the special needs of
       users less able, or address language and cultural consistency.

     APPLICATION DEVELOPMENT AND MAINTENANCE. Application development and
maintenance (ADM) services help clients effectively manage and enhance existing
business systems to improve performance while better controlling costs. Under
this service offering, the Company manages clients' business applications with
the objective of improving software quality, processes, and costs. ADM
engagements may also encompass development of new applications, as directed by
clients. The Company operates an offshore Application Solution Center in Galway,
Ireland, in concert with on-site consultants, to provide its clients with ADM
services across a range of platforms and operating environments. The Company's
ADM services include:

     - Application and Web development -- the design and coding of new
       applications such as knowledge portal development, legacy application
       extension and application integration.

     - Application maintenance and production support -- management, enhancement
       and support of existing computer applications.
                                        5
<PAGE>   6

SALES, MARKETING AND CLIENTS

     The Company markets its services through its direct sales force located
throughout the continental United States and the United Kingdom. As of February
28, 2001, the direct sales force was comprised of 18 employees. The Company
focuses its marketing efforts on product development organizations, on-line
service providers and commercial organizations with significant technology needs
that can be addressed by the Company's QA consulting, testing, and application
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: information technology, manufacturing, financial services and
pharmaceuticals.

     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
percent and 48 percent of the Company's total revenue during the years ended
December 31, 2000 and 1999, respectively. Hewlett-Packard accounted for
approximately 17 percent and the Los Angeles Department of Water and Power
accounted for approximately 11 percent of the Company's consolidated revenue in
2000 and 1999, respectively.

     Y2K remediation services accounted for approximately 3 percent and 76
percent of the Company's total revenue during the years ended December 31, 2000
and 1999, respectively. The Company expects no future Y2K related revenue.

     The Company relies on its dedicated sales force to generate new clients as
well as pursue potential leads related to its QA and Testing offerings. 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, industry conferences and in-bound client inquiries.

     The Company utilizes two independent sales representatives in connection
with sales of its application development and maintenance services. These sales
representatives operate under contracts, with one year terms, that define the
territory and commission structure under which they market the Company's
services.

     The Company has previously entered into license agreements with certain
domestic and international organizations pursuant to which these licensees could
resell agreed-upon Company products, as well as utilize the Company's
methodology in performing Y2K project work. These licenses were generally
exclusive to a specific geographical territory. As more fully described in Note
4 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 has no patents or patent applications pending relating to its
ADM or QA and Testing businesses and relies on a combination of trade secret,
nondisclosure and other contractual agreements, and copyright and trademark laws
to protect its intellectual property rights. This intellectual property largely
consists of a documented set of processes (Modular Repeatable Processes)
utilized in the Company's ADM business and certain software applications related
to software error logging and reporting utilized in its QA and Testing business.

     Existing trade secret and copyright laws provide only limited protection.
The Company enters into confidentiality agreements with its employees and
requires outside consultants and some clients to enter into such agreements. The
Company also protects its proprietary information by limiting access to and
distribution of proprietary information. There can be no assurance that these
arrangements will be adequate to deter misappropriation of proprietary
information.

     The Company's intellectual property has also consisted of its Millennium
Process and Ardes 2k, which were related to its Y2K 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

                                        6
<PAGE>   7

dates for the year 2000 and beyond (Y2K). 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 4 to the Consolidated Financial Statements,
during 1999 the Company discontinued its product-based business and consequently
does not expect additional revenue to be derived from its Millennium Process or
Ardes 2k products.

PRODUCT AND TECHNOLOGY DEVELOPMENT

     The Company invested approximately $52,000 in capitalized product
development costs in 1998 and has made no investment since then. The costs
incurred in 1998 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 $0,
$900,000 and $672,000 in 2000, 1999 and 1998, respectively. These amounts
include write-downs of capitalized product development of $388,000 in 1999,
which is included in non-recurring charges in the Consolidated Statement of
Operations.

COMPETITION

     The market for the Company's services is highly fragmented with many
competitors and low barriers to entry. The competitive market factors are
service, price, flexibility and responsiveness, and the expertise and experience
of the personnel provided to clients. The Company's competitors include:

     - Independent testing labs and divisions of IT organizations such as
       VeriTest (a division of Lionbridge Technologies, Inc.) and Ajilon
       Software Quality Partners (a division of Adecco, SA).

     - The professional services divisions of larger organizations such as
       International Business Machines, Unisys Corporation and Accenture.

     - Companies such as Keane Inc., Computer Horizons, Inc., and Ciber Inc.

     - Internal QA and Testing departments of Global 2000 and emerging
       companies.

     The Company believes its primary advantages in the market are the
experience and expertise of its personnel in providing quality testing solutions
in conjunction with a high degree of flexibility and responsiveness to clients'
requirements.

     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 QA and Testing market.

EMPLOYEES

     As of February 28, 2001, the Company employed approximately 325 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

                                        7
<PAGE>   8

its full-time employees, when necessary, with administrative and technical
contractors and temporary personnel. As of February 28, 2001, the Company
engaged 107 contractors and temporary personnel.

ITEM 2. PROPERTIES

     The Company maintains its headquarters in a leased facility in Bellevue,
Washington, which lease will expire in 2002. In addition, the Company maintains
leased office space for testing labs and small regional offices in the US. The
Company also leases facilities in Cheshire, England and Galway, Ireland. Most of
the Company's leases have terms in excess of one year. The Company believes its
facilities are in good condition.

ITEM 3. LEGAL PROCEEDINGS

     As of February 28, 2001, 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, 2000.

                                        8
<PAGE>   9

                                    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>
2000
First Quarter ended March 31, 2000..........................  $7.56    $2.25
Second Quarter ended June 30, 2000..........................   4.44     1.66
Third Quarter ended September 30, 2000......................   3.13     0.94
Fourth Quarter ended December 31, 2000......................   1.13     0.22
</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 28, 2001, the closing price of the Common Stock on the Nasdaq
National Market System was $0.47 per share. As of February 28, 2001, there were
approximately 628 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.
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.

     Nasdaq notified the Company of its decision to delist its Common Stock from
the Nasdaq National Market System as of March 8, 2001. Nasdaq's decision to
delist was due to the Company's noncompliance with Nasdaq listing standards that
require a company to maintain a minimum bid price of $1.00 per share. On March
5, 2001, the Company requested, and was granted, an oral hearing before the
Nasdaq Listing Qualifications Panel to review the decision by Nasdaq. The oral
hearing is scheduled for April 5, 2001. The request stayed the delisting of the
Company's Common Stock pending the decision of the Nasdaq Listing Qualifications
Panel. There is no assurance the decision by the Nasdaq Listing Qualifications
Panel will be favorable to the Company. If delisted the Company's stock could be
traded on either the Over-The-Counter or the Small Cap markets.

                                        9
<PAGE>   10

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. Revenue, income (loss) from continuing operations, net of tax
and Income (loss) from continuing operations, net of tax per share have been
restated to reflect the reclassification of the data center operations to
discontinued operations. See Note 3 to the Consolidated Financial Statements for
more information. (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                         -----------------------------------------------------
                                           2000       1999        1998       1997       1996
                                         --------    -------    --------    -------    -------
<S>                                      <C>         <C>        <C>         <C>        <C>
Revenue................................   $32,408    $90,404    $101,733    $53,066    $21,776
Income (loss) from continuing
  operations, net of tax...............   (11,102)     1,992       7,834     (3,086)       839
Net income (loss)......................    (9,476)       843       9,202     (2,873)     1,525
Income (loss) from continuing
  operations, net of tax per diluted
  share................................     (0.82)      0.14        0.58      (0.24)      0.07
Net income (loss) per diluted share....     (0.70)      0.06        0.69      (0.22)      0.13
Total assets...........................    23,135     39,638      51,937     34,713     25,074
Working capital........................    15,148     22,604      19,363     10,485     15,728
Long term debt, net of current
  portion..............................        --         --          --        491        761
</TABLE>

                                        10
<PAGE>   11

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,
selling, general and administrative and expenses); (ii) the Company's business
strategies for expanding its presence in the software quality assurance and
testing market (including expanding the number of testing services offered,
geographic expansion, gaining additional business from individual client
organizations, and securing technology partnerships); 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)
the overall demand for Information Technology consulting services and
specifically customer demand for outsourced testing and quality assurance
services; (ii) the Company's ability to keep pace with rapidly changing
technology and to develop new service offerings; (iii) the Company's dependence
on its clients' product release cycles; (iv) the absence of long-term contracts
and the impact on the Company of the loss of a major client; (v) unanticipated
working capital or other cash requirements; (vi) the Company's ability to
attract and retain qualified technical personnel; and, (vii) 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 comprehensive, outsourced testing, quality assurance
(QA) and application development and maintenance (ADM) services through a
network of test labs, field consultants and an offshore applications solution
center. From 1991 through 1999, the Company derived the majority of its revenue
by providing solutions specifically related to the millennium date change (Y2K).
During 2000, the Company transitioned to its current focus of providing QA and
Test services from a strategy of providing more general information technology
services, including Y2K and other consulting services. The Company's clients
consist primarily of product development organizations and on-line service
providers, ranging from large organizations to emerging companies in the
information technology, manufacturing, financial services and pharmaceutical
industries.

     In the third quarter of 2000, the Company retained an investment banking
firm to assist in assessing various alternatives designed to increase
shareholder value. In March 2001, the Company announced that it entered into a
merger agreement with Lionbridge Technologies, Inc. The transaction will be
presented to shareholders for approval before July 31, 2001.

     In December 2000, the Company sold its data center outsourcing subsidiary,
Data Dimension Information Services ("DDIS") in a cash transaction. The Company
received $1.8 million of the $5.4 million purchase price at the closing of the
transaction, and the remaining balance was paid in January 2001. The Company's
financial results have been presented to reflect this business as a discontinued
operation for all periods presented.

     In August 1998, in a pooling of interests transaction, 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.
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 other testing services, is now conducted by
the Company using the name Data Dimensions Test Centers and forms the basis of
the Company's QA and Testing services.

     The Company markets its QA and Testing services in the United States
through a direct sales force and utilizes independent sales representatives to
sell its Application Development and Maintenance services. The Company has
previously leveraged its Y2K technology by licensing the right to use its Y2K
consulting process

                                        11
<PAGE>   12

to 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 market the Company's services to the United
Kingdom and European markets.

     The Company's QA and Testing and ADM 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, and other costs directly related to
services provided.

     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. The Company's QA and
Testing and Application Development and Maintenance gross margins may vary due
to the differing salary structures for its billable personnel, utilization rates
and contract durations.

