<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB
                                 ANNUAL REPORT
                       PURSUANT TO SECTION 13 or 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

      For the fiscal year ended          Commission file number
        December 31, 1999                    0-28462

                        WEBB INTERACTIVE SERVICES, INC.
             (Exact name of registrant as specified in its charter)

          Colorado                              84-1293864
     (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)           Identification No.)

   1800 Glenarm Place, Suite 700, Denver, CO      80202
     (Address of principal executive offices)     (Zip Code)

              Registrant's telephone number, including area code:
                                 (303) 296-9200

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

          Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value

   Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

               Yes X                      No
                  ---                       ---

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

   Registrant's revenues for fiscal year ended December 31, 1999: $1,944,283

   Aggregate market value of voting stock held by non-affiliates of registrant
as of March 17, 2000: Approximately $356,122,556.

   Number of shares outstanding as of March 17, 2000: 8,995,371 shares of common
stock, no par value.

   Documents incorporated by reference:  Definitive Proxy Statement for 2000
Annual Meeting of Shareholders for Part III.

                                       1
<PAGE>

                                     PART I
Item 1.  DESCRIPTION OF BUSINESS.

General

     Webb Interactive Services, Inc. ("Webb") provides innovative advanced
online commerce and communication solutions for small businesses, with a
particular emphasis on local commerce interaction. Our AccelX(TM) product line
of XML-based commerce and buyer-seller interaction services provide businesses
with powerful web site development and communication tools to attract customers,
generate leads, increase buyer-seller interaction and strengthen customer
relationship management. The AccelX services are divided into two categories:
Customer Relationship Management (CRM) services and Marketplace Services.

     We license our services on a private-label basis to high-volume
distribution partners such as yellow page directory publishers, newspapers, city
guides, vertical market portals and other aggregators of local businesses. Our
products are designed to be delivered on an application service provider (ASP)
business model whereby we host the software on our servers and deliver and
manage the service on behalf of our distribution partners. Generally, these
services are provided on a revenue-share basis providing us with recurring
revenues as our distribution partners sell these services to their small
business customers. This distribution model is designed to provide us with a
growing base of businesses using one or more of our services who are ideal
customers for additional AccelX services.

     Prior to the third quarter of 1997, our focus generally was on three
markets: general web site development, maintenance and hosting; rural or small
market Internet service providers (ISPs); and healthcare information services
and continuing medical education.  Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized web sites.  As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities.  Most recently, we have combined our
community-building and communications expertise with acquired expertise in local
commerce to develop applications for small businesses.

     The combining of community communications and e-commerce for the unique
needs of small businesses and local commerce interaction  represents Webb's
primary business focus.  We also provide e-banking services for financial
institutions and have recently initiated an effort to commercialize the
Jabber.org instant messaging technology.

     Our strategy is to grow our local commerce business by:

o  Delivering first-to-market execution and expert technical solutions that
   capitalize on our expertise in commerce, community building and
   communication;
o  Securing additional distribution partnerships to rapidly expand the
   deployment of our services;
o  Expanding our value-added services to enhance buyer-seller interaction; and
o  Developing strategic alliances in order to more rapidly gain market share.

     AccelX services utilize instant messaging to enhance the interactive
communications between buyers and sellers.  In 1999, we became the initial
sponsor of the open-source XML-based instant messaging software development
initiative known as Jabber.org. as we believed it provided the best instant
messaging platform for our application services.  We believe that instant
messaging will evolve from its primary use today by personal computer users for
instant chat communications to provide a foundation for an entire new class of
programs, with applications such as voice over the Internet, mobile
communications, enterprise communications and collaboration, real-time online
auctioning and customer relationship management.  For this reason, we have
formed a subsidiary, Jabber, Inc., in order to commercialize this business
opportunity separately from our local commerce business.

     We were incorporated under the laws of the State of Colorado on March 22,
1994.  Our executive offices are located at 1800 Glenarm Place, Suite 700,
Denver, Colorado 80202, telephone number (303) 296-9200.

                                       2
<PAGE>

Investment Considerations

     Investors should consider all of the information contained in this report
including the factors discussed under "Item 1 - Description of Business -
General, Competition and Factors That May Affect Future Results," and "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Item 7 - Financial Statements" before making an investment
decision with regard to our securities.

     Some of the statements made in this report in the sections above and
elsewhere in this report constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to the safe harbor provisions of the reform act. Forward-
looking statements may be identified by the use of the terminology such as may,
will, expect, anticipate, intend, believe, estimate, should, or continue or the
negatives of these terms or other variations on these words or comparable
terminology. To the extent that this report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of Webb, you should be aware that our actual financial condition,
operating results and business performance may differ materially from that
projected or estimated by us in the forward-looking statements. We have
attempted to identify, in context, some of the factors that we currently believe
may cause actual future experience and results to differ from their current
expectations. These differences may be caused by a variety of factors, including
but not limited to adverse economic conditions, intense competition, including
entry of new competitors, ability to obtain sufficient financing to support our
operations, progress in research and development activities, variations in costs
that are beyond our control, adverse federal, state and local government
regulation, unexpected costs, lower sales and net income, or higher net losses
than forecasted, price increases for equipment, inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives, and other specific risks that may be
alluded to in this report.

The Market

     The Internet is a global web of computer networks.  Developed over 25 years
ago, this "network of networks" allows any computer attached to the Internet to
talk to any other using Internet protocols.  Increased Internet use and the
availability of powerful new tools for the development and distribution of
Internet content have led to a broad and substantial proliferation of Internet
based services.  In what by historical standards is a remarkably short period of
time, the Internet has become an important mass medium for information
collection and distribution, communication, commerce, entertainment and other
forms of communication.

     Internet Data Corporation estimates that the number of Internet users
worldwide will grow from approximately 69 million users in 1997 to 320 million
users in 2002.  The commercial potential for the Internet has given rise to web
sites through which businesses, communities, media companies, news services,
affinity-based groups and individuals can inform, entertain, communicate and
conduct business with each other worldwide.  Market Facts, an Internet research
company, reports that approximately 88% of Internet users go online to seek
additional information, 31% to communicate and 18% to shop.  Forrester Research,
Inc. has estimated that local online sales will rise from $680 million in 1998
to more than $6 billion by 2003 and that online advertising to support these
sales will increase from $135 million to $1.7 billion during this same period.
This compares to expenditures reported to exceed $85 billion per year by local
businesses for traditional media for locally-focused advertising and business
promotion.

     The success of early e-commerce pioneers such as Amazon.com is in large
part due to their ability to aggregate retail content and enable simplified
comparison shopping. In "national" consumer goods markets, this is relatively
straightforward, since many of the catalog databases underlying this approach
already existed and could be easily web-enabled. In the "local market", however,
the challenge is radically different. Unlike the national market that is made up
primarily of catalog-oriented merchandisers, the local market is dominated by
service companies and retailers who have a relatively limited ability to manage
information technology. The content underlying local e-commerce, representing
millions of individual merchants and service companies, exists in a far less
structured form than for national markets. In business-to-business markets, the
use of CRM and Marketplace Exchange Services has

                                       3
<PAGE>

demonstrated significant growth opportunities. However, for small businesses,
their online activities have largely been limited to the creation of an initial
web site presence, as they have had few alternatives for active online promotion
of their businesses and interaction with online customers.

     In a recent study, the Kelsey Group (Local Commerce Monitor, May 1999)
interviewed 1,400 small and medium-sized businesses that met the "local market
focus" criterion of receiving more than 75% of their business from customers
located within 50 miles of their establishment.  The survey found that:

     o  The number of local businesses with a Web presence is projected to grow
        20% per year for the next five years, reaching in excess of 5 million by
        2004.
     o  Currently 1.9 million businesses have a web site and another 1.3 million
        plan to have one by the end of 2000.
     o  Those 1.9 million web sites cost $2.8 billion per year, including
        access, design and hosting, and it is projected to exceed $7 billion by
        2004.
     o  E-commerce transaction capability exists on only 10% of today's local
        web sites while over 26% of the study participants stated that it was
        essential to be able to sell their products over the Web.

In separate releases, the Kelsey Group has indicated that local businesses drive
$3 trillion in local revenues each year and that e-service business will capture
$3.4 billion in revenues by 2004.  According to the Kelsey Group, small
businesses are looking for online services that will allow them to:

     o  Contact suppliers and vendors - 73%.
     o  Distribute information to customers - 66%
     o  Advertise or promote their business - 65%
     o  Provide customer service and support - 41%
     o  Qualify leads - 36%
     o  Send promotional messages to customers - 36%


Webb's Strategy

     Webb is developing easy-to-use online services specifically designed for
the needs of small businesses, with special emphasis on local market
interaction. Our AccelX services are focused on bringing the essential value of
CRM and Marketplace Exchange services to small businesses, by providing our
distribution partners with application services that package new methods of
promotion, lead management and buyer-seller interaction. Our products and
services are offered on an application services provider (ASP) basis, enabling
local businesses to use one or more of our services on a cost-effective basis
and to easily expand the services they use as their needs evolve and grow.

     We license our products and services on a private-label basis to high-
volume distribution companies such as yellow page directory publications,
newspapers, city guides, vertical market portals and other aggregators of small
businesses. Our business model is designed to create a strong distribution
network selling our application services to a large number of small businesses
without incurring the high cost of marketing our services to end users. This
distribution network is intended to provide Webb with a growing base of
businesses using one or more of our services who are ideal customers for
additional AccelX services.

     Our strategy is to grow our business by:

o  Developing first-to-market execution and expert technical solutions that
   capitalize on our expertise in commerce, community design and communication.
   Our products are based on XML (Extensible Mark-up Language) technologies
   which constitutes a significant improvement from the current HTML (Hypertext
   Mark-up Language) generally used on the Internet. The use of XML technologies
   enables us to create a flexible structure for the content of web pages,
   simplifying web site development and design and making searching more

                                       4
<PAGE>

   meaningful; to separate the content of a web site from its presentation, for
   example, content such as a special offer can be dynamically presented in a
   variety of forms, such as a web page, a searchable database of specials, a
   banner ad or incorporated into an e-mail newsletter targeted to a particular
   zip code.

   We are also developing advanced communications services that incorporate
   instant messaging as a key application for commerce-oriented dialogs between
   businesses and consumers. We were the initial sponsor of the Jabber.org
   instant messaging system. The Jabber instant messaging system is open source,
   simple, fast, highly modularized and platform independent. It is designed for
   compatibility and interoperability with other proprietary messaging systems.
   Jabber was the first instant messaging system to integrate XML technologies.

o  Securing additional distribution partners to rapidly expand the development
   of our technologies. Our distribution strategy is focused on large
   aggregators of small businesses rather than on end users. We believe that
   this will enable us to reach large numbers of end users much more rapidly
   than we would be able to do by marketing directly to end users and to avoid
   the high costs associated with attracting, servicing and supporting
   potentially millions of consumers and businesses. As of the date of this
   report, we have established distribution partnerships with CBS Switchboard,
   Inc., Bell Actimedia, Inc., SmallOffice.com, Corel Corporation and RE/MAX
   International, Inc. These distributors pay us a fee based on a transactional,
   membership or per application basis.

o  Expanding our value-added services to enhance buyer-seller interaction. We
   are currently marketing our AccelX Site Builder and Notify products and our
   e-banking services for small to medium-sized financial institutions. During
   2000 we intend to increase our AccelX product line to include a suite of
   offer management services and an exchange service for local businesses and to
   create a marketplace solution which will enable our distributors to create
   Internet marketplaces for their small-business customers. We also plan to
   introduce a version of our Notify product for our e-banking services.

o  Developing strategic alliances in order to more rapidly gain market share. In
   order to increase the value of our e-banking services business with minimal
   impact on our primary market focus, we are seeking a strategic alliance with
   a financial service business. We have also recently announced the formation
   of a subsidiary, Jabber, Inc., to pursue the commercialization of our instant
   messaging business separately from our local commerce business. We seek to
   acquire new technologies or capabilities through the acquisition of other
   businesses. On June 30, 1999, we acquired Durand Communications, Inc. in
   order to expand our Internet communications and community building
   capabilities. During June 1999 we also acquired NetIgnite, Inc., a recently-
   formed company emphasizing the early deployment of XML-based technologies.
   During January 2000, we acquired the business of Update Systems, Inc., a
   leading customer relationship management solutions company for small
   businesses. See Notes 9 and 16 of the Notes to Financial Statements.

Products and Services

     Webb is primarily focused on its core AccelX businesses. In addition, we
have a business unit focused on e-banking and another on instant messaging. In
the local commerce segment, we target distribution of application services for
small and medium-sized local businesses with our AccelX product line supporting
XML-based commerce and buyer-seller interaction. Our e-banking business targets
credit unions, community banks and savings and loan institutions with a full
line of e-banking transaction processing account management services. Jabber,
Inc., a new subsidiary, was recently formed to commercialize the Jabber.org open
source instant messaging system.

AccelX

     The AccelX product platform centralizes the management of online
interaction with a suite of integrated advanced communication technologies. The
platform combines messaging applications and community-building tools with
powerful storage technology. With a foundation based on XML technologies and
open communications, the platform is designed for growth and the integration of
future communications-based commerce modules. Features include:

                                       5
<PAGE>

o  Commerce communications are stored in a Message Warehouse for Message Mining,
   allowing buyer-seller interaction to be tracked, analyzed and reported.

o  Forms can be created interactively for data collection and display, enabling
   small businesses and aggregators to quickly customize solutions for their
   markets.

o  Unified messaging will allow communications to be delivered between the
   devices of choice, whether a pager, fax machine, e-mail or instant messager.

o  Integrated community and communication components.


     The AccelX product design is based on the fact that most local businesses
are either service-based businesses or have limited information technology
infrastructures. Our solutions enable these businesses to leverage the web to
attract, retain, and manage customer relationships by applying the web to better
match their products and services to meet customer demand. AccelX products and
services are divided into two categories: Customer Relationship Management (CRM)
Services; and Marketplace Services.

     CRM Services. The AccelX CRM solution is an integrated suite of services
designed to allow local businesses to better manage their customer life-cycle,
from lead generation to customer acquisition and retention. Fashioned as a
powerful but very intuitive suite of services for local businesses, AccelX CRM
provides businesses with a simple means of leveraging the power of online
promotion and e-mail to attract and retain customers as well as to help create
new online-relationships with their customers. AccelX CRM modules include: Site
Builder; Notify; Request; and Promote. We are currently offering the Site
Builder and Notify modules and expect to begin offering the Request and Promote
modules in the second half of 2000.

     Site Builder. Site Builder is a template driven web site publishing
service. The service is easy to use, permitting the computerized creation of
XML-enabled web sites. Features include:

     o  Use of professional graphics design rules, allowing high-quality sites
        to be generated following simple questionnaires that can be completed in
        minutes.

     o  Use of an XML database of all content, permitting this content to be
        leveraged for enhanced shopping, promotion and marketplace services.

     o  Ability to be used in our distribution partners' telephone sales
        operations.

     o  Easy to expand to allow local businesses to interact and communicate
        with their customers utilizing other AccelX CRM services.

     AccelX Notify.  Notify is an email and instant messaging notification
system that enables local businesses to strengthen their customer relationships
and to expand their cross-selling capabilities to their existing customer base.
Features include:

     o  Opt-in Email - an easy to use service for delivering thousands of
        individually targeted email messages.
     o  Profile - a self-populating and subscriber-edited form for collecting a
        database of subscribers based on their needs and interests.
     o  Preferences - easy to use administrative functions to design sign-up
        pages.

     AccelX Request.  Request is an interactive communication service that
enables local businesses to more efficiently qualify leads, process customer
inquiries and maintain high qualify customer service.  Features include:

                                       6
<PAGE>

     o  Request for Information - services to automate customer requests for
        information such as price, order status, inventory availability and
        appointments
     o  Unified Messaging - delivery of leads and information via fax, e-mail,
        pager, instant messaging or chat
     o  Real-time Interaction - communication tools for buyer-seller interaction
        including instant messaging and chat

     AccelX Promote.  Promote offers management services that enable local
businesses to have greater control over their promotional offers.  It also
provides alternative online delivery channels for targeting local buyers.
Features include:

     o  Offer Creation and Delivery - a template-driven service for creating and
        delivering banner ads, coupons, business specials/sales and emails
     o  Prospect Database - an online database for maintaining a current list of
        prospects and relevant profile information
     o  Enhanced Directory Listing - ability to expand a business' current
        online listing to include additional data such as hours and product or
        services offered.

     Marketplace Services - The AccelX Marketplace Services will allow
businesses that aggregate local buyers and sellers to create more dynamic and
interactive marketplaces. These services are intended to package common requests
between buyers and sellers that can be published for simplified buyer-seller
interaction and can be the foundation for advanced community-centric commerce.
Solutions that are planned to be offered late in 2000 include:

     o  Group Buying - buying services that will provide limited-time buying
        opportunities during which consumers can directly influence pricing.
     o  Buying and Pricing Services - will enable customers to fill out online
        forms detailing the service or product they are looking for. The form
        will then be sent to multiple local businesses that can fulfill their
        request. Customers would no longer have to browse multiple web sites or
        make multiple telephone calls with the same request. Sellers can gain
        qualified leads from customers who are looking for their product or
        service, and who are ready to buy.
     o  Direct Marketing - will provide consumers with an opt-in notification
        service. Consumers could then sign up to be emailed with relevant
        promotions and offers in their local market. Businesses will get a
        highly targeted channel for reaching local buyers.
     o  Sales Calendars - will provide consumers with an online calendar that
        will organize and display all of the aggregated local sales, discounts
        and specials of interest to a customer. Local businesses will get a new
        channel for promoting their business.
     o  Local Communities - will provide online forums for local groups of
        consumers to share and exchange information and opinions. Businesses
        will also be given the ability to target local consumer groups.

E-Banking Services

        We have developed an online banking solution specifically targeted at
smaller financial institutions having less than $500 million in assets. Our
financial services solution is based on transactional foundation software from
Edify Corporation. The Edify software has been chosen by many corporations and
financial institutions and is the foundation of the web-banking systems of some
of the nation's largest banks.

     We have taken a service bureau approach to e-banking, which enables us to
provide smaller community banks and credit unions with many of the capabilities
and services available to the larger banks without the cost associated with the
development of bank-specific systems. Our e-banking system includes access to
account activity, history and current account balance information 24 hours a
day, seven days a week, the ability to obtain electronic statements and transfer
funds between accounts, pay bills, make loan applications and download
transactions into personal financial software such as Quicken or Microsoft
Money. We are currently providing online banking services for the Rockwell
Federal Credit Union and the Hewlett Packard Rocky Mountain Credit Union.