     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>
                                                          2000       1999       1998
                                                          -----      -----      -----
<S>                                                       <C>        <C>        <C>
Revenue.................................................  100.0%     100.0%     100.0%
Direct costs............................................   69.3       55.5       48.3
                                                          -----      -----      -----
Gross margin............................................   30.7       44.5       51.7
General, administrative and selling expenses............   79.4       41.7       38.1
                                                          -----      -----      -----
Income from operations before non-recurring charges.....  (48.7)       2.8       13.6
Non-recurring charges...................................   (0.4)       1.3        0.8
                                                          -----      -----      -----
Income (loss) from operations...........................  (48.3)       1.5       12.8
Other expense (income)..................................   (0.6)      (2.1)       0.1
                                                          -----      -----      -----
Income (loss) from continuing operations before income
  tax...................................................  (47.7)       3.6       12.7
Income tax provision (benefit) from continuing
  operations............................................  (13.4)       1.4        5.0
                                                          -----      -----      -----
Income (loss) from continuing operations, net of tax....  (34.3)       2.2        7.7
Income (loss) from discontinued operations, net of
  tax...................................................   (4.5)      (1.3)       1.3
Gain from sale of discontinued operations, net of tax...    9.6         --         --
                                                          -----      -----      -----
Net income (loss).......................................  (29.2)%      0.9%       9.0%
                                                          =====      =====      =====
</TABLE>

     The Company conducts its business through two operating divisions
consisting of QA and Testing, and Application Development and Maintenance.

     QA and Testing: Through a network of Test Centers and on-site field
consultants, the Company provides comprehensive, outsourced software quality
assurance and test solutions for product development organizations and on-line
service providers including practice areas of printers and peripherals,
publishing and education, embedded systems and Web testing.

     Application Development and Maintenance: Under this service offering, the
Company manages clients' business applications with the objective of improving
software quality, processes, and costs. ADM engagements may also encompass
development of new applications, as directed by clients. The Company operates an
offshore Application Solution Center in Galway, Ireland, in concert with on-site
consultants, to provide its clients with ADM services across a range of
platforms and operating environments.

                                        12
<PAGE>   13

  Comparison of 2000 to 1999

     The Company's 2000 total revenue of $32.4 million decreased 64 percent from
revenue of $90.4 million in 1999. The decline in total revenue is largely
attributed to a decline in Y2K remediation projects, which provided the majority
of 1999 revenue. QA and Testing revenue of $20.6 million increased 57 percent
from revenue of $13.1 million in 1999 due largely to the addition of a field
delivered Quality Assurance practice as well as increased customer billings at
certain larger Test Center clients. Applications Development and Maintenance
revenue increased 300 percent to $7.2 million in 2000 compared to $1.8 in 1999,
its first year of operations. The increase in revenue was largely caused by an
increased number of customer contracts.

     Gross margin as a percentage of revenue decreased to 31 percent in 2000
from 45 percent in 1999. Contributing to the decrease was a lower utilization
rate of the Company's field consultants as Y2K projects were completed, without
a corresponding increase in non-Y2K business. The Company reduced its field
consulting workforce in the third and fourth quarters of 2000 as it exited
certain markets and focused on providing QA and Testing, and ADM services.

     General, administrative and selling expense of $25.7 million decreased 32
percent from $37.7 million in 1999. The decrease was primarily due to a decrease
in the number of employees in sales and administrative functions, as well as
overall expense reductions. The Company reduced general, administrative and
sales resources in the third and fourth quarters of 2000 as it exited certain
markets and focused on providing QA and Testing, and ADM services. This was
offset, somewhat by an expense of $2.1 million related to increasing the
allowance for bad debts in the fourth quarter of 2000. General, administrative
and selling expense represented 79 percent of total revenue in 2000 compared to
42 percent in 1999 due to the decrease in revenue.

     Non-recurring income of $136,000 in 2000 related to the reversal of certain
charges associated with the Company's 1999 restructuring activity. The reversal
was due to increased voluntary terminations. Non-recurring charges of $1.2
million in 1999, more fully described in Note 4 to the Consolidated Financial
Statements, resulted from the Company's transition from providing products and
consulting services addressing Y2K 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.

     Income (loss) from continuing operations, net of tax was a loss of $11.1
million in 2000 versus income of $2.0 million in 1999. The loss in 2000 resulted
from reduced gross margins on significantly less revenue and higher general,
administrative and selling expenses in relation to revenue.

     Net income (loss) was a loss of $9.5 million in 2000 and reflective of a
loss from discontinued operations of $1.5 million and a gain on the sale of the
discontinued operations of $3.1 million. In 1999, net income was $843,000
reflecting a loss from discontinued operations of $1.1 million.

     The annual effective tax rate in 2000 was 28 percent versus 39 percent in
1999. The 1999 rate is higher than the statutory rate due largely to 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
losses incurred in 2000 can be carried back and applied to 1998 and 1999 federal
taxes paid, subject to certain limitations. The limitations and the fact that
certain states do not provide for carryback provisions reduced the benefit
generated by the tax losses.

  Comparison of 1999 to 1998

     The Company's 1999 total revenue of $90.4 million decreased 11 percent from
revenue of $101.7 million in 1998. The decline in total revenue can largely be
attributed to a decline in Y2K remediation projects, which provided the majority
of 1999 and 1998 revenue. QA and Testing revenue of $13.1 million decreased 5
percent from revenue of $13.7 million in 1998 due largely to an overall
reduction in average revenue per project, partially offset by an increase in Web
related testing. Applications Development and Maintenance revenue was $1.8
million in 1999, its first year of operation.

                                        13
<PAGE>   14

     Gross margin as a percentage of revenue decreased to 45 percent in 1999
from 52 percent in 1998. Contributing to the decrease was a lower utilization
rate of the Company's field consultants as Y2K projects were completed, without
a corresponding increase in non-Y2K business. As more fully described in Note 4
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.

     General, administrative and selling expense of $37.7 million decreased 3
percent from $38.8 million in 1998. The decrease was primarily due to a
reduction in the number of employees in sales and administrative functions in
the second half of the year. As more fully described in Note 4 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
42 percent of total revenue in 1999 compared to 38 percent in 1998.

     Non-recurring charges in 1999 were $1.2 million compared to $757,000 in
1998. The 1999 charge, more fully described in Note 4 to the Consolidated
Financial Statements, resulted from the Company's transition from providing
products and consulting services addressing Y2K 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 Y2K work performed under license agreements.

     Income from continuing operations, net of tax decreased to $2.0 million in
1999 from $7.8 million in 1998. The decrease in 1999 resulted from reduced gross
margins and higher general, administrative and selling expenses in relation to
revenue.

     Net income of $843,000 in 1999 and $9.2 million in 1998 reflects a loss
from discontinued operations of $1.1 million in 1999 and income from
discontinued operations of $1.4 million in 1998.

     The annual effective tax rate in 1999 and 1998 was 39 percent. 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.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2000, the Company had $15.1 million of working capital, of
which $2.1 million was cash and cash equivalents. Also included in current
assets is a federal income tax receivable of $4.5 million. The Company expects
to receive a refund of taxes paid in 1998 and 1999 as a result of carrying the
tax losses of 2000 back against previous years income. The Company acquired $1.4
million, $1.5 million and $3.6 million of equipment and furniture, primarily
computer equipment and office furniture, in 2000, 1999 and 1998, respectively.
The Company expects to spend a lesser amount on equipment and furniture in 2001
than in 2000. The Company significantly increased its allowance for bad debts in
the fourth quarter of 2000 in response to slowing payments and funding
difficulty of some of its clients. In addition, several clients filed for
bankruptcy late in the year and these amounts have been written-off.

     Cash flow from operating activities was $(6.7) million, $12.9 million and
$1.9 million in the years ended December 31, 2000, 1999 and 1998, respectively.
The negative cash flow in 2000 was primarily related to the operating losses
incurred during the year. Continued operating losses would require additional
sources of liquidity in order for the Company to meet its cash requirements.
Sources of additional liquidity may be difficult to acquire or may be on terms
not favorable to the Company. If additional liquidity is not available, the
Company will need to reduce its expenses to ensure adequate liquidity for
ongoing operating expenses.

     The Company had a $10 million, two-year, working capital, revolving line of
credit with a bank that expired in June 2000. In January 2001, the Company
entered into a line of credit agreement with another

                                        14
<PAGE>   15

commercial bank under which the Company can borrow up to $7.5 million based on
the value of certain current assets. The agreement calls for the Company to meet
certain financial covenants. In conjunction with the line of credit, the Company
issued warrants for the purchase of 150,000 shares of Common Stock at an
exercise price of $0.90 per share and 75,000 shares of Common Stock at an
exercise price of $0.75 per share. The value ascribed to these warrants is
immaterial.

OUTLOOK -- ISSUES AND UNCERTAINTIES

     The following issues and uncertainties, among others, should be considered
in judging the Company's long-term prospects:

  The Company is currently not profitable and has an accumulated deficit

     The Company experienced net losses of $11.1 million from continuing
operations for the fiscal year ended December 31, 2000 due to its transition
away from providing Y2K remediation services to providing quality assurance and
testing services and has an accumulated deficit of $2.5 million. Although, the
Company's quality assurance and testing revenue grew significantly in fiscal
year 2000, this growth may not be sustainable or indicative of actual future
results of operations.

 If the Company's losses continue, it will need to raise additional capital. If
 it is unable to raise capital or does so on unfavorable terms, the company may
 be unable to meet its cash requirements

     If the Company's losses continue, it will be unable to pay its expenses,
unless it raises additional capital. If the Company needs to raise additional
capital but is not able to raise the necessary funds or is able to do so only on
unfavorable terms, the Company may not be able to meet the cash requirements
necessary for the continued operation of its business as it is currently
operated.

  The Company has experienced historical fluctuations in quarterly operating
results

     The Company has experienced, and may experience in the future, fluctuations
in quarterly operating results. Several factors may contribute to the
fluctuations in revenue, including an absence of long term service contracts,
the number and requirements of client engagements, the Company's ability to
develop, introduce and successfully market new and enhanced services, customer's
product development cycles, and general economic conditions which may affect
customers' decisions about the extent and timing of their spending. Additional
other factors may impact the Company's gross margins, including the number of
projects and the corresponding project phase, employee productivity, staffing
mix, and salary and compensation related costs to attract and retain qualified
personnel.

  The Company could be negatively impacted by the loss of a major client or
reduction of a major project

     The Company has depended on a limited number of clients to generate a
significant amount of its revenue. Although there was a shift in the composition
of the large clients from 1999 to 2000, but the Company's ten largest clients
accounted for approximately 55 percent and 48 percent of the Company's revenue
in 2000 and 1999, respectively. As a result, if one or more of these clients
determine to terminate their relationship with the Company, reduce the scope of
a large project or elect not to proceed to a project stage, such action could
have a material adverse affect on the Company's financial performance and
condition.

  The Company is significantly dependent on its ability to attract and retain
skilled professionals

     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 skilled professionals are in great demand in the information
technology services industry and are likely to remain a limited resource for the
foreseeable future. In addition, the industry has experienced high turnover
rates. The ability of the Company to conduct operations is significantly
dependent on the availability of skilled personnel and the ability of the
Company to attract and retain these skilled employees. Recruiting and retention
pressures throughout the industry will likely result in increases in the amount
and type of compensation offered to employees. As a result, there can
                                        15
<PAGE>   16

be no assurance that the Company will be able to attract sufficient qualified
technical personnel or retain existing and future employees.

  The Company operates in a highly competitive market with low barriers to entry

     The market for quality assurance and testing services is highly competitive
and the Company has many competitors. Some of the Company's competitors have
longer operating histories, significantly greater resources and greater name
recognition. If the Company fails to be competitive, its market position and
revenue could fail to grow or potentially decline.

     There are few barriers to entry preventing companies from competing in the
quality assurance and testing market. The Company does not own any patented or
other technology or process that discourages or prohibits competitors from
entering the market. In addition, information technology consulting companies,
web consultants or others may enter the market and there is no assurance of the
Company's ability to compete effectively with current or potential new
competitors.

  If the Company cannot keep pace with technological changes, its business could
  suffer

     The quality assurance and testing market is characterized by rapidly
changing client requirements and evolving technologies. If the Company cannot
keep pace with the technological changes, it could lose clients and its business
could suffer. The proliferation and ubiquity of software, the Internet's
continued growth and changing industry standards add to the complexities of the
market. In order to keep pace with the continuing changes, the Company needs to
develop appropriate services and methodologies. There is no assurance that the
Company can develop the appropriate services and methodologies to adequately
respond to the technological changes.

  The Common Stock of the Company has been subject to price and volume
  fluctuations in the past and may in the future

     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 of any unfavorable variance in revenues or net income from
levels generally expected from securities analysts or investors could have an
immediate and significant effect on the trading price of Data Dimensions' Common
Stock. In addition, announcements of technological innovations or new services
by the Company, its competitors or other third parties, rumors of innovations or
new services or products, changing market conditions in the industry, changes in
estimates by securities analysts, unusual events, or general economic conditions
may have a significant impact on the market price of the Company Common Stock.

  The uncertainty in the technology market could affect the Company's ability to
  achieve operating plans

     A substantial portion of the Company's revenue is derived from technology
companies, including Web-based businesses. Many technology companies have
experienced slow-downs in 2000 and may experience similar slow-downs in 2001. A
continued slow-down in the technology market may have a negative impact on the
Company's ability to achieve its operating plans.

                                        16
<PAGE>   17

  Delisting of the Company's Common Stock could negatively impact the
  marketability of the stock and reduce the market price of the stock

     The Company was notified by Nasdaq of its decision to delist the Company's
Common Stock due to noncompliance with Nasdaq listing standards that require the
Company to maintain a minimum bid price of $1.00 per share. The Company
requested an oral hearing to review the decision, which request stayed the
delisting. The hearing is scheduled for April 5, 2001. There is no assurance
that the outcome of the hearing will be favorable to the Company. The delisting
of the Company Common Stock may result in the placement of the stock on the OTC
or small-cap market, the effect of which may limit the continuation of, or the
re-establishment of, a public trading market for the Common Stock which could
reduce or destabilize the stock price.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has a line of credit that has borrowing rates subject to market
rates. An increase in market rates would make financing more expensive for the
Company. In addition, the Company's clients may be impacted by fluctuations in
interest rates or foreign currency rates, which may impact their need for the
Company's services. The Company had no market rate sensitive instruments,
positions or transactions at December 31, 2000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See "Consolidated Financial Statements" on pages F-2 through F-20 of this
Annual Report on Form 10-K.

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

     None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table identifies the current directors and executive officers
of the Company, the positions that they hold, and the year in which they began
serving in their respective capacities. Officers of the Company are elected by
the Board of Directors immediately following each annual meeting of the
Company's stockholders to hold office until their successors are elected and
qualified.

<TABLE>
<CAPTION>
                                                                                    POSITION
         NAME           AGE            CURRENT POSITION(S) WITH COMPANY            HELD SINCE
         ----           ---            --------------------------------            ----------
<S>                     <C>   <C>                                                  <C>
Thomas W. Fife .......  75    Director (Class III, expires 2002)                      1995
Lucie J. Fjeldstad....  57    Director (Class I, expires 2003)                        1997
Robert T. Knight .....  63    Director (Class II, expires 2001)                       1996
Dennis W. Walsh.......  54    Director (Class II, expires 2001)                       2000
Peter A. Allen........  40    President, Chief Executive Officer, Chairman of the     1998
                              Board (Class I, expires 2003)
Laurence C. Leslie....  42    Executive Vice President, Finance & Administration,     1999
                              Chief Financial Officer, Secretary
Howard H. Hayakawa ...  55    Executive Vice President, Test Center Division          2000
John W. Cramer........  56    Executive Vice President, Sales and Marketing           1998
</TABLE>

     Thomas W. Fife has been a director since June 1995. Mr. Fife is the
co-founder and former Chief Executive Officer and Chairman of the Board of
VoiceCom Systems, Inc., a provider of enhanced voice-processing systems. Mr.
Fife was Chief Executive Officer of VoiceCom Systems, Inc. from 1984 through
1997 and served as Chairman of its Board of Directors from June 1993 until
acquisition of the company by

                                        17
<PAGE>   18

Premiere Technologies, Inc. in September 1997. Mr. Fife also serves as a
Director of Tegris Corp. and Vital Link.net, Inc.

     Lucie J. Fjeldstad was elected to the Board of Directors in September 1997.
Ms. Fjeldstad is Chief Executive Officer and President of DataChannel, Inc., a
software development company, a position she has held since October 1998. From
August 1997 until October 1998 and from May 1993 until January 1995, Ms.
Fjeldstad served as President of Fjeldstad International, a management
consulting firm. From January 1995 until August 1997, she was President, Video
Division, of Tektronix Incorporated. Ms. Fjeldstad is a member of the Board of
Regents of Santa Clara University.

     Robert T. Knight was elected as a director in November 1996. Mr. Knight is
President of Technology Venture Services, a consulting and venture capital firm.
From January 1991 until February 1995, Mr. Knight was Chairman and Chief
Executive Officer of Digital Sound Corporation, a telecommunications software
company. Mr. Knight is a member of the Board of Directors of PictureTel
Corporation. In addition to these corporate boards, he serves as a trustee of
the University of California at Santa Barbara Foundation, and is Chairman of its
Engineering Advisory Committee.

     Dennis W. Walsh was elected as a director in March 2000. Since April 1997,
Mr. Walsh has served as Chief Information Technology Officer in General Motors'
Information Systems and Services organization. From April 1996 until April 1997,
Mr. Walsh was President of Conservation Through Innovation, a software and
hardware company for heating, ventilation and air conditioning systems. From
December 1991 until April 1996, Mr. Walsh was Vice President, Information
Systems and Chief Information Officer for Entergy Corporation, a power
production and electric service company.

     Peter A. Allen was elected Chief Executive Officer, President and director
of the Company in December 1998. From 1996 to 1998, Mr. Allen was Vice President
and Chief Operating Officer of CSC Pinnacle Alliance, a business unit of
Computer Sciences Corporation. From 1990 to 1996, Mr. Allen served as Vice
President, Consulting, Outsourcing, and Systems Integration with Computer
Sciences Corporation. Mr. Allen has been Chairman of the Company since January
1, 2000.

     Laurence C. Leslie has been Executive Vice President and Chief Financial
Officer of the Company since September 23, 1999. Mr. Leslie served as the Vice
President, Finance from January 1999 to September 1999. From 1996 through
January 1999, Mr. Leslie was Corporate Controller of Fluke Corporation and from
1993 to 1996 was International Controller, Treasury Manager at Fluke
Corporation.

     Howard H. Hayakawa has served as Executive Vice President, Test Center
Division, since December 1999. Mr. Hayakawa served as Director of Development of
Vixel Corporation, Fibre Channel Products from November 1996 to December 1999.
From July 1982 through 1994, Mr. Hayakawa was a Computer Systems Engineer
Manager at Digital Equipment Corporation, and also served as Marketing Technical
Director from 1994 until 1996.

     John W. Cramer has been Executive Vice President, Sales and Marketing since
September 2000. From March 1998 to September 2000, Mr. Cramer served as
Executive Vice President, International Services Division. Mr. Cramer served as
Vice President, International Services Division from August 1997 to March 1998.
From 1995 until joining the Company, Mr. Cramer was employed by AT&T Tridom as
Managing Director, Europe, Middle East, Africa and CIS.

     Officers serve at the discretion of the Company's Board of Directors. No
family relationship exists among any directors or executive officers of the
Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the 1934 Act requires the Company's directors and
executive officers and persons who own more than ten percent of the outstanding
shares of the Company's Common Stock ("ten percent stockholders"), to file with
the Securities and Exchange Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of shares of Common Stock and
other equity securities of the Company. To the Company's knowledge, based solely
on its review of the copies of such reports furnished to

                                        18
<PAGE>   19

the Company or otherwise in its files and on written representations from its
directors, executive officers and ten percent shareholders that no other reports
were required. During the fiscal year ended December 31, 2000, the Company's
officers, directors and ten percent stockholders complied with all applicable
Section 16(a) filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company determined as of the end of the last fiscal year, (hereafter
referred to as the "Named Executive Officers") for the fiscal years ended
December 31, 2000, 1999 and 1998.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG-TERM
                                                                                    COMPENSATION
                                                                                    ------------
                                               ANNUAL COMPENSATION                     AWARDS
                                 ------------------------------------------------    SECURITIES
                                                                   OTHER ANNUAL      UNDERLYING       ALL OTHER
  NAME AND PRINCIPAL POSITION    YEAR   SALARY($)    BONUS($)    COMPENSATION($)     OPTIONS(#)    COMPENSATION($)
  ---------------------------    ----   ----------   ---------   ----------------   ------------   ----------------
<S>                              <C>    <C>          <C>         <C>                <C>            <C>
Peter A. Allen.................  2000    361,952           0               0          100,000                0
  Chief Executive Officer,       1999    350,000           0               0          200,000           67,706
  President(1)                   1998     18,846      92,000               0          400,000                0
Laurence C. Leslie.............  2000    184,134       4,332           5,846           50,000                0
  Executive Vice President,      1999    143,231      10,000               0          110,000                0
  Chief Financial Officer(2)     1998         --          --              --               --               --
Howard H. Hayakawa.............  2000    157,308      30,000           2,692          150,000                0
  Executive Vice President,      1999         --          --              --               --               --
  Test Center Division(3)        1998         --          --              --               --               --
John W. Cramer.................  2000    174,615      53,500          22,000          100,000           76,278
  Executive Vice President,      1999    160,000           0          29,408           15,000                0
  Sales and Marketing(4)         1998    160,000       5,000          24,000           12,500                0
Eugene M. Stabile..............  2000    160,000           0               0                0          300,000
  President, Data Dimensions     1999    160,000      22,000               0                0                0
  Information Services,
    Inc.(5)                      1998    160,000      12,435               0                0                0
Nigel G. Martin-Jones,.........  2000    168,462      36,625          11,538                0           38,462
  Executive Vice                 1999    200,000           0         258,996           75,000                0
  President, National Sales(6)   1998    200,000      10,000         239,916           15,000           17,500
</TABLE>

---------------
(1) Mr. Allen was elected Chief Executive Officer and President of the Company
    effective December 7, 1998. Effective January 1, 2000, Mr. Allen was elected
    as Chairman of the Board of the Company. His annualized salary is $350,000.
    Pursuant to his employment agreement, Mr. Allen received a one-time signing
    bonus of $92,000 in 1998 which was paid in 1999. Compensation reported under
    "All Other Compensation" reflects a one-time payment of relocation expenses
    in 1999.