                                       7
<PAGE>

     During February 1999, we entered into an agreement with CU Cooperative
Systems, Inc., a national co-operative association representing over 600 credit
unions, pursuant to which we are developing an Internet e-banking solution for
the co-op's members with applications customized for the needs of the co-op and
its members. Under terms of the agreement, we are receiving income for system
development and will receive fees from individual credit unions who belong to
the co-op and who elect to use our e-banking services and ongoing fees based on
these credit unions' members' use of the system.

     Our primary focus is on the development of online commerce and
communication solutions for small businesses. For this reason, we are seeking a
strategic partner to help us accelerate the development and marketing of our e-
banking business.

Instant Messaging

     Our AccelX product line incorporates instant messaging as a key application
for commerce-oriented dialogs between businesses and consumers. In 1999 we were
the initial sponsor of the Jabber.org instant messaging system, an XML-based
open-source initiative, as we believed it provided the best instant messaging
platform for our application services. As an open source movement, Jabber.org is
able to leverage a large development community, with over 800 registered
developers and nearly 300 active developers working on Jabber instant messaging
software. The Jabber system is designed for compatibility and interoperability
with other proprietary messaging systems and is the first to integrate XML
technologies.

     We believe that instant messaging will evolve from its primary use today by
personal computer users for instant chat communications to provide a foundation
for an entirely new class of programs, with applications such as voice over the
Internet, global communications, enterprise communications and collaboration,
real-time online auctioning and customer relationship management. For this
reason, we believe that the potential market for the Jabber instant messaging
system is much greater than just for use in connection with our services. We
have, therefore, formed a subsidiary, Jabber, Inc., in order to commercialize
this business opportunity separately from our local commerce business.

     We have formed an advisory board of industry experts to assist us in
developing this business. Current members, in addition to Perry Evans, President
and CEO of Webb, include Doc Searls, senior editor of Linux Journal, co-author
of "The Clue Train Manifesto," and organizer for the "Linux for Suits" events
and web sites; and Eric Raymond, renowned open-source movement advocate, board
member of VA Linux, Inc., author of "The Cathedral and the Bazaar" and founder
of the Open Source Initiative.

Marketing

     Our distribution strategy is focused on high-volume distributors of
products and services to local business, such as yellow page directory
publishers, newspapers, city guides, vertical market portals and other
aggregators of local businesses. This focus enables us to avoid the high costs
associated with attracting, serving and supporting a large number of end users.
Typically, we license our applications on a private-label basis to distribution
partners who pay us recurring fees calculated on a transactional, membership or
per application basis. For example, we will receive from CBS Switchboard.com
during the three-year term of the agreement a fee of from $3 to $5 per month per
web site created utilizing our AccelX Site Builder service. CBS Switchboard.com
also may maintain limited exclusivity for the Site Builder service in a segment
of the United States market by paying us minimum quarterly payments, initially
$250,000 and increasing to $312,500 in the third year of the agreement.

     By distributing our services through multiple distribution partners, we
believe that we will be able to more rapidly develop a large base of small
businesses who are ideal candidates for use of additional AccelX services as
these services are developed and as the end user's online needs evolve and grow.
The AccelX platform is designed to permit additional services to be added
without requiring our customers to make expensive investments in new software or
equipment.

     We employ an executive-level direct marketing and sales model to sell our
products and services. During 1999, we limited our marketing and sales efforts
as our primary focus was on the development of the AccelX

                                       8
<PAGE>

platform. In 2000, we are increasing significantly our marketing and sales
activities. Our marketing activities include advertising in trade publications,
developing public relations programs featuring us and our products and services
and attendance at key industry trade shows.

     A substantial portion of our sales have historically been derived from a
limited number of customers. During 1999 and 1998, four customers accounted for
67% and 71%, respectively, of our sales for the period. During 1999,
Switchboard, Inc., Rockwell Federal Credit Union, and CU Cooperative Systems,
Inc. accounted for 26%, 19%, and 17%, respectively, of our sales for the period.
During 1998, Starstream, Inc., American Telecasting, Inc., Rockwell Federal
Credit Union, and Intermedia Partners accounted for 28%, 14%, 14% and 12%,
respectively, of our sales for the period. While major customers in one fiscal
period are not necessarily anticipated to be major customers in future fiscal
periods, the loss of a major customer could have an adverse effect on our
business.

Trademarks and Proprietary Protection

     We rely primarily on a combination of copyright, trade secret, trademark
laws, and nondisclosure and other contractual provisions to protect our
proprietary rights. As a part of our confidentiality procedures, we generally
enter into written nondisclosure and nonsolicitation agreements with our
officers and employees which restrict the use and disclosure of proprietary
information and the solicitation of customers for the purpose of selling
competing products or services. We generally have not entered into
noncompetition agreements with our officers, directors or employees. Because the
policing of proprietary rights may be difficult and the ideas and other aspects
underlying our products and services may not in all cases be protectable under
intellectual property laws, there can be no assurance that we could prevent
competitors from marketing the same or similar products and services. In
addition, competitors may independently develop products and services that
compete with our products and services.

Competition

     Our current and prospective competitors include many companies that have
substantially greater financial, technical, marketing, and other resources than
we do.  We attempt to distinguish our products primarily on the basis of:

     o  Focus on needs of small businesses;
     o  Use of XML-based technologies;
     o  Integration of instant messaging and community-building technologies;
     o  Breadth and depth of communications capabilities;
     o  Customizability;
     o  Ease of use; and
     o  Distribution of our products through business aggregators on a private-
        label basis.

     We believe that competition will intensify in the future.  Increased
competition could result in price reductions and increased spending on marketing
and product development.  Any of these events could have a material adverse
effect on our financial condition and operating results.  There is no assurance
that we will be able to compete successfully against current and future
competitors or that competitive pressures faced by us will not materially
adversely affect our business, financial condition and results of operations.
We believe that the primary factors that will impact competition are technical
expertise and development, price, sales and marketing abilities, customer
support, reliability and security.

     For web site publishing, we compete with net Objects/Sitematic Corporation
and Nextron Communications, Inc., two companies that provide web site publishing
and hosting services for local merchant service providers. Their distribution
strategies are similar to ours, although neither of these companies is believed
to have significant capabilities with XML technologies. As we move to customer
relationship management and enhanced shopping and promotional services, we
anticipate that we may encounter competition from a larger number of companies,
including online advertisers such as Microsoft Corporation's Link Exchange and
DoubleClick, Inc., and infrastructure companies such as Inktomi Corporation and
Commerce One, Inc. There are also a large number of software development
companies that are selling software that performs particular functions of
individual modules of

                                       9
<PAGE>

our AccelX services. We also expect to compete with in-house development
efforts by some of our targeted customers.

     There are several online banking services that offer financial services
similar to those we offer to small to medium-sized financial institutions.
These companies generally are serving many more financial institutions than
those we are currently servicing.

     The Jabber.org instant messaging system competes with systems offered by
companies such as America Online, Inc., which currently has substantially more
instant messaging users than any other company providing instant messaging
services. There are no competing open source instant messaging systems. We
believe that the Jabber.org system can be distinguished from that offered by
America Online, Inc. and others based on Jabber.org's use of open-source
development and XML technologies and Jabber.org's more flexible platform for
instant messaging applications.

Government Regulation

     Our products and services pertaining to web site content and development
are not currently subject to direct regulation by the Federal Communications
Commission or any other federal or state agency, other than regulations
applicable to businesses generally. Changes in the regulatory environment
relating to the Internet could have a material adverse effect on our business.
We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business.

Employees

     At February 25, 2000, we employed 85 full time employees, which included 20
in management and administration, 5 in sales and marketing, and 55 in
development. In addition to these company personnel, we contract with other
creative and production resources, as required for peak load situations. Our
employees are not represented by a labor union, and we consider our employee
relations to be good.

Management

  The officers of Webb are as follows:

<TABLE>
<CAPTION>
Name                                Age                          Position
------------------------------    -------  ----------------------------------------------------
<S>                               <C>      <C>
Perry Evans...................       40    President and Chief Executive Officer
William Cullen................       58    Chief Financial Officer
Lindley Branson...............       57    Vice President and General Counsel
Gwenael Hagan.................       39    Vice President, Corporate Development
Andre Durand..................       32    General Manager, JabberIM Commercialization
Simon Greenman................       30    General Manager, AccelX Commerce Services
Chris Fanjoy..................       34    Chief Technology Officer
Mike Murphy...................       48    General Manager, Electronic Banking
Deborah Gerard................       46    Vice President, Business Development and Sales
Gwen Nail.....................       38    Vice President, Marketing
Kevin Schaff..................       26    Vice President, AccelX Development
Fred Puls.....................       39    Vice President, Technology
</TABLE>

          Perry Evans, has served as President of Webb since June 24, 1999 and
Chief Executive Officer since February 1, 2000.  Mr. Evans founded NetIgnite in
1998, which was acquired by Webb in 1999.  Mr. Evans was founder of and served
as President of the MapQuest Publishing Group, a widely licensed Internet
locator application service from December 1995 to October 1997.   Prior to
MapQuest, Mr. Evans managed the new media development group within RR Donnelley
that was responsible for interactive yellow pages, travel and real estate
products from December 1993 to December 1995.