(2) Mr. Leslie's annualized salary for 2000 was $190,000. Mr. Leslie received a
    signing bonus in 1999.

(3) Mr. Hayakawa's annualized salary for 2000 was $160,000.

(4) Mr. Cramer's annualized salary was $160,000 through November 2000, and
    $200,000 for the remainder of 2000. Compensation under "Other Annual
    Compensation" includes $22,000, $29,408 and $24,000 paid in 2000, 1999 and
    1998, respectively, to Mr. Cramer for living expenses. Compensation reported
    under "All Other Compensation" reflects a one-time payment of relocation
    expenses in 2000.

(5) Mr. Stabile's annualized salary in 2000 was $160,000. Mr. Stabile's
    employment with the Company terminated on December 28, 2000 due to the sale
    of the Company's subsidiary Data Dimensions Information Services, Inc.
    ("DDIS"). Mr. Stabile received $300,000 as a one time bonus payment related
    to the closing of the sale of DDIS in 2000.

                                        19
<PAGE>   20

(6) Mr. Martin-Jones' annualized salary for 2000 was $200,000. Compensation
    reported under "Other Annual Compensation" reflects payment of earned
    commissions pursuant to a commission bonus program approved by the Board.
    Compensation reported under "All Other Compensation" reflects a severance
    payment of $38,462 in 2000 and a one-time payment of relocation expenses in
    1998. Mr. Martin-Jones resigned effective October 31, 2000.

     The following table sets forth all individual grants of stock options made
by the Company during the fiscal year ended December 31, 2000 to each of the
Named Executive Officers.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                               PERCENT
                               NUMBER OF       OF TOTAL
                               SECURITIES      OPTIONS       EXERCISE
                               UNDERLYING     GRANTED TO      OR BASE
                                OPTIONS      EMPLOYEES IN      PRICE     EXPIRATION
            NAME               GRANTED(1)   FISCAL YEAR(2)   ($/SHARE)      DATE         5%         10%
            ----               ----------   --------------   ---------   ----------    -------    -------
<S>                            <C>          <C>              <C>         <C>           <C>        <C>
Peter A. Allen...............    25,000          2.72%         2.563       1/01/07     $21,791    $49,437
                                 25,000          2.72%         2.563       1/01/08     $26,084    $60,789
                                 25,000          2.72%         2.563       1/01/09     $30,592    $73,275
                                 25,000          2.72%         2.563       1/01/10     $35,326    $87,010
Laurence C. Leslie...........    50,000          5.44%         0.813      10/19/06     $13,824    $31,363
Howard H. Hayakawa...........    25,000          2.72%         2.563       1/03/06     $21,791    $49,437
                                 25,000          2.72%         2.563       1/03/07     $26,084    $60,789
                                 25,000          2.72%         2.563       1/03/08     $30,592    $73,275
                                 25,000          2.72%         2.563       1/03/09     $35,326    $87,010
                                 50,000          5.44%         0.813      10/19/06     $13,824    $31,363
John W. Cramer...............    25,000          2.72%         1.281       8/21/06     $10,891    $24,709
                                 25,000          2.72%         1.281       8/21/07     $13,037    $30,382
                                 25,000          2.72%         1.281       8/21/08     $15,290    $36,623
                                 25,000          2.72%         1.281       8/21/09     $17,656    $43,488
</TABLE>

---------------
(1) Generally, options granted pursuant to the Company's 1997 Stock Option Plan
    vest in equal installments over the four-year period following the option
    grant. Upon the occurrence of certain "Corporate Transactions" (as defined
    in the 1997 Plan Summary contained in this Proxy Statement), all options
    granted under the 1997 Plan will become immediately exercisable without
    regard to any contingent vesting provision.

(2) Based on stock options representing an aggregate of 918,500 shares of Common
    Stock granted to employees during the fiscal year ended December 31, 2000.

(3) These assumed rates of appreciation are provided in order to comply with the
    requirements of the Securities and Exchange Commission and do not represent
    the Company's expectation as to the actual rate of appreciation of the
    Common Stock. These gains are based on assumed rates of annual compound
    stock price appreciation of 5% and 10% from the date the options were
    granted over the full option term. The actual value of the options will
    depend on the performance of the Common Stock and may be greater or less
    than the amounts shown.

     The following table sets forth information, on an aggregated basis,
concerning the exercise of stock options during the fiscal year ended December
31, 2000 by each of the Named Executive Officers and the fiscal year-end value
of unexercised options.

                                        20
<PAGE>   21

   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                     VALUES

<TABLE>
<CAPTION>
                                                              NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                             UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                 SHARES         VALUE         OPTIONS AT FY-END(#)             AT FY-END($)(2)
                              ACQUIRED ON     REALIZED     ---------------------------   ---------------------------
            NAME              EXERCISE(#)      ($)(1)      EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
            ----              ------------   -----------   -----------   -------------   -----------   -------------
<S>                           <C>            <C>           <C>           <C>             <C>           <C>
Peter A. Allen..............        --             --        375,000        325,000          $0             $0
Laurence C. Leslie..........        --             --         30,000        130,000          $0             $0
Howard H. Hayakawa..........        --             --         25,000        125,000          $0             $0
Eugene M. Stabile...........        --             --             --             --          $0             $0
John W. Cramer..............        --             --         30,000        122,500          $0             $0
Nigel G. Martin-Jones(3)....     4,999          5,939         54,997              0          $0             $0
</TABLE>

---------------
(1) Market value of the underlying securities at exercise date minus exercise
    price of the options.

(2) The closing price of the Company's stock as of its fiscal year-end was
    $0.25. Except as set forth above, the exercise price of all options held by
    the Named Executive Officers set forth in the table exceeds the market value
    of the underlying shares.

(3) Mr. Martin-Jones resigned effective October 31, 2000. As of that date all
    unvested options expired.

DIRECTOR COMPENSATION

     The Company pays no additional remuneration to employees of the Company who
serve as directors. All directors are entitled to reimbursement for expenses
incurred in traveling to and from meetings of the Company's Board of Directors.
Effective August 3, 1999, the Board of Directors adopted the following
compensation plan for non-employee directors ("Eligible Directors"): (a) upon
first joining the Board, the Eligible Director is granted a stock option
exercisable for 10,000 shares of the Company's Common Stock at an exercise price
equal to the fair market value of the stock on the date of grant with such
options exercisable as to twenty-five percent (25%) of the shares one year after
the date of grant and as to an additional twenty-five percent (25%) on each of
the second, third and fourth anniversaries of the date of grant; such options
terminate upon the earlier of ten (10) years from the date of grant or ninety
(90) days after the date on which the grantee is no longer serving as a Director
of the Company; (b) on each anniversary of an Eligible Director's election to
the Board of Directors, the Eligible Director is granted a stock option
exercisable for 7,500 shares of the Company's Common Stock at an exercise price
equal to the fair market value of the stock on the date of grant with such
options fully exercisable upon grant; such options terminate upon the earlier of
ten (10) years from the date of grant or ninety (90) days after the date on
which the grantee is no longer serving as a Director of the Company, and (c)
Eligible Directors receive an annual cash retainer in the amount of $15,000 for
service as a Director, and $1,000 for each board meeting and committee meeting
attended for which an agenda has been prepared and which has a duration of one
hour or more.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION

     The Board of Directors of the Company (the "Board") has delegated to the
Compensation Committee of the Board (the "Committee") the authority to establish
and administer the Company's compensation programs. The Compensation Committee
is comprised of three non-employee directors: Thomas W. Fife, Robert T. Knight
and Lucie J. Fjeldstad. The Committee is responsible for (a) determining the
most effective overall executive compensation strategy based upon the business
needs of the Company and consistent with shareholders' interests; (b)
administering the Company's executive compensation programs and policies; (c)
monitoring corporate performance and its relationship to compensation of
executive officers, and (d) reviewing and making appropriate changes to
executive officers' compensation as recommended by the Company's Chief Executive
Officer.

COMPENSATION PHILOSOPHY

     The policies of the Committee with respect to executive officers, including
the Chief Executive Officer, are to enable it to attract and retain talented
executives and to reward them appropriately. The Committee

                                        21
<PAGE>   22

attempts to determine the total level of compensation, as well as the
appropriate mix of base salary, annual incentives and long-term incentives. In
determining compensation, consideration is given both to overall Company
performance and to individual performance, taking into account the contributions
made by the executive toward improving Company performance. Consideration is
also given to the executive's position, location, and level of responsibility in
the structure of the Company and the job performance of the executive in
planning, providing direction for, and implementing the Company's strategy.
There is no singular objective formula by which compensation is determined and
the decisions are ultimately largely subjective.

     These policies are implemented using a mix of the following key elements:
(1) the Company pays base salaries that are generally competitive with other
leading information technology ("IT") services companies with which the Company
competes for talent; to ensure that its salaries are sufficient to attract and
retain highly qualified executives and other key employees, the Company
regularly compares its salaries with those of its competitors and sets salary
parameters based on this review; (2) the Company pays cash bonuses based on the
achievement of specific operating goals and high levels of performance; and (3)
the Company provides significant equity-based incentives pursuant to the
Company's 1997 Stock Option Plan (the "1997 Plan") to ensure that the Company's
executive officers and key employees are motivated to achieve the Company's
long-term goals. Stock incentive awards under the 1997 Plan produce value to
executives only if the price of the Company's stock appreciates, thereby
directly aligning the interests of executives with those of shareholders.

CHIEF EXECUTIVE OFFICER COMPENSATION

     The same procedures, as described above, that are used in reviewing and
approving executive officers' compensation are also applied in establishing the
base salary, bonus and equity incentive awards for the Company's Chief Executive
Officer.