                                       10
<PAGE>

          William Cullen, has served as Chief Financial Officer of Webb since
April 1999 and a director since March 1998.  From March 1998 to April 1999, Mr.
Cullen served as Chief Operating Officer of Webb.  From May 1997 to March 1998,
Mr. Cullen worked as a consultant to businesses in the cable industry.  From
April 1994 to May 1997, Mr. Cullen was Chairman and CEO of Access Television
Network, Inc., a privately held company specializing in providing paid
programming to local cable systems.  From January 1992 to March 1994, Mr. Cullen
was President and CEO of California News Channel, a programming project of Cox
Cable Communications.  From July 1984 to December 1991, Mr. Cullen was employed
by United Artist Cable Corporation (and its predecessor United Cable Television
Corporation) as Vice President of Operations and President of its subsidiary,
United Cable of Los Angeles, Inc., and as its Senior Vice President of the
Southwest Division.  Prior to joining United Artist Cable Corporation, Mr.
Cullen was President of Tribune Company Cable of California, Inc. and CEO of its
United-Tribune Cable of Sacramento joint venture, served as a top financial
officer of three companies and worked in banking.

          Lindley Branson, joined Webb as Vice President and General Counsel in
May 1999. Mr. Branson has been a senior partner with the Minneapolis law firm of
Gray, Plant, Mooty, Mooty and Bennett, PA for more than twenty years,
specializing in corporate finance, mergers and acquisitions and general
corporate law.

          Gwenael Hagan, has served as Vice President, Corporate Development
of Webb since November 23, 1999.  Mr. Hagan joined Webb in January 1998.  From
June 1996 to January 1998, Mr. Hagan served as Vice President of New Business
Development with International Channel, a cable television network, where he was
responsible for new revenue opportunities, both domestically and
internationally, and developing and implementing strategies to increase revenue
and position International Channel for growth via evolving digital cable and
satellite platforms.  From December 1994 to June 1996, Mr. Hagan served as the
Internet Marketing Manager for Microsoft's western region.  Mr. Hagan's work
with Microsoft encompassed competitive strategy development, sales resource
allocation, presentations and public relations.

          Andre Durand, has served as General Manager, JabberIM
Commercialization since November 23, 1999.  Mr. Durand joined Webb in November
1998.  Mr. Durand was the founder of and served as President and Chief Executive
Officer of Durand Communications, Inc. from January 1993 to June 1999.  Mr.
Durand is a regular guest speaker at computer fairs, conferences and
expositions, and regularly contributes articles to trade publications discussing
Internet technologies, trends and predictions.  From January 1991 to January
1993, Mr. Durand was an auditor with KPMG Peat Marwick in Los Angeles,
California.

          Simon Greenman, has served as General Manager, AccelX Commerce
Services since November 23, 1999.  Mr. Greenman joined Webb in August 1999 after
graduating from Harvard with an MBA in May 1999.  Previously, Mr. Greenman was
Vice President of Internet Engineering at MapQuest.com, an Internet locator
application service, from January 1994 to December 1997, where he oversaw
MapQuest's technical development.  While at Harvard, Mr. Greenman consulted on
strategy and marketing for Expedia and Network Computers and was named by
Internet Standard magazine as its "Number 1 MBA draft choice" in the technical
sector for 1999.

          Chris Fanjoy, has served as the Chief Technology Officer of Webb since
June 1999.  Mr. Fanjoy co-founded and served as the Vice President of
Engineering of NetIgnite, before the company was acquired by Webb in 1999.
Prior to NetIgnite, Mr. Fanjoy was the director of engineering and lead
architect for MapQuest.com, an Internet locator application service, from August
1995 to January 1998, and a senior technology director for MCI Systemhouse, a
geographic information solutions provider company, from January 1998 to April
1999.  Mr. Fanjoy has more than 12 years experience with complex database driven
enterprise and web applications.

          Mike Murphy, has served as General Manager, Electronic Banking since
1997.  Prior to that, Mr. Murphy founded and was Vice President of Operations at
Requisite Technology, Inc, an early e-commerce company from May 1994 until
December 1996.  Leading up to that, Mr. Murphy was with Ball Aerospace where he
was an operations general manager from July 1987 to November 1992, and then
director of strategic business development from December 1992 to May 1994.
Before that, Mr. Murphy was an operations manager with Verac, Inc., a high-tech
software company, from July 1979 to July 1987.  Mr. Murphy's technical
background is a system engineer and functional architect, and Mr. Murphy holds a
Ph.D. in Electrical Engineering.

                                       11
<PAGE>

          Deborah Gerard, has served as Vice President, Business Development and
Sales of Webb since January 2000.  Ms. Gerard served as the Rocky Mountain
Regional Sales Manager (15 states) with Genesys Telecommunications Labs from
April 1999 to January 2000.  Prior to that, Ms. Gerard worked as a strategic
planning consultant with SELCOR, Inc. from January 1998 to April 1999.  Ms.
Gerard worked as a Rocky Mountain Territory Manger with XcelleNet, Inc. from
January 1997 to December 1997.  From January 1994 to December 1996, Ms. Gerard
worked at Oracle Corporation in the capacity as practice manager to a business
development manager.  In 1996, Ms. Gerard was promoted to Partner Applications
Sales Manager and then promoted to National NT sales manager in the same year.

          Gwen Nail, has served as Vice President, Marketing of Webb since March
2000.  Ms. Nail is responsible for all product marketing and marketing
communications for AccelX small business and local commerce solutions.  Prior to
joining Webb, Ms. Nail was Director of New Products and Ventures with US West
Dex overseeing all of US West Dex.com activities from November 1997 to March
2000.  From October 1995 to November 1997, she was the Internet Marketing
Manager with US West Dex.com where she developed US West Dex.com.  Ms. Nail was
Product Manager for non-traditional US West directory products from August 1994
to September 1995.  Previous experience includes brand marketing with the Coca
Cola bottling company.

          Kevin Schaff has served as Vice President of Business Development of
Webb since January 2000.  Mr. Schaff is responsible for developing and managing
strategic business relationships, bringing to bear leading industry expertise in
ecommunication strategies for small businesses.  Prior to joining Webb, Mr.
Schaff  was President of Update Systems, a leader in Customer Relationship
Management and communication solutions for the small and medium sized business
from May 1999 to January 2000.  From December 1994 to April 1999 Mr. Schaff was
President and CEO of Wind River Visual Communication, Inc where he oversaw
annual growth of 100% with prestigious clients such as US West, Motorola,
Coopers and Lybrand and Macys.  Mr. Schaff holds a degree in Communications from
the University of Wyoming.

          Fred Puls, has served as Vice President, Technology of Webb since
January 2000.  Mr. Puls is responsible for the development of new Local Commerce
applications that are part of the AccelX product line.  Prior to joining Webb,
Mr. Puls was Vice President, R&D, Update Systems from September 1999 to January
2000 and a Director from June 1999 to September 1999.  At Update, Mr. Puls was
responsible for all design, development and research activities resulting in the
launch of its ISP Server product and design of the Enterprise Server.  From
September 1998 to June 1999, Mr. Puls was Founder and Owner of Sharpkids.com, a
browser based children's educational software and resources company.  From July
1996 to September 1998, Mr. Puls was a district manager for AT&T Bell Labs and
from June 1994 to July 1996 a manager with AT&T Bell Labs.

Factors That May Affect Future Results

     Factors that may affect our future results include, but are not limited to,
the following items as well as the information in "Item 1 -Description of
Business - General and Competition" and "Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     Our limited operating history could affect our business. We were founded in
March 1994 and commenced sales in February 1995. Accordingly, we have a limited
operating history upon which you may evaluate us. Our business is subject to the
risks, expenses and difficulties frequently encountered by companies with a
limited operating history including:

     o  Limited ability to respond to competitive developments;
     o  Exaggerated effect of unfavorable changes in general economic and market
        conditions;
     o  Ability to attract qualified personnel; and
     o  Ability to develop and introduce new product and service offerings.

There is no assurance we will be successful in addressing these risks.  If we
are unable to successfully address these risks our business could be
significantly affected.

                                       12
<PAGE>

     We have accumulated losses since inception and we anticipate that we
will continue to accumulate losses for the foreseeable future.  We have incurred
net losses since inception totaling approximately $42.6 million through December
31, 1999.  In addition, we expect to incur additional substantial operating and
net losses in 2000 and for one or more years thereafter.  We expect to incur
these additional losses because:

     o  We currently intend to increase our capital expenditures and operating
        expenses to expand the functionality and performance of our products and
        services; and

     o  We recorded goodwill and other intangible assets totalling approximately
        $24 million in connection with the acquisitions of three businesses
        which will be amortized over their estimated useful lives of
        approximately three years.

     The accumulated deficit at December 31, 1999, included approximately $17.6
million of non-cash expenses related to the issuance of preferred stock and
warrants in financing transactions, stock and stock options issued for services,
warrants issued to four customers and interest expense on a 10% convertible note
payable.    We will be required to record significant additional non-cash
charges of approximately $12.5 million in the first quarter of 2000 in
connection with the issuance of the series B preferred stock and warrants in
January 2000.  The current competitive business environment may result in our
issuance of similar securities in future financing transactions or to other
companies as an inducement for them to enter into a business relationship with
us.  While these transactions represent non-cash charges, they will increase our
expenses and net loss and our net loss available to common shareholders.