     Peter A. Allen served as President, Chief Executive Officer and Chairman of
the Board during 2000. Mr. Allen joined the Company on December 7, 1998.
Pursuant to the terms of an employment agreement, Mr. Allen was, and continues
to be, paid an annual base salary of $350,000. Mr. Allen received a one-time
signing bonus of $92,000 in 1998, which was paid in 1999. In 2000, Mr. Allen was
entitled to receive an annual incentive bonus up to a maximum of 50% of his
annual base salary. Mr. Allen did not receive any incentive bonus payment in
2000. Under the Company's executive compensation program, total compensation mix
for senior executives emphasizes long-term rewards in the form of stock options.
In 2000, the Committee approved the grant to Mr. Allen of an option to purchase
100,000 shares of Common Stock at an exercise price of $2.563 per share, of
which 25% of the option vests at the end of the 24-month period of Mr. Allen's
continuous employment with the Company from the date of grant with the remaining
options to vest as to 25% of the total shares covered by the option at the end,
of each subsequent twelve (12) month period of Mr. Allen's continued employment
with the Company. In determining the grant to Mr. Allen, the Committee reviewed
the stock option grants to chief executive officers of other comparable IT
services companies in connection with their employment services.

                                          Respectfully submitted,

                                          Thomas W. Fife
                                          Lucie J. Fjeldstad
                                          Robert T. Knight

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     No member of the Compensation Committee was at any time during the past
year an officer or employee of the Company or any of its subsidiaries, was
formerly an officer of the Company or any of its subsidiaries, or had any
relationship with the Company requiring disclosure herein.

     No executive officer of the Company served as a mentor of the compensation
committee (or other board committee performing similar functions or, in the
absence of any such committees, the entire board of

                                        22
<PAGE>   23

directors) of another corporation, one of whose executive officers served as a
director of another corporation, one of whose executives served on the
compensation committee. No executive officer of the Company served as a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another corporation, one of whose executives served as a director
of the Company.

                                        23
<PAGE>   24

                               PERFORMANCE GRAPH

     The following graph compares the performance of the Company's Common Stock
for the periods indicated with the performance of the Russell 2000 Index and the
Nasdaq Computer Programming, Data Processing and Other Computer Related Services
Index (SIC Codes 7370 - 7379). The comparison assumes $100 was invested on
December 31, 1995 in the Company's Common Stock and in each of the foregoing
indices and the reinvestment of any dividends.

                      COMPARATIVE FIVE-YEAR TOTAL RETURNS
                DATA DIMENSIONS, INC., RUSSELL 2000, PEER GROUP
                    (PERFORMANCE RESULTS THROUGH 12/31/2000)

                              [PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
              --------------------------------------------------------------------------------
                                      1995      1996      1997      1998      1999      2000
              --------------------------------------------------------------------------------
              <S>                    <C>       <C>       <C>       <C>       <C>       <C>
               Data Dimensions       $100.00   $610.75   $890.32   $441.94   $132.26   $ 17.74
               Russell 2000 Index    $100.00   $116.49   $142.54   $138.91   $168.44   $163.35
               Nasdaq Computer
                Stocks               $100.00   $124.90   $152.44   $279.71   $614.35   $279.42
              --------------------------------------------------------------------------------
</TABLE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of February 28, 2001, certain
information furnished to the Company with respect to ownership of the Company's
Common Stock of (i) each director and the director nominees, (ii) the current
Chief Executive Officer, (iii) the "Named Executive Officers" (as defined herein
under "Executive Compensation") other than the current Chief Executive Officer,
and (iv) all executive officers and

                                        24
<PAGE>   25

directors as a group. As of February 28, 2001, the Company knows of no person,
entity or group that beneficially owns 5% or more of the Company's Common Stock,
except as listed below.

<TABLE>
<CAPTION>
                                                                     COMMON STOCK
                                                              --------------------------
                                                               AMOUNT AND
                                                               NATURE OF
                                                               BENEFICIAL     PERCENT OF
            NAME AND ADDRESS OF BENEFICIAL OWNER              OWNERSHIP(1)     CLASS(2)
            ------------------------------------              ------------    ----------
<S>                                                           <C>             <C>
Directors
  Peter A. Allen(3).........................................     390,000         2.88%
  Thomas W. Fife(4).........................................      29,249            *
  Lucie J. Fjeldstad(5).....................................      29,000            *
  Robert T. Knight(6).......................................      47,750            *
  Dennis W. Walsh(7)........................................       5,000            *
Named Executive Officers Who Are Not Directors
  Laurence C. Leslie(8).....................................      30,000            *
  Howard H. Hayakawa(9).....................................      25,000            *
  John W. Cramer(10)........................................      30,000            *
  Eugene M. Stabile(11).....................................     433,103         3.19%
  Nigel G. Martin-Jones(12).................................      15,000            *
5% Beneficial Owners
  Larry W. Martin(13).......................................   1,986,521        14.65%
  605 Evergreen Point Road
  Medina, Washington 98039
All Directors and Executive Officers, as a Group (8
  persons)(14)..............................................     585,999         4.32%
</TABLE>

---------------
  *  Less than one percent

 (1) According to the rules adopted by the Securities and Exchange Commission, a
     person is the "beneficial owner" of securities if (s)he has or shares the
     power to vote them or to direct their investment or has the right to
     acquire beneficial ownership of such securities within 60 days through the
     exercise of an option, warrant or otherwise. Except as otherwise indicated,
     the stockholders identified in this table have sole voting and investment
     power with regard to the shares shown as beneficially owned by them. Shares
     of Common Stock subject to options or warrants exercisable on or before
     April 29, 2001 ("Vested Options") are deemed outstanding for computing the
     percentage ownership of the person holding such options or warrants, but
     are not deemed outstanding for computing the percentage of any other
     person.

 (2) Based on 13,560,972 shares of Common Stock issued and outstanding as of
     February 28, 2001.

 (3) Includes 375,000 Vested Options.

 (4) Includes 13,257 Vested Options.

 (5) Includes 24,000 Vested Options.

 (6) Includes 27,750 Vested Options.

 (7) Includes 5,000 Vested Options.

 (8) Includes 30,000 Vested Options.

 (9) Includes 25,000 Vested Options.

(10) Includes 30,000 Vested Options.

(11) Mr. Stabile is deceased. The Vested Options and shares of Common Stock of
     the Company are beneficially owned by Mr. Stabile's estate.

(12) Mr. Martin-Jones resigned as an executive officer of the Company effective
     October 31, 2000.

(13) Includes 9,000 shares held by Mr. Martin's spouse; Mr. Martin resigned as
     director of the Company effective December 31, 1999.

(14) Includes 530,007 Vested Options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None
                                        25
<PAGE>   26

                                    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, 2000 and
  December 31, 1999.........................................   F-3
Consolidated Statements of Operations for the Years Ended
  December 31, 2000, December 31, 1999 and December 31,
  1998......................................................   F-4
Consolidated Statements of Comprehensive Income for the
  Years Ended December 31, 2000, December 31, 1999 and
  December 31, 1998.........................................   F-4
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 2000, December 31, 1999 and
  December 31, 1998.........................................   F-5
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2000, December 31, 1999 and December 31,
  1998......................................................   F-6
Notes to the Consolidated Financial Statements..............   F-7
</TABLE>

(a) 2. FINANCIAL STATEMENT SCHEDULES

<TABLE>
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts............  F-20
</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.)
  2.3      The Agreement and Plan of Reorganization by and among
           Lionbridge Technologies, Inc., Diamond Acquisition Corp. and
           Data Dimensions, Inc. dated March 8, 2001. (Incorporated by
           reference to the Company's March 13, 2001 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.)
</TABLE>

                                        26
<PAGE>   27

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION OF EXHIBIT
-------                       ----------------------
<C>        <S>
 10.5      Agreement between the Company and Laurence C. Leslie dated
           September 23, 1999 (Incorporated by reference to the
           Company's Annual Report on Form 10-K for the year ended
           December 31, 1999.)
 10.6      Agreement between the Company and John W. Cramer dated
           December 9, 1999 (Incorporated by reference to the Company's
           Annual Report on Form 10-K for the year ended December 31,
           1999.)
 10.7      Agreement between the Company and Howard H. Hayakawa dated
           December 16, 1999.
 10.8      Agreement, dated December 28, 2000, between the Company and
           Acxiom Corporation for the sale of Data Dimensions
           Information Services to Acxiom Corporation (Incorporated by
           reference to the Company's January 10, 2001 Current Report
           on Form 8-K.)
 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.
 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.
</TABLE>

(b) NO REPORTS ON FORM 8-K WERE FILED IN THE QUARTER ENDED DECEMBER 31, 2000.

                                        27
<PAGE>   28

                                   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 22nd day of March, 2001.

                                          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 22, 2001
-----------------------------------------------------         Officer, Director
                   Peter A. Allen                       (Principal Executive Officer)

               /s/ LAURENCE C. LESLIE                  Executive Vice President, Chief  March 22, 2001
-----------------------------------------------------  Financial Officer and Secretary
                 Laurence C. Leslie                       (Principal Financial and
                                                             Accounting Officer)

                 */s/ THOMAS W. FIFE                              Director              March 22, 2001
-----------------------------------------------------
                   Thomas W. Fife

               */s/ LUCIE J. FJELDSTAD                            Director              March 22, 2001
-----------------------------------------------------
                 Lucie J. Fjeldstad

                */s/ ROBERT T. KNIGHT                             Director              March 22, 2001
-----------------------------------------------------
                  Robert T. Knight

                */s/ DENNIS W. WALSH                              Director              March 22, 2001
-----------------------------------------------------
                   Dennis W. Walsh

             By: /s/ LAURENCE C. LESLIE                                                 March 22, 2001
  -------------------------------------------------
        Laurence C. Leslie, Attorney-In-Fact
</TABLE>

                                        28
<PAGE>   29

                             DATA DIMENSIONS, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                                          INDEX

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report 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>   30

                       REPORT 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,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America 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 our opinion.

     As more fully described in Note 14, on March 8, 2001, the Company entered
into an agreement to be acquired, subject to approval by the Company's
stockholders.

                                          PRICEWATERHOUSECOOPERS LLP

Seattle, Washington
February 2, 2001, except for paragraph two
of Note 14, as to which the date is March 8, 2001

                                       F-2
<PAGE>   31

                             DATA DIMENSIONS, INC.