     If we are unable to raise additional working capital funds, we may not be
able to sustain our operations. We believe that our present cash and cash
equivalents, working capital and commitments for additional equity investments
will be adequate to sustain our current level of operations through 2001. There
is no assurance that we will be able to raise additional funds in amounts
required or upon acceptable terms. In addition, we may discover that we have
underestimated our working capital needs, and we may need to obtain additional
funds to sustain our operations through fiscal 2001. If we cannot raise
additional funds when needed, we may be required to curtail or scale back our
operations. These actions could have a material adverse effect on our business,
financial condition or results of operations.

     We may never become or remain profitable.  Our ability to become
profitable depends on the ability of our  products and services to generate
revenues. The success of our revenue model will depend upon many factors
including:

     o  The success of our distribution partners in marketing their products and
        services; and
     o  The extent to which consumers and businesses use our services and
        conduct e-commerce transactions and advertising utilizing our services.

     Because of the new and evolving nature of the Internet, we cannot predict
whether our revenue model will prove to be viable, whether demand for our
products and services will materialize at the prices we expect to be charged, or
whether current or future pricing levels will be sustainable. Additionally, our
customer contracts may result in significant development revenue in one quarter,
which will not recur in the next quarter for that customer. As a result, it is
likely that components of our revenue will be volatile, which may cause our
stock price to be volatile as well.

     Our business depends on the growth of the Internet. Our business plan
assumes that the Internet will develop into a significant source of
communication and communication interactivity. However, the Internet market is
new and rapidly evolving and there is no assurance that the Internet will
develop in this manner. If the Internet does not develop in this manner, our
business, operating results and financial condition would be materially
adversely affected. Numerous factors could prevent or inhibit the development of
the Internet in this manner, including:

     o  The failure of the Internet's infrastructure to support Internet usage
        or electronic commerce;

                                       13
<PAGE>

     o  The failure of businesses developing and promoting Internet commerce to
        adequately secure the confidential information, such as credit card
        numbers, needed to carry out Internet commerce; and

     o  Regulation of Internet activity.

     Use of many of our products and services will be dependent on distribution
partners. Because we have elected to partner with other companies for the
distribution of many of our products and services, many users of our products
and services are expected to utilize our services through our distribution
partners. As a result, our distribution partners, and not us, will substantially
control the customer relationship with these users. If the business of the
companies with whom we partner is adversely affected in any manner, our
business, operating results and financial condition could be materially
adversely affected.

     We may be unable to develop desirable products. Our products are subject to
rapid obsolescence and our future success will depend upon our ability to
develop new products and services that meet changing customer and marketplace
requirements. There is no assurance that we will be able to successfully:

     o  Identify new product and service opportunities; or
     o  Develop and introduce new products and services to market in a timely
        manner.

     If we are unable to accomplish these items, our business, operating
results and financial condition could be materially adversely affected.

     Our products and services may not be successful. Even if we are able to
successfully identify, develop, and introduce new products and services there is
no assurance that a market for these products and services will materialize to
the size and extent that we anticipate. If a market does not materialize as we
anticipate, our business, operating results, and financial condition could be
materially adversely affected. The following factors could affect the success of
our products and services:

     o  The failure of our business plan to accurately predict the rate at which
        the market for Internet products and services will grow;
     o  The failure of our business plan to accurately predict the types of
        products and services the future Internet marketplace will demand;
     o  Our limited experience in marketing our products and services;
     o  The failure of our business plan to accurately predict our future
        participation in the Internet marketplace;
     o  The failure of our business plan to accurately predict the estimated
        sales cycle, price and acceptance of our products and services;
     o  The development by others of products and services that renders our
        products and services noncompetitive or obsolete; or
     o  Our failure to keep pace with the rapidly changing technology, evolving
        industry standards and frequent new product and service introductions
        that characterize the Internet marketplace.

     The intense competition that is prevalent in the Internet market could have
a material adverse effect on our business. Our current and prospective
competitors include many companies whose financial, technical, marketing and
other resources are substantially greater than ours. There is no assurance that
we will have the financial resources, technical expertise or marketing, sales
and support capabilities to compete successfully. The presence of these
competitors in the Internet marketplace could have a material adverse effect on
our business, operating results or financial condition by causing us to:

     o  Reduce the average selling price of our products and services; or
     o  Increase our spending on marketing, sales and product development.

     There is no assurance that we would be able to offset the effects of any
such price reductions or increases in spending through an increase in the number
of our customers, higher sales from premium services, cost reductions or
otherwise. Further, our financial condition may put us at a competitive
disadvantage relative to our competitors. If

                                       14
<PAGE>

we fail to, or cannot, meet competitive challenges, our business, operating
results and financial condition could be materially adversely affected.

     A limited number of our customers generate a significant portion of our
revenues. We had four customers representing 67% of revenues for the year ended
December 31, 1999, and four customers representing 71% of revenues for the year
ended December 31, 1998. There is no assurance that we will be able to attract
or retain major customers. The loss of, or reduction in demand for products or
services from major customers could have a material adverse effect on our
business, operating results, cashflow and financial condition.

     The sales cycle for our products and services is lengthy and unpredictable.
While our sales cycle varies from customer to customer, it typically has ranged
from one to six months. Our pursuit of sales leads typically involves an
analysis of our prospective customer's needs, preparation of a written proposal,
one or more presentations and contract negotiations. We often provide
significant education to prospective customers regarding the use and benefits of
our Internet technologies and services. Our sales cycle may also be affected by
a prospective customer's budgetary constraints and internal acceptance reviews,
over which we have little or no control. In order to quickly respond to, or
anticipate, customer requirements, we may begin development work prior to having
a signed contract, which exposes us to the risk that the development work will
not be recovered from revenue from that customer.

     We may be unable to adjust our spending to account for potential
fluctuations in our quarterly results. As a result of our limited operating
history, we do not have historical financial data for a sufficient number of
periods on which to base planned operating expenses. Therefore, our expense
levels are based in part on our expectations as to future sales and to a large
extent are fixed. We typically operate with little backlog and the sales cycles
for our products and services may vary significantly. As a result, our quarterly
sales and operating results generally depend on the volume and timing of and the
ability to close customer contracts within the quarter, which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
for any unexpected sales shortfalls. If we were unable to so adjust, any
significant shortfall of demand for our products and services in relation to our
expectations would have an immediate adverse effect on our business, operating
results and financial condition. Further, we currently intend to increase our
capital expenditures and operating expenses to fund product development and
increase sales and marketing efforts. To the extent that such expenses precede
or are not subsequently followed by increased sales, our business, operating
results and financial condition will be materially adversely affected.

     We may be unable to retain our key executives and research and development
personnel. Our future success also depends in part on our ability to identify,
hire and retain additional personnel, including key product development, sales,
marketing, financial and executive personnel. Competition for such personnel is
intense and there is no assurance that we can identify or hire additional
qualified personnel.

     Executives and research and development personnel who leave us may compete
against us in the future. We generally enter into written nondisclosure and
nonsolicitation agreements with our officers and employees which restrict the
use and disclosure of proprietary information and the solicitation of customers
for the purpose of selling competing products or services. However, we generally
do not require our employees to enter into non-competition agreements. Thus, if
any of these officers or key employees left, they could compete with us, so long
as they did not solicit our customers. Any such competition could have a
material adverse effect on our business.

     We may be unable to manage our expected growth. If we are able to implement
our growth strategy, we will experience significant growth in the number of our
employees, the scope of our operating and financial systems and the geographic
area of our operations. There is no assurance that we will be able to implement
in whole or in part our growth strategy or that our management or other
resources will be able to successfully manage any future growth in our business.
Any failure to do so could have a material adverse effect on our operating
results and financial condition.

     We may be unable to protect our intellectual property rights. Intellectual
property rights are important to our success and our competitive position. There
is no assurance that the steps we take to protect our intellectual

                                       15
<PAGE>

property rights will be adequate to prevent the imitation or unauthorized use of
our intellectual property rights. Policing unauthorized use of proprietary
systems and products is difficult and, while we are unable to determine the
extent to which piracy of our software exists, we expect software piracy to be a
persistent problem. In addition, the laws of some foreign countries do not
protect software to the same extent as do the laws of the United States. Even if
the steps we take to protect our proprietary rights prove to be adequate, our
competitors may develop services or technologies that are both non-infringing
and substantially equivalent or superior to our services or technologies.

     Computer viruses and similar disruptive problems could have a material
adverse effect on our business. Our software and equipment may be vulnerable to
computer viruses or similar disruptive problems caused by our customers or other
Internet users. Our business, financial condition or operating results could be
materially adversely affected by:

     o  Losses caused by the presence of a computer virus that causes us or
        third parties with whom we do business to interrupt, delay or cease
        service to our customers;

     o  Losses caused by the misappropriation of secured or confidential
        information by a third party who, in spite of our security measures,
        obtains illegal access to this information;

     o  Costs associated with efforts to protect against and remedy security
        breaches; or

     o  Lost potential revenue caused by the refusal of consumers to use our
        products and services due to concerns about the security of transactions
        and commerce that they conduct on the Internet.

     Future government regulation could materially adversely affect our
business. There are currently few laws or regulations directly applicable to
access to, communications on, or commerce on the Internet. Therefore, we are not
currently subject to direct regulation of our business operations by any
government agency, other than regulations applicable to businesses generally.
Due to the increasing popularity and use of the Internet, however, federal,
state, local, and foreign governmental organizations are currently considering a
number of legislative and regulatory proposals related to the Internet. The
adoption of any of these laws or regulations may decrease the growth in the use
of the Internet, which could, in turn:

     o  Decrease the demand for our products and services;
     o  Increase our cost of doing business; or
     o  Otherwise have a material adverse effect on our business, results of
        operations and financial condition.

     Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Our business,
results of operations and financial condition could be materially adversely
affected by the application or interpretation of these existing laws to the
Internet.

     Our articles of incorporation and bylaws may discourage lawsuits and other
claims against our directors. Our articles of incorporation provide, to the
fullest extent permitted by Colorado law, that our directors shall have no
personal liability for breaches of their fiduciary duties to us. In addition,
our bylaws provide for mandatory indemnification of directors and officers to
the fullest extent permitted by Colorado law. These provisions may reduce the
likelihood of derivative litigation against directors and may discourage
shareholders from bringing a lawsuit against directors for a breach of their
duty.

     The price of our common stock has been highly volatile due to factors that
will continue to affect the price of our stock. Our common stock closed as high
as $67.75 per share and as low as $7.44 per share between January 1, 1999 and
March 17, 2000. Historically, the over-the-counter markets for securities such
as our common stock have experienced extreme price and volume fluctuations. Some
of the factors leading to this volatility include:

     o  Price and volume fluctuations in the stock market at large that do not
        relate to our operating performance;
     o  Fluctuations in our quarterly revenue and operating results;
     o  Announcements of product releases by us or our competitors;
     o  Announcements of acquisitions and/or partnerships by us or our
        competitors; and

                                       16
<PAGE>

     o  Increases in outstanding shares of common stock upon exercise or
        conversion of derivative securities.

     These factors may continue to affect the price of our common stock in the
future.

     We have issued numerous options, warrants, and convertible securities to
acquire our common stock that could have a dilutive effect on our shareholders.
As of March 17, 2000, we had issued warrants and options to acquire 4,116,824
shares of our common stock, exercisable at prices ranging from $1.63 to $58.25
per share, with a weighted average exercise price of approximately $14.07 per
share. In addition to these warrants and options, we have reserved 1,875,000
shares of common stock for issuance upon conversion of our 10% convertible note
and series B convertible preferred stock. During the terms of these derivative
securities, the holders will have the opportunity to profit from either an
increase or, in the case of the preferred stock and note, decrease in the market
price of our common stock with resulting dilution to the holders of shares who
purchased shares for a price higher than the respective exercise or conversion
price. In addition, the increase in the outstanding shares of our common stock
as a result of the exercise or conversion of these derivative securities could
result in a significant decrease in the percentage ownership of our common stock
by the purchasers of our common stock.

     The potentially significant number of shares issuable upon conversion of
our 10% convertible note and series B convertible preferred stock could make it
difficult to obtain additional financing.  Due to the significant number of
shares of our common stock which could result from a conversion of our 10%
convertible note and series B convertible preferred stock, new investors may
either decline to make an investment in Webb due to the potential negative
effect this additional dilution could have on their investment or require that
their investment be on terms at least as favorable as the terms of the 10%
convertible note or series B convertible preferred stock.  If we are required to
provide similar terms to obtain required financing in the future, the potential
adverse effect of these existing financings could be perpetuated and
significantly increased.

     Future sales of our common stock in the public market could adversely
affect the price of our common stock.  Sales of substantial amounts of common
stock in the public market that is not currently freely tradable, or even the
potential for such sales, could have an adverse affect on the market price for
shares of our common stock and could impair the ability of purchasers of our
common stock to recoup their investment or make a profit.  As of March 17, 2000,
these shares consist of:

     o  Approximately 310,000 shares owned by our executive officers and
        directors of our outstanding common stock ("Affiliate Shares");
     o  Up to 1,875,000 shares issuable upon conversion of the 10% convertible
        note and series B preferred stock; and
     o  Approximately 4,116,824 shares issuable to warrant and option holders.

     Unless the Affiliate Shares are further registered under the securities
laws, they may not be resold except in compliance with Rule 144 promulgated by
the SEC, or some other exemption from registration.  Rule 144 does not prohibit
the sale of these shares but does place conditions on their resale which must be
complied with before they can be resold.

     The common stock issuable upon conversion of our convertible note and
preferred stock may increase as the price of our common stock decreases, which
may adversely affect the price of our common stock. On March 17, 2000, we had
issued and outstanding $2,500,000 principal amount of a 10% convertible note and
12,500 shares of series B convertible preferred stock. The number of shares of
common stock that may ultimately be issued upon conversion of these securities
is presently indeterminable and could fluctuate significantly. Purchasers of
common stock could therefore experience substantial dilution upon conversion of
the convertible note and preferred stock. In addition, the significant downward
pressure on the market price of our common stock could develop as the holders
convert and sell material amounts of common stock which could encourage short
sales by the holders or others, placing further downward pressure on the market
price of our common stock.

     To illustrate the potential dilution that may occur upon conversion of the
convertible note and preferred stock, the following table sets forth the number
of shares of common stock that would be issued upon conversion of

                                       17
<PAGE>

the principal of the convertible note and the shares of preferred stock if the
market price for our common stock on the dates that the conversion prices of
these securities are subject to adjustment is $41.00, the closing sale price for
our common stock on March 17, 2000, and at assumed market prices of 75%, 50%,
25% and 10% of the market price on March 17, 2000, assuming that the conversion
price for the 10% note is adjusted after September 29, 2000. At March 17, 2000,
the lowest potential conversion price was $8.00 per share.

<TABLE>
<CAPTION>
                                                          Shares Issued Upon Conversion
                                       -------------------------------------------------------------
           Market Price                    10% Notes (Conversion         Series B Preferred Stock        Total (Percentage of
                                                  Price)                    (Conversion Price)               Outstanding)
----------------------------------     --------------------------   --------------------------------  -----------------------

<S>                                      <C>                          <C>                               <C>
$41.00 (actual price at 03/17/00)                 248,262 ($10.07)                   625,000 ($20.00)            873,262 (9.7%)
$30.75 (75% of 03/17/00 price)                    248,262 ($10.07)                   625,000 ($20.00)            873,262 (9.7%)
$20.50 (50% of 03/17/00 price)                    248,262 ($10.07)                   625,000 ($20.00)            873,262 (9.7%)
$10.25 (25% of 03/17/00 price)                    248,262 ($10.07)                 1,219,512 ($10.25)         1,467,774 (16.3%)
$  4.10 (10% of 03/17/00 price)                   312,500 ($ 8.00)                  1,562,500 ($8.00)         1,875,000 (20.8%)
</TABLE>

     Future sales of our common stock in the public market could limit our
ability to raise capital. Sales of substantial amounts of our common stock in
the public market pursuant to Rule 144, upon exercise or conversion of
derivative securities or otherwise, or even the potential for such sales, could
affect our ability to raise capital through the sale of equity securities.

     Provisions in our articles of incorporation allow us to issue shares of
stock that could make a third party acquisition of us difficult. Our Articles of
Incorporation authorize our Board of Directors to issue up to 20,000,000 shares
of common stock and 5,000,000 shares of preferred stock in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by our shareholders. Preferred stock
authorized by the Board of Directors may include voting rights, preferences as
to dividends and liquidation, conversion and redemptive rights and sinking fund
provisions. If the Board of Directors authorizes the issuance of preferred stock
in the future, this authorization could affect the rights of the holders of
common stock, thereby reducing the value of the common stock, and could make it
more difficult for a third party to acquire us, even if a majority of the
holders of our common stock approved of an acquisition.

     The issuance of our 10% convertible note payable and series B convertible
preferred stock required us to record non-cash expenses which will, in turn,
increase our net loss available to common shareholders. Based on current
accounting standards, we recorded a non-cash expense of approximately $2.1
million as additional interest expense for the year ended December 31, 1999, as
a result of the issuance of our 10% convertible note. We will record additional
non-cash expenses of approximately $643,000 during the three years ending
December 31, 2002 related to the issuance of the note and approximately $12.5
million during the first quarter of 2000 in connection with the issuance of the
preferred stock.

     We do not anticipate paying dividends on our common stock for the
foreseeable future. We have never paid dividends on our common stock and do not
intend to pay any dividends on our common stock in the foreseeable future. Any
decision by us to pay dividends on our common stock will depend upon our
profitability at the time, cash available therefor, and other factors. We
anticipate that we will devote profits, if any, to our future operations.

Item 2.  DESCRIPTION OF PROPERTY.


     Our principal offices are located in approximately 16,800 square feet of
space in Denver, Colorado, leased at a current base monthly rental of $25,401.
Commencing in May 2000, our principal offices will be located in approximately
21,400 square feet of space in Denver, Colorado, leased for a period of five
years at a base monthly rental of $46,362 during the first three years and of
$49,929 thereafter.

                                       18
<PAGE>

     We also have offices with approximately 5,620 square feet in Boulder,
Colorado, leased until March 31, 2001. From April 1, 2001 until March 31, 2002,
the base monthly rental will be $5,308, and from April 1, 2002 until March 31,
2003, the base monthly rental will be $5,494.

Item 3. LEGAL PROCEEDINGS.

     Not Applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.

                                       19
<PAGE>
                                    PART II

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The number of record holders of our common stock on February 25, 2000 was
130. Based on information provided by nominee holders of our common stock, we
believe that the number of beneficial holders of our common stock is in excess
of 11,000. The table below sets forth the high and low bid prices for the common
stock as reported on the Nasdaq Small Cap Market during the two years ended
December 31, 1999. The information shown is based on information provided by the
Nasdaq Stock Market. These quotations represent prices between dealers, and do
not include retail markups, markdowns or commissions, and may not represent
actual transactions.