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Current assets
  Cash and cash equivalents.................................  $ 2,110    $10,390
  Accounts receivable, net..................................   11,523     16,278
  Income taxes receivable...................................    4,500      2,551
  Prepaid expenses and other current assets.................      973      2,393
  Deferred income taxes.....................................      130        102
                                                              -------    -------
          Total current assets..............................   19,236     31,714
Equipment and furniture, net................................    2,952      7,039
Deferred income taxes.......................................      280        250
Other assets................................................      667        635
                                                              -------    -------
          Total assets......................................  $23,135    $39,638
                                                              =======    =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable..........................................  $ 1,057    $ 1,433
  Accrued compensation and commissions......................    1,638      3,938
  Other accrued liabilities.................................    1,393      1,774
  Current portion of capital lease obligations..............       --      1,965
                                                              -------    -------
          Total current liabilities.........................    4,088      9,110
Capital lease obligations, net of current portion...........       --      1,941
Other long term liabilities.................................      192        181
                                                              -------    -------
          Total liabilities.................................    4,280     11,232
Commitments and contingencies
Stockholders' equity
  Common stock, $.001 par value; 20,000 shares authorized;
     13,673 and 13,665 shares issued and outstanding........       14         14
  Additional paid in capital................................   24,775     24,679
  Treasury stock, at cost (112 shares)......................   (3,034)    (3,034)
  Cumulative comprehensive loss.............................     (371)      (200)
  Retained earnings (accumulated deficit)...................   (2,529)     6,947
                                                              -------    -------
          Total stockholders' equity........................   18,855     28,406
                                                              -------    -------
          Total liabilities and stockholders' equity........  $23,135    $39,638
                                                              =======    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-3
<PAGE>   32

                             DATA DIMENSIONS, INC.

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               2000       1999        1998
                                                              -------    -------    --------
<S>                                                           <C>        <C>        <C>
Revenue.....................................................  $32,408    $90,404    $101,733
Direct costs................................................   22,448     50,174      49,177
                                                              -------    -------    --------
Gross margin................................................    9,960     40,230      52,556
General, administrative and selling expenses................   25,748     37,735      38,794
Non-recurring charges.......................................     (136)     1,171         757
                                                              -------    -------    --------
Income (loss) from operations...............................  (15,652)     1,324      13,005
                                                              -------    -------    --------
Other expense (income)
  Interest expense..........................................       22         99         318
  Other income, net.........................................     (211)      (156)       (193)
  Income from litigation settlement.........................       --     (1,885)         --
                                                              -------    -------    --------
          Total other expense (income)......................     (189)    (1,942)        125
                                                              -------    -------    --------
Income (loss) from continuing operations before income
  tax.......................................................  (15,463)     3,266      12,880
Income tax provision (benefit) from continuing operations...   (4,361)     1,274       5,046
                                                              -------    -------    --------
Income (loss) from continuing operations, net of tax........  (11,102)     1,992       7,834
Income (loss) from discontinued operations, net of tax......   (1,476)    (1,149)      1,368
Gain from sale of discontinued operations, net of tax.......    3,102         --          --
                                                              -------    -------    --------
Net income (loss)...........................................  $(9,476)   $   843    $  9,202
                                                              =======    =======    ========
Earnings (loss) per share -- basic
     From continuing operations.............................  $ (0.82)   $  0.14    $   0.59
     From discontinued operations...........................     0.12      (0.08)       0.10
                                                              -------    -------    --------
     Net income (loss)......................................  $ (0.70)   $  0.06    $   0.69
                                                              =======    =======    ========
Earnings (loss) per share -- diluted
     From continuing operations.............................  $ (0.82)   $  0.14    $   0.59
     From discontinued operations...........................     0.12      (0.08)       0.10
                                                              -------    -------    --------
     Net income (loss)......................................  $ (0.70)   $  0.06    $   0.69
                                                              =======    =======    ========
Weighted average shares outstanding -- basic................   13,560     13,537      13,347
Weighted average shares outstanding -- diluted..............   13,560     13,555      13,412
</TABLE>

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                               2000      1999     1998
                                                              -------    ----    ------
<S>                                                           <C>        <C>     <C>
Net income (loss)...........................................  $(9,476)   $843    $9,202
Other comprehensive loss -- foreign currency translation
  adjustments...............................................     (171)    (80)     (210)
                                                              -------    ----    ------
Comprehensive income (loss).................................  $(9,647)   $763    $8,992
                                                              =======    ====    ======
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-4
<PAGE>   33

                             DATA DIMENSIONS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                   RETAINED
                                           COMMON STOCK   ADDITIONAL               CUMULATIVE      EARNINGS
                                           ------------    PAID IN     TREASURY   COMPREHENSIVE   ACCUMULATED
                                           SHARES    $     CAPITAL      STOCK     INCOME (LOSS)    (DEFICIT)     TOTAL
                                           ------   ---   ----------   --------   -------------   -----------   -------
<S>                                        <C>      <C>   <C>          <C>        <C>             <C>           <C>
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 options......................      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
Exercise of options......................       8    --         14          --           --              --          14
Compensation expense recognized on
  issuance of options....................      --    --         82          --           --              --          82
Other comprehensive loss.................      --    --         --          --         (171)             --        (171)
Net loss.................................      --    --         --          --           --          (9,476)     (9,476)
                                           ------   ---    -------     -------        -----         -------     -------
Balance at December 31, 2000.............  13,673   $14    $24,775     $(3,034)       $(371)        $(2,529)    $18,855
                                           ======   ===    =======     =======        =====         =======     =======
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-5
<PAGE>   34

                             DATA DIMENSIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               2000       1999        1998
                                                              -------    -------    --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(9,476)   $   843    $  9,202
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities
     Depreciation and amortization..........................    4,182      5,650       4,391
     Deferred income taxes..................................      (58)      (547)        (96)
     Compensation expense on stock options..................       82         97          98
     Non-cash portion of non-recurring charges..............       --      1,055          --
     Loss from disposal of equipment and furniture, net.....       42        392          --
     Provision for doubtful accounts........................    2,206        477       1,015
     Gain on sale of discontinued operations, net of tax....   (3,102)        --          --
     Changes in operating assets and liabilities:
       Accounts receivable..................................    4,427     19,833     (20,292)
       Prepaid expenses and other current assets............   (1,846)    (2,428)     (2,999)
       Accounts payable.....................................     (458)    (3,138)        655
       Accrued compensation and commissions.................   (2,337)    (2,219)      2,679
       Income taxes payable.................................       --     (5,997)      5,997
       Accrued software license obligations.................       --         --        (674)
       Accrued liabilities..................................     (225)    (1,305)      1,213
     Other..................................................     (171)       142         727
                                                              -------    -------    --------
Net cash provided by (used in) operating activities.........   (6,734)    12,855       1,916
                                                              -------    -------    --------
Cash flows from investing activities:
  Proceeds from sale of investment securities...............       --         --         986
  Purchase of equipment and furniture.......................   (1,443)    (1,521)     (3,588)
  Sale of discontinued operations...........................    1,800         --          --
  Other.....................................................       36         --         (52)
                                                              -------    -------    --------
Net cash provided by (used in) investing activities.........      393     (1,521)     (2,654)
                                                              -------    -------    --------
Cash flows from financing activities:
  Net proceeds from issuance of common stock................       15         44       1,068
  Payment of capital lease obligation.......................   (1,954)    (1,535)       (429)
  Distributions to Pyramid stockholder......................       --       (229)       (771)
  Repayment of notes payable................................       --         --      (3,088)
                                                              -------    -------    --------
Net cash provided (used) by financing activities............   (1,939)    (1,720)     (3,220)
                                                              -------    -------    --------
Net increase (decrease) in cash and cash equivalents........   (8,280)     9,614      (3,958)
Cash and cash equivalents, beginning of year................   10,390        776       4,734
                                                              -------    -------    --------
Cash and cash equivalents, end of year......................  $ 2,110    $10,390    $    776
                                                              =======    =======    ========
Cash paid during the year for:
     Interest...............................................  $   259    $   369    $    427
     Income tax.............................................  $    17    $ 9,077    $     45
Non cash investing and financing activities:
     Equipment acquired under capital lease.................       --    $ 2,304    $  2,796
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       F-6
<PAGE>   35

                             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 ST Labs, Inc. in 1998. The transaction was a business
combination accounted for as a pooling of interests. The historical financial
statements for periods prior to consummation of the business combination have
been restated as though the companies had been combined for all periods
presented. In December 2000, the Company sold its data center outsourcing
division, Data Dimension Information Services ("DDIS") in a cash transaction.
The Company received $1.8 million of the $5.4 million purchase price at the
closing of the transaction, and the remaining balance was paid in January 2001.
The Company's financial results have been presented to reflect this business as
a discontinued operation for all periods presented. See Note 3 for additional
information.

     Description of Business -- The Company conducts its business through two
operating divisions:

     - Quality Assurance and Testing ("QA & Test") Through a network of Test
       Centers and on-site field consultants, the Company provides
       comprehensive, outsourced software quality assurance and test solutions
       for product development organizations and on-line service providers
       including practice areas of printers and peripherals, publishing and
       education, embedded systems and Web testing.

     - Application development and maintenance ("ADM") The Company manages
       clients' business applications with the objective of improving software
       quality, processes, and costs. ADM engagements may also encompass
       development of new applications, as directed by clients. The Company
       operates an offshore application solution center in Galway, Ireland, in
       concert with on-site consultants, to provide its clients with ADM
       services across a range of platforms and operating environments.

     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 and test lab
in Ireland through its wholly-owned subsidiary, Data Dimensions Ireland Limited.
The Company delivers testing and consulting services in the United Kingdom
through its wholly-owned subsidiary, Data Dimensions (UK) Limited. 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 consist of account balances due from companies
dispersed primarily across the United States, with no significant geographic or
industry concentration. 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>   36
                             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. These costs are
related to the data center operations which was sold in 2000. See Note 3 for
more information.

     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.

     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 -- The Company recognizes revenue in compliance with
the criteria outlined in Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements." The criteria are persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
and determinable and collectibility is reasonably assured.

     ADM and Test Center revenue consists 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. Royalty
revenue from licensees is recognized as services are provided by the licensee.
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 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,

                                       F-8
<PAGE>   37
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

administrative and selling expenses. During 1998, such costs were incurred to
establish solution centers. The Company's accounting of startup costs is
consistent with the treatment required by AICPA Statement of Position 98-5,
"Reporting on Costs of Startup Activities."

     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 9 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 provides disclosures required by Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). 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.

     Liquidity -- During the year ended December 31, 2000, the Company
experienced a net loss of $9.5 million and used $6.7 million cash in operations.
The Company believes that expected revenues together with existing cash and cash
equivalents and financing currently available, will be sufficient to meet
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. If management's plans do not materialize and the operating
losses continue, the Company may need to obtain additional sources of liquidity
or significantly reduce its operating expenses in order to meet its cash
obligations.

     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 would have resulted 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

                                       F-9
<PAGE>   38
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

or customer 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
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.

     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>
                                                              SIX MONTHS ENDED
                                                               JUNE 30, 1998
                                                              ----------------
                                                                (UNAUDITED)
<S>                                                           <C>
Revenue
  Data Dimensions...........................................      $41,561
  ST Labs...................................................        6,800
                                                                  -------
     Combined...............................................      $48,361
                                                                  =======
Net Income (loss)
  Data Dimensions...........................................      $ 3,018
  ST Labs...................................................         (615)
                                                                  -------
     Combined...............................................      $ 2,403
                                                                  =======
</TABLE>

NOTE 3 -- DIVESTITURE OF DATA CENTER OPERATIONS

     On December 28, 2000, the Company sold its data center operation for $5.4
million. The financial results of the data center operation have been recorded
as Income (loss) from discontinued operations on the Consolidated Statement of
Operations for all periods presented. The Company recorded a $3.1 million gain,
after tax as a result of the transaction. Financial results of the data center
operations were as follows for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                 2000       1999       1998
                                                -------    -------    -------
<S>                                             <C>        <C>        <C>
Revenue.......................................  $ 9,173    $11,702    $12,811
Income (loss) before income taxes.............   (1,848)    (1,884)     2,243
Net income (loss).............................   (1,476)    (1,149)     1,368
</TABLE>

NOTE 4 -- NON-RECURRING CHARGES

     The Company recorded in the Consolidated Statements of Operations
non-recurring charges of $1.8 million and $757,000 in 1999 and 1998,
respectively. Non-recurring charges in 2000 reflect a reversal of a portion of
the 1999 charge due to a reduction in the 1999 severance costs resulting from
higher than expected voluntary terminations.

     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.

                                       F-10
<PAGE>   39
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The $1.8 million ($1.1 million after tax) charge resulted from the
Company's transition from providing products and consulting services addressing
Y2K remediation to providing information technology consulting and other
services. The non-recurring charge consisted of (in thousands):

<TABLE>
<S>                                                           <C>
Capitalized product development.............................  $  388
Asset impairment............................................     667
Severance costs (approximately 240 people)..................     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 decided to discontinue selling these products as they were 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 data center operations. This equipment was used specifically in
the testing of platforms for compliance with Y2K and due to the shift in the
Company's focus, they would 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 $667,000 for
asset impairment has been recorded in Income (loss) from discontinued operations
on the Consolidated Statement of Operations in 1999.

NOTE 5 -- ACCOUNTS RECEIVABLE

     Accounts receivable are presented net of an allowance for doubtful accounts
of approximately $2.3 million and $1.3 million at December 31, 2000 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 $1.1 million and $3.4 million at December 31,
2000 and December 31, 1999, respectively. Included in prepaid expenses and other
current assets at December 31, 1999 is approximately $200,000 of amounts
retained by customers in accordance with contract terms. No amounts were
retained by customers at December 31, 2000. Included in accounts receivable at
December 31, 2000 was $3.6 million owed the Company from the sale of the data
center operation discussed in Note 3.

NOTE 6 -- LONG-LIVED ASSETS

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

<TABLE>
<CAPTION>
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Computers and equipment..................................  $ 8,601    $13,146
Furniture and fixtures...................................      842      1,071
Leasehold improvements...................................      721        311
                                                           -------    -------
                                                            10,164     14,528
Accumulated depreciation.................................   (7,212)    (7,489)
                                                           -------    -------
Equipment and furniture, net.............................  $ 2,952    $ 7,039
                                                           =======    =======
</TABLE>

     Computers and equipment include equipment under capital lease of
approximately $5.0 million and related accumulated amortization of $1.6 million
at December 31, 1999. This equipment was in the data center operations which was
sold as described in Note 3.

                                       F-11
<PAGE>   40
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- LEASES

     The Company leases facilities and certain equipment under operating leases,
some of which contain renewal options. Rent expense was $2.2 million, $2.8
million and $2.6 million in 2000, 1999 and 1998, respectively. Future annual
minimum commitments under leases with non-cancelable terms in excess of one year
at December 31, 2000, which have not been reduced by minimum sublease revenue of
$251,000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                             OPERATING
                                                              LEASES
                                                             ---------
<S>                                                          <C>
2001.......................................................   $2,391
2002.......................................................    2,244
2003.......................................................    1,574
2004.......................................................      388
2005.......................................................      319
Thereafter.................................................       19
                                                              ------
Total minimum payments.....................................   $6,935
                                                              ======
</TABLE>

NOTE 8 -- INCOME TAXES

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

<TABLE>
<CAPTION>
                                                           2000       1999      1998
                                                          -------    ------    ------
<S>                                                       <C>        <C>       <C>
Current provision (benefit) from continuing operations
  Federal...............................................  $(3,742)   $  864    $4,177
  State.................................................      (35)      119       632
  Foreign...............................................       59       259       182
                                                          -------    ------    ------
                                                           (3,718)    1,242     4,991
Current provision (benefit) from discontinued operations
  Federal...............................................     (291)     (608)      818
  State.................................................       --       (86)      112
                                                          -------    ------    ------
                                                             (291)     (694)      930
                                                          -------    ------    ------
Total current provision (benefit).......................   (4,009)      548     5,921
                                                          -------    ------    ------
Deferred provision (benefit) from continuing
  operations............................................     (643)       32        55
Deferred provision (benefit) from discontinued
  operations............................................      701       (41)      (55)
                                                          -------    ------    ------
                                                               58        (9)       --
                                                          -------    ------    ------
Income tax provision (benefit) from continuing
  operations............................................   (4,361)    1,274     5,046
Income tax provision (benefit) from discontinued
  operations............................................      410      (735)      875
                                                          -------    ------    ------
                                                          $(3,951)   $  539    $5,921
                                                          =======    ======    ======
</TABLE>

                                       F-12
<PAGE>   41
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The income tax provision (benefit) from continuing operations 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>
                                                           2000       1999      1998
                                                          -------    ------    ------
<S>                                                       <C>        <C>       <C>
Tax at U.S. federal income tax rate.....................  $(5,257)   $1,110    $4,379
Effect of merger costs..................................       --        --       249
State income tax........................................      (35)      119       632
Change in valuation allowance...........................      553        18       499
Foreign differences, net................................      190      (114)     (410)
Non-deductible expenses.................................       56       125       115
Other, net..............................................      132        16      (418)
                                                          -------    ------    ------
Income tax provision (benefit)..........................  $(4,361)   $1,274    $5,046
                                                          =======    ======    ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Operating loss carryforwards..............................  $ 1,135    $   980
  Tax-book depreciation.....................................      278        250
  Allowance for doubtful accounts...........................      816        482
  Other.....................................................      159        408
                                                              -------    -------
          Total deferred tax assets.........................    2,388      2,120
  Valuation allowance.......................................   (1,432)    (1,518)
                                                              -------    -------
          Net deferred tax assets...........................      956        602
                                                              -------    -------
Deferred tax liabilities....................................     (546)      (250)
                                                              -------    -------
          Net deferred income taxes.........................  $   410    $   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, 2000, the Company has net operating loss carryforwards available
to offset future taxable income of approximately $2.4 million with expiration
dates through 2018.

     The Company has recorded a federal income tax receivable of $4.5 million in
recognition of a refund that will be generated from carrying back the tax losses
generated in 2000 and recapturing taxes paid in 1998 and 1999.

NOTE 9 -- STOCKHOLDERS' EQUITY, STOCK OPTIONS AND WARRANTS

     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 generally vest
ratably over four 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

                                       F-13
<PAGE>   42
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 2000, there were
approximately 1,024,836 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, 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
  Granted.............................................    919     $0.25 to $ 4.00        $ 1.54
  Exercised...........................................     (8)    $1.69 to $ 2.00        $ 1.89
  Expired or canceled.................................   (712)    $0.25 to $34.75        $ 6.41
                                                        -----
Outstanding at December 31, 2000......................  2,073     $0.25 to $33.88        $ 6.38
                                                        =====
</TABLE>

     Information relating to stock options at December 31, 2000 is summarized by
exercise price as follows (thousands of shares):

<TABLE>
<CAPTION>
                              OUTSTANDING                    EXERCISABLE
                   ---------------------------------   -----------------------
                                WEIGHTED AVERAGE
                            ------------------------               WEIGHTED
 EXERCISE PRICE              LIFE        EXERCISE                  AVERAGE
   PER SHARE       SHARES   (YEARS)       PRICE        SHARES   EXERCISE PRICE
----------------   ------   -------   --------------   ------   --------------
<S>                <C>      <C>       <C>              <C>      <C>
$ 0.25 to $ 1.38     383      6.4         $ 0.93         17         $ 0.94
$ 1.44 to $ 2.56     516      6.8         $ 1.99         29         $ 1.87
$ 3.06 to $ 3.56     460      5.8         $ 3.43        201         $ 3.47
$ 5.06 to $13.25     545      5.7         $12.39        305         $12.48
$13.31 to $33.88     169      5.7         $20.76        111         $21.65
                   -----                                ---
                   2,073      6.1         $ 6.38        663         $10.52
</TABLE>

     The weighted average fair value of options granted for the years ended
December 31, 2000, 1999 and 1998 are $1.54, $3.08 and $10.08, 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)

                                       F-14
<PAGE>   43
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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>
                                                           2000       1999      1998
                                                         --------    ------    ------
<S>                                                      <C>         <C>       <C>
Net income (loss)
  As reported..........................................  $ (9,476)   $  843    $9,202
  Pro forma............................................  $(11,676)   $ (827)   $8,021
Earnings (loss) per diluted share
  As reported..........................................  $  (0.70)   $ 0.06    $ 0.69
  Pro forma............................................  $  (0.86)   $(0.06)   $ 0.60
</TABLE>

     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>
                                                           2000       1999       1998
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Expected life of options................................  5 years    5 years    5 years
Risk-free interest rate.................................      5.8%       5.6%       5.2%
Dividend yield..........................................        0%         0%         0%
Volatility..............................................      227%        97%        96%
</TABLE>

NOTE 10 -- 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 $207,000, $523,000, and $49,000 in
2000, 1999, and 1998, respectively.

NOTE 11 -- SEGMENT REPORTING

     The Company operates in two segments, Quality Assurance and Testing, and
Application Development and Maintenance. The description of these segments is
included in the description of business in Note 1.