                                       COMMON STOCK
                           ----------------------------------
Quarter Ended                   High Bid          Low Bid
-------------              -----------------  ---------------

1998
----
March 31                              $10.38           $ 6.50
June 30                               $15.63           $ 8.50
September 30                          $15.69           $ 4.88
December 31                           $14.75           $ 3.25

1999
----
March 31                              $20.81           $10.75
June 30                               $18.75           $10.81
September 30                          $16.50           $ 7.44
December 31                           $23.25           $ 8.25

     We have never paid a cash dividend on our common stock. The payment of
dividends, if any, in the future rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, capital
requirements and financial condition.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

General

     Webb provides innovative advanced online commerce and communication
solutions for small businesses, with a particular emphasis on local commerce
interaction. Our AccelX product line of XML-based commerce and buyer-seller
interaction services provide businesses with powerful web site development and
communication tools to attract customers, generate leads, increase buyer-seller
interaction and strengthen customer relationship management. The AccelX services
are divided into two categories: Customer Relationship Management Services and
Marketplace Services.

     We license our services on a private-label basis to high-volume
distribution partners such as yellow page directory publishers, newspapers, city
guides, vertical market portals and other aggregators of local businesses. Our
products are designed to be delivered on an application service provider
business model whereby we host the software on our servers and deliver and
manage the service on behalf of our distribution partners. Generally, these
services are provided on a revenue-share basis providing us with recurring
revenues as our distribution partners sell these services to their small
business customers. This distribution model is designed to provide us with a
growing base of businesses using one or more of our services who are ideal
customers for additional AccelX services.

     To date, we have generated revenues through the sale of design and
consulting services for web site development and network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and web sites, license fees based on a portion of revenues from our products and
services, training course fees, and monthly fees paid by customers for Internet
access which we have provided.  We commenced sales in February 1995, and were in
the development stage through December 31, 1995.  We have incurred losses from
operations since inception.  At December 31, 1999, we had an accumulated deficit
of approximately $42.6 million.

     Prior to the third quarter of 1997, our focus generally was on three
markets: general web site development, maintenance and hosting; rural or small
market Internet service providers; and healthcare information services and
continuing medical education.  Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized web sites.  As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities.  Most recently, the focus on community
communications was enhanced with our development of applications that apply
these capabilities to e-commerce services for large numbers of small businesses.

     Prior to January 2000, we were organized around our primary market focus on
local commerce services, with an additional business unit dedicated to e-banking
services.  In the local commerce segment, we target small and medium sized
businesses with our AccelX application services supporting XML-based commerce
and buyer-seller interaction.  The electronic banking unit targets credit
unions, community banks, and savings and loan institutions with a full line of
e-banking transaction processing and account management services.  In January
2000, we formed a new subsidiary in order to commercialize separately from our
AccelX application services business, the Jabber.org instant messaging system.
We intend to seek significant participation from external partners to help us
maximize the value of the e-banking and instant messaging businesses.

     The accumulated deficit at December 31, 1999, included approximately $17.6
million of non-cash expenses related to the issuance of preferred stock and
warrants in financing transactions, stock and stock options issued for services,
warrants issued to four customers and interest expense on the 10% convertible
note payable. Based on applicable current accounting standards, we estimate that
we will be required to record a non-operating expense of approximately $250,000
in 2001 and $160,000 in 2002 in connection with the issuance of our 10%
convertible note. We will be required to record additional non-cash charges of
$12.5 million in the first quarter of 2000 in connection with the issuance of
series B convertible preferred stock. Non-operating expenses of approximately
$4.6 million were charged to earnings in connection with a private placement of
preferred stock during 1999. While these charges do not affect our operating
losses or working capital, they do result in a decrease in our net income
available to common stockholders. Additionally, we recorded a non-cash charge
for preferred stock dividends during 1999 of approximately $273,000.

Results of Operations

     The following table sets forth for the periods indicated the percentage of
net revenues by items contained in the Statements of Operations. All percentages
are calculated as a percentage of total net revenues, with the exception of cost
of revenues which are calculated based on the respective net revenue amounts.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                        For the Year Ended December 31,
                                                    ---------------------------------------------------------------------
                                                             1999                     1998                     1997
                                                    -------------------      -------------------      -------------------
<S>                                                 <C>                      <C>                      <C>
Net revenues:
   Licenses                                                        20.2%                     6.2%                       -
   Service bureau fees                                             13.6%                     8.4%                     1.1%
   Services                                                        60.2%                    16.0%                    58.9%
   Hardware and software sales                                      6.0%                    69.4%                    40.0%
                                                    -------------------      -------------------      -------------------
     Total net sales                                              100.0%                   100.0%                   100.0%
Cost of revenues:
   Cost of licenses                                                97.5%                   219.8%                       -
   (as percentage of license revenues)
   Cost of service bureau revenues                                 28.5%                    27.1%                    25.0%
   (as percentage of service bureau revenues)
   Cost of services                                               101.0%                    53.0%                    60.5%
   (as percentage of service revenues)
   Cost of hardware and software                                   80.1%                    82.0%                    87.0%
   (as percentage of hardware and software revenues)
                                                    -------------------      -------------------      -------------------
     Total cost of revenues                                        89.2%                    81.3%                    71.4%
Gross margin                                                       10.8%                    18.7%                    28.6%
                                                    -------------------      -------------------      -------------------
Operating expenses:
   Sales and marketing expenses                                    88.8%                   156.0%                    42.9%
   Product development expenses                                   148.7%                    79.5%                    39.7%
   General and administrative expenses                            341.4%                   374.9%                    65.8%
   Customer acquisition costs                                      48.4%                    35.3%                       -
   Depreciation and amortization expenses                         156.2%                    49.8%                     7.1%
                                                    -------------------      -------------------      -------------------
         Total operating expenses                                 783.5%                   695.5%                   155.5%
Loss from operations                                            (772.7)%                 (676.8)%                 (126.9)%
                                                    -------------------      -------------------      -------------------
Net loss                                                        (888.6)%                 (668.0)%                 (120.9)%
Preferred stock dividends                                        (14.0)%                  (20.7)%                       -
Accretion of preferred stock to redemption value                (162.4)%                 (258.6)%                       -
Accretion of preferred stock for guaranteed
 return in excess of redemption value                            (59.6)%                  (44.5)%                       -

                                                    -------------------      -------------------      -------------------
Net loss available to common stockholders                      (1124.6)%                 (991.8)%                 (120.9)%
                                                    ===================      ===================      ===================
</TABLE>

                                       21
<PAGE>

Twelve Months Ended December 31, 1999 and 1998.

     Components of net revenues and cost of revenues are as follows:

<TABLE>
<CAPTION>
                                                              For the Year Ended
                                                                 December 31,
                                                  -----------------------------------------
                                                          1999                   1998
                                                  ------------------     ------------------
<S>                                                 <C>                    <C>
Net revenues:
 Licenses                                                 $  392,810             $   97,892
 Service bureau fees                                         263,888                132,959
 Services                                                  1,170,076                254,812
 Hardware and software                                       117,509              1,103,717
 Total net revenues                                        1,944,283              1,589,380
                                                  ------------------     ------------------
Cost of revenues
  Cost licenses                                              382,951                215,142
  Cost of service bureau fees                                 75,313                 35,986
  Cost of services                                         1,181,895                135,175
  Cost of hardware and software                               94,155                905,234
                                                  ------------------     ------------------
 Total cost of revenues                                    1,734,314              1,291,537
                                                  ------------------     ------------------
 Gross margin                                             $  209,969             $  297,843
                                                  ==================     ==================
</TABLE>

     License revenues represent fees earned for granting customers licenses to
use our software products and services and are calculated on the usage of our
products based on a fixed amount or on a per consumer basis or as a portion of
revenues our customers earn from consumers.  Our net revenues from software
license fees were $392,810 for the year ended December 31, 1999, which
represents an increase of 301.3% when compared with the year ended December 31,
1998.  The increase is primarily due to fees earned from Switchboard, Inc. in
the form of quarterly guaranteed minimum revenue and from a 192% increase in
revenues from Re/Max International, Inc.

     Service bureau revenues represent fees earned for providing monthly online
banking application service provider services to our e-banking customers.  Our
net revenues from service bureau fees were $263,888 for the year ended December
31, 1999, which represents an increase of 98.5% when compared with the year
ended December 31, 1998.  The increase is due to higher monthly revenues from
Rockwell Federal Credit Union as well as revenue from HP Rocky Mountain Federal
Credit Union which went online during the fourth quarter of 1999.

     Services revenues consists principally of revenue derived from professional
services for the customization of our software to customer specifications,
assisting our customers in configuring and integrating our software
applications, network engineering fees and hosting fees as well as fees for
ongoing maintenance, which consists of unspecified product upgrades and
enhancements on a when-and-if-available basis.  Our net revenues from services
were $1,170,076 for the year ended December 31, 1999, which represents an
increase of 359.2% when compared with the year ended December 31, 1998.  The
increase is primarily due to fees we earned for developing and integrating our
local directory software for Switchboard, Inc. and design and integration fees
from CU Cooperative Systems, Inc. we are recognizing on a percentage of
completion basis.  In addition, during July 1999, we sold two customer contracts
to an unrelated third party, including related computer hardware, for
approximately $270,000.  We provided services and equipment under the terms of
the original contracts enabling our customers to provide Internet access to
their end users.  We recorded $138,504 of service revenue for the year ended
December 31, 1999 related to providing services to the purchaser of these two
contracts.  We recognized revenue from these contracts totaling approximately
$6,000 for the year ended December 31, 1999.