     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

                                       F-15
<PAGE>   44
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

accounting policies in Note 1. The Company's reportable segments are managed
separately because they provide different services to the customer. The
consulting segment was phased out in 2000(in thousands):

<TABLE>
<CAPTION>
                                           ADM      QA & TEST    CONSULTING    OTHER      TOTAL
                                          ------    ---------    ----------    ------    --------
<S>                                       <C>       <C>          <C>           <C>       <C>
2000
Revenue.................................  $7,211     $20,575      $ 4,622          --    $ 32,408
Intersegment revenue....................     162          92           --          --         254
Segment profit..........................    (868)      1,721       (1,063)         --        (210)
Non-recurring charges...................      --          --         (136)         --        (136)
1999
Revenue.................................  $1,845     $13,064      $67,811      $7,684    $ 90,404
Intersegment revenue....................      --          --        1,033         520       1,553
Segment profit..........................     412       1,704       15,149        (292)     16,973
Non-recurring charges...................      --          --          618         388       1,006
1998
Revenue.................................      --     $13,720      $84,023      $3,990    $101,733
Segment profit..........................      --        (488)      27,281      (3,517)     23,276
</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 from continuing operations (in
thousands):

<TABLE>
<CAPTION>
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
REVENUE
External revenue for reportable segments...........  $ 32,408    $ 82,720    $ 97,743
Intersegment revenue for reportable segments.......       254       1,033          --
Other revenue......................................        --       8,204       3,990
Elimination of intersegment revenue................      (254)     (1,553)         --
                                                     --------    --------    --------
Consolidated revenue...............................  $ 32,408    $ 90,404    $101,733
                                                     ========    ========    ========
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
  INCOME TAX
Income from operations for reportable segments.....  $   (210)   $ 17,265    $ 26,793
Other income or loss...............................        --        (292)        284
Unallocated amounts:
  Corporate general, and administrative............   (15,253)    (13,707)    (14,197)
                                                     --------    --------    --------
Consolidated income (loss) from continuing
  operations before income tax.....................  $(15,463)   $  3,266    $ 12,880
                                                     --------    --------    --------
</TABLE>

  Significant Customers

     In 2000, 1999 and 1998, one customer accounted for 17, 11 and 25 percent,
respectively, of the Company's revenue.

                                       F-16
<PAGE>   45
                             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>
                                                2000       1999        1998
                                               -------    -------    --------
<S>                                            <C>        <C>        <C>
United States................................  $31,392    $84,382    $ 99,438
Foreign......................................    1,016      6,022       2,295
                                               -------    -------    --------
          Total..............................  $32,408    $90,404    $101,733
                                               =======    =======    ========
</TABLE>

NOTE 12 -- EARNINGS PER SHARE

     A reconciliation of the basic and diluted earnings per share to the shares
used is as follows (in thousands):

<TABLE>
<CAPTION>
                                                            2000      1999      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Weighted average shares outstanding -- basic.............  13,560    13,537    13,347
Weighted effect of dilutive options and warrants.........      --        18        65
                                                           ------    ------    ------
Weighted average shares outstanding -- diluted...........  13,560    13,555    13,412
                                                           ======    ======    ======
</TABLE>

     The Company's outstanding options have been considered utilizing the
treasury stock method in calculating diluted earnings per share. There were 2.1
million, 1.2 million, and 890,000 options outstanding at December 31, 2000,
December 31, 1999 and December 31, 1998, respectively, that were anti-dilutive
and excluded from the diluted share calculation.

     As more fully described in Note 2, during 1998 the Company issued
approximately 515,000 shares, of its Common Stock in connection with a business
combination 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.

     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 $1.3 million at December 31, 2000). During
the years ended December 31, 2000, 1999 and 1998, the Company recognized grant
monies of approximately $0, $0, and $272,000, respectively. Pursuant to terms of
the grant the Company could have an 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 -- SUBSEQUENT EVENTS

     On January 22, 2001, the Company signed a one year, $10 million loan
agreement. The loan agreement provides for up to $7.5 million in borrowing,
depending on available assets, with an increase to $10 million upon achieving
certain financial milestones. The loan agreement provides for certain financial
covenants and borrowings under the loan agreement are secured by the company's
assets. In connection with the loan agreement, warrants for 225,000 shares of
the Company's Common Stock were issued.

                                       F-17
<PAGE>   46
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     On March 8, 2001, the Company signed an Agreement and Plan of
Reorganization with Lionbridge Technologies, Inc. The agreement calls for the
Company to be acquired pursuant to a tax-free exchange of stock. The approximate
value of the transaction is $15 million based on the value of the shares on the
date of agreement. The transaction must be approved by the Company's
stockholders at a special meeting for stockholders which is anticipated to be
held on or before July 31, 2001.

NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)

     In December 2000, the Company disposed of its data center operation as
discussed in Note 3. The quarterly information presented below has been restated
to reflect the data center operation as a discontinued operation (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                 2000
                                   -----------------------------------------------------------------
                                                     QUARTERS ENDED
                                   --------------------------------------------------    YEAR ENDED
                                   MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31    DECEMBER 31
                                   --------    -------    ------------    -----------    -----------
<S>                                <C>         <C>        <C>             <C>            <C>
Revenue..........................  $ 7,625     $ 8,249      $ 8,995         $ 7,539        $32,408
Gross margin.....................    2,327       2,612        2,855           2,166          9,960
Loss from continuing
  operations.....................   (1,907)     (2,389)      (2,215)         (4,591)       (11,102)
Income (loss) from discontinued
  operations.....................     (370)       (346)        (284)          2,626          1,626
Net loss.........................  $(2,277)    $(2,735)     $(2,499)        $(1,965)       $(9,476)
Loss from continuing operations
  per share......................  $ (0.14)    $ (0.17)     $ (0.16)        $ (0.33)       $ (0.82)
Income (loss) from discontinued
  operations per share...........  $ (0.03)    $ (0.03)     $ (0.02)        $  0.19        $  0.12
Loss per share(c)................  $ (0.17)    $ (0.20)     $ (0.18)        $ (0.14)       $ (0.70)
</TABLE>

<TABLE>
<CAPTION>
                                                                 1999
                                   -----------------------------------------------------------------
                                                     QUARTERS ENDED
                                   --------------------------------------------------    YEAR ENDED
                                   MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31    DECEMBER 31
                                   --------    -------    ------------    -----------    -----------
<S>                                <C>         <C>        <C>             <C>            <C>
Revenue..........................  $28,273     $28,938      $19,641         $13,552        $90,404
Gross margin.....................   13,725      13,037        8,017           5,451         40,230
Income (loss) from continuing
  operations.....................    1,352       1,311       (1,497)(a)         826(b)       1,992
Income (loss) from discontinued
  operations.....................      191         120       (1,183)           (277)        (1,149)
Net income (loss)................  $ 1,542     $ 1,431      $(2,680)(a)     $   550(b)     $   843
Income (loss) from continuing
  operations per share...........  $  0.10     $  0.10      $ (0.11)        $  0.06        $  0.14
Income (loss) from discontinued
  operations per share...........  $  0.01     $  0.01      $ (0.09)        $ (0.02)       $ (0.08)
Earnings (loss) per share(c).....  $  0.11     $  0.11      $ (0.20)(a)     $  0.04(b)     $  0.06
</TABLE>

---------------
(a) The third quarter of 1999 included non-recurring charge of $1.2 million,
    before tax in Income (loss) from continuing operation and $1.9 million,
    before tax in Net income (loss) and Earnings (loss) per share.

(b) The fourth quarter of 1999 included income from a litigation settlement of
    $1.9 million, before tax 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-18
<PAGE>   47
                             DATA DIMENSIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The quarterly amounts reported above differ from those reported in the
Company's Form 10-Q's filed for the respective periods due to the presentation
of the discontinued operation. Revenue, gross margin and income (loss) from
continuing operations have been restated for all quarters previously reported.
Below is a reconciliation from the amounts reported on the Form 10-Q's to the
amounts reported herein.

<TABLE>
<CAPTION>
                                           FIRST     SECOND      THIRD     FOURTH
                                          QUARTER    QUARTER    QUARTER    QUARTER     ANNUAL
                                          -------    -------    -------    -------    --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Revenue -- 2000.........................  $ 7,625    $ 8,249    $ 8,995    $ 7,539    $ 32,408
From discontinued operations............    2,534      2,170      2,132
                                          -------    -------    -------    -------    --------
As previously reported..................   10,159     10,419     11,127      7,539      32,408
Revenue -- 1999.........................   28,273     28,938     19,641     13,552      90,404
From discontinued operations............    3,945      3,341      1,952      2,464      11,702
                                          -------    -------    -------    -------    --------
As previously reported..................   32,218     32,279     21,593     16,016     102,106
Gross margin -- 2000....................    2,327      2,612      2,855      2,166       9,960
From discontinued operations............      (56)      (113)      (166)
                                          -------    -------    -------    -------    --------
As previously reported..................    2,271      2,499      2,689      2,166       9,960
Gross margin -- 1999....................   13,725     13,037      8,017      5,451      40,230
From discontinued operations............      755        609       (873)       (46)        445
                                          -------    -------    -------    -------    --------
As previously reported..................   14,480     13,646      7,144      5,405      40,675
Income (loss) from continuing operations
  2000..................................   (1,907)    (2,389)    (2,215)    (4,591)    (11,102)
  1999..................................    1,352      1,311     (1,497)       826       1,992
Income (loss) from discontinued
  operations
  2000..................................     (370)      (346)      (284)     2,626       1,626
  1999..................................      191        120     (1,183)      (277)     (1,149)
Net income (loss)
  2000..................................   (2,277)    (2,735)    (2,499)    (1,965)     (9,476)
  1999..................................    1,542      1,431     (2,680)       550         843
Income (loss) per share from continuing
  operations -- basic
  2000..................................    (0.14)     (0.17)     (0.16)     (0.33)      (0.82)
  1999..................................     0.10       0.10      (0.11)      0.06        0.14
Income (loss) per share from
  discontinued operations -- basic
  2000..................................    (0.03)     (0.03)     (0.02)      0.19        0.12
  1999..................................     0.01       0.01      (0.09)     (0.02)      (0.08)
Net income (loss) per share -- basic
  2000..................................    (0.17)     (0.20)     (0.18)     (0.14)      (0.70)
  1999..................................     0.11       0.11      (0.20)      0.04        0.06
Income (loss) per share from continuing
  operations -- diluted
  2000..................................    (0.14)     (0.17)     (0.16)     (0.33)      (0.82)
  1999..................................     0.10       0.10      (0.11)      0.06        0.14
Income (loss) per share from
  discontinued operations -- diluted
  2000..................................    (0.03)     (0.03)     (0.02)      0.19        0.12
  1999..................................     0.01       0.01      (0.09)     (0.02)      (0.08)
Net income (loss) per share -- diluted
  2000..................................    (0.17)     (0.20)     (0.18)     (0.14)      (0.70)
  1999..................................     0.11       0.11      (0.20)      0.04        0.06
</TABLE>

                                       F-19
<PAGE>   48

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

      FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                 BALANCE AT     CHARGED TO
                                                 BEGINNING      COSTS AND                   BALANCE AT
                 DESCRIPTION                      OF YEAR        EXPENSES     DEDUCTIONS    END OF YEAR
                 -----------                    ------------    ----------    ----------    -----------
<S>                                             <C>             <C>           <C>           <C>
Allowance for Doubtful Accounts
Year ended December 31, 1998..................     $  387         $1,015        $    3        $1,399
Year ended December 31, 1999..................     $1,399         $  477        $  591        $1,285
Year ended December 31, 2000..................     $1,285         $2,206        $1,219        $2,272
</TABLE>

                                       F-20