     Revenues from hardware and software include the resale of computer hardware
and third party software to customers generally in connection with implementing
our local directory/enterprise products and services.  During the second quarter
of 1998, we changed our pricing structure whereby we supply any required
equipment and the

                                       22
<PAGE>

products and services. Consequently the customer is not required to pay any
significant fees upon the delivery of such items. Our net revenues from the
resale of hardware and software was $117,509 for the year ended December 31,
1999 compared to $1,103,717 for the year ended December 31, 1998. During 1999,
we sold equipment to customers with whom we have existing contracts to provide
equipment. We do not anticipate significant revenues from hardware and equipment
sales in future periods.

     We had four customers representing 67% of revenues and four customers
representing 71% of revenues for the years ended December 31, 1999 and 1998,
respectively.   These customers for the 1999 period are as follows:

<TABLE>
<CAPTION>
                                                       For the Year Ended
                                                          December 31,
                                         --------------------------------------------
                Customer                          1999                     1998
------------------------------------------------------------      -------------------
<S>                                        <C>                      <C>
Switchboard, Inc.                                         26%                      --
Rockwell Federal Credit Union                             19%                      14%
CU Co Operative Systems, Inc.                             16%                      --
Intermedia Partners                                        6%                      12%
</TABLE>

     As of December 31, 1999, we have revenue backlog totaling approximately
$1,372,000 which we expect to recognize as revenue during 2000.

     Cost of revenues as a percentage of net revenues was 89.2% for the year
ended December 31, 1999 compared to 81.3% for the year ended December 31, 1998.

          License revenues - Cost of license revenues consist of compensation
     costs associated with assisting our customers in delivering our services to
     end users, third party content software license fees, and third party
     transaction fees. Cost of license revenues were $382,951 for the year ended
     December 31, 1999, or 97.5% of net license revenues, as compared to
     $215,142 for the year ended December 31, 1998, or 219.8% of 1998 net
     license revenues. The absolute dollar increase was primarily attributable
     to the amortization of a one-year third party software license we purchased
     to integrate directory functionality into our products.

          Service bureau fees - Cost of service bureau fees consist of
     compensation costs for customer service, help desk fees, third party
     software support agreements and Internet connectivity costs. Cost of
     service bureau fees were $75,313 for the year ended December 31, 1999, or
     28.5% of net service bureau fees, as compared to $35,986 for the year ended
     December 31, 1998, or 27.1% of 1998 net license revenues. The absolute
     dollar increase was primarily attributable to an increase in the number of
     credit union members using the services, including costs associated with a
     second credit union which began using our services during the fourth
     quarter of 1999.

          Service revenues - Cost of service revenues consist of compensation
     costs and consulting fees associated with performing custom programming,
     installation and integration services for our customers and support
     services as well as costs for hosting services which consist of costs to
     operate our network operating center. Cost of service revenues were
     $1,181,895 for the year ended December 31, 1999, or 101.0% of net service
     revenues, as compared to $135,175 for the year ended December 31, 1998, or
     53.0% of 1998 net service revenues. The increases in costs were due to
     providing professional services for four new customers at lower margins as
     the contracts specify future revenue sharing arrangements and/or subscriber
     based fees or were entered into to establish strategic alliances. We also
     incurred costs to operate our network operating center, which we began
     operating during the second quarter of 1999, including costs associated
     with delivering Internet access and content to the customers of our cable
     operator distribution partners. We constructed the network operating center
     to accommodate our current customer base, our contract backlog and our
     projected future growth. Consequently, during 1999, the cost to operate the
     network operating center out paced our current revenues resulting in a
     lower gross margin.

                                       23
<PAGE>

          Hardware and software revenues - Cost of hardware and software
     revenues consist of computer and third party software purchased for resale
     to cable operators. Cost of hardware and software revenue was 80.1% of net
     revenues for the year ended December 31, 1999 compared to 82.0% of net
     revenues for the year ended December 31, 1998. Cost of hardware and
     software revenues as a percentage of net revenues decreased slightly
     between periods because we sold equipment to existing customers at somewhat
     lower margins during 1998. Due to the change in our business model whereby
     we offer services to our customers, equipment sales are not expected to be
     significant in future periods.

     Sales and marketing expenses consist primarily of employee compensation,
advertising, trade show expenses, and costs of marketing materials.  Sales and
marketing expenses were $1,726,004 for the year ended December 31, 1999, or
88.8% of net revenues as compared to $2,479,029, or 156.0% of net revenues for
the year ended December 31, 1998.  The decrease in absolute dollars was
primarily attributable to (i) a net decrease of six employees; (ii) the phase
out of our international marketing efforts; and (iii) a decrease in advertising
dollars as a result of our focus on distribution partners (rather than on
consumers).  These decreases were partially off-set by an increase in  trade
show expenses, and new product support materials for our local
directory/enterprise products.  We expect sales and marketing expenses to
increase on an absolute dollar basis in future periods but decrease as a
percentage of net revenues as our revenues increase from current levels as we
continue to market our products and services.

     Product development expenses consist primarily of employee compensation and
programming fees relating to the development and enhancement of the features and
functionality of our AccelX services.  Product development expenses were
$2,891,569 for the year ended December 31, 1999, or 148.7% of net revenues as
compared to $1,264,287, or 79.5% of net revenues for the year ended December 13,
1998.  During 1999, all product development costs have been expensed as
incurred.  We capitalized $281,775 of development costs during 1998, which were
written off to depreciation and amortization expense during 1998.  The increase
in absolute dollars was due primarily to (i) an increase in technology personnel
from 12 to 31 and an increase in contract labor to support the continued
development of our products; and (ii) an increase in third party software
maintenance and support costs.  We believe that significant investments in
product development are critical to attaining our strategic objectives and, as a
result, we expect product development expenses to increase in future periods.

     General and administrative expenses consist primarily of employee
compensation, consulting expenses, fees for professional services, and the non-
cash expense of stock and warrants issued for services. General and
administrative expenses were $6,637,601 for the year ended December 31, 1999, or
341.4% of net revenues as compared to $5,958,617, or 374.9% of net revenues for
the year ended December 31, 1998. The increase in absolute dollars was primarily
attributable to (i) an increase in compensation costs; (ii) increases in legal
and accounting fees generally associated with securities filings; (iii)
increases in office rent expense; (iv) increases in investor relation expenses;
and (v) costs incurred associated with operating the DCI California office
through November 1999. These increases were partially offset by a decrease in
non-cash expenses for stock and options we issued for services and a decrease in
fees we paid to consultants. We expect general and administrative expenses to
decrease as a percentage of revenues as our revenues increase.

     Customer acquisition costs consist of the value of warrants to purchase our
common stock we issued to customers in connection with customer contracts for
our products and services. We expense the value of warrants on the date of
issuance unless the related contract specifies minimum guaranteed revenues.
Customer acquisition costs were $941,684 for the year ended December 31, 1999,
or 48.4% of net revenues as compared to $560,824, or 35.3% of net revenues for
the year ended December 31, 1998. During 1999, we issued warrants to three
customers to purchase an aggregate of 161,667 shares of our common stock.

     Depreciation and amortization was $3,036,773 for the year ended December
31, 1999, compared to $791,155 for the year ended December 31, 1998, which
included approximately $403,000 of capitalized development costs that we wrote-
off during 1998. We recorded more depreciation expense in 1999 as a result of an
increase in fixed assets primarily from construction of our network operating
center and computer hardware and third party software to support the launch of
our AccelX services, two new e-banking customers, and computer equipment

                                       24
<PAGE>

to support our product development team. We also began amortizing the intangible
assets and goodwill we acquired in the DCI and NetIgnite acquisitions and
recorded $2,523,351 of amortization expense in 1999. As a result of these
acquisitions as well as the acquisition of Update Systems we completed in
January 2000, we expect to record approximately $9,200,000 of such expenses in
2000 and 2001 and approximately $6,700,000 of such expenses in 2002. Because our
business has never been profitable, and due to the other risk and uncertainties
discussed herein, it is possible that an analysis of these long-lived assets in
future periods could result in a conclusion that they are impaired, and the
amount of the impairment could be substantial.

     Interest income was $225,712 for the year ended December 31, 1999, compared
to $146,830 for the year ended December 31, 1998. During 1999, we also recorded
$22,050 of interest income from our note receivable from DCI.

     Interest expense was $2,352,062 for the year ended December 31, 1999,
compared to $7,024 for the year ended December 31, 1998. During 1999, we
recorded $2,311,026 of interest expense related to the 10% convertible note
payable we issued in August 1999, including (i) $173,973 of cash interest
expense and (ii) non-cash charges of $2,092,137 related to amortization of the
beneficial conversion feature and the discount recorded for the issuance of a
common stock purchase warrant; and (iii) $44,916 related to the amortization of
financing fees.

    Net losses allocable to common stockholders were $21,866,012 for the year
ended December 31, 1999, compared to $15,762,372 for the year ended December 31,
1998. We recorded non-cash expenses for the following items:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                  ---------------------------------------------
                                                          1999                      1998
                                                  -------------------       -------------------
<S>                                                 <C>                       <C>
Amortization of intangible assets and goodwill            $ 2,523,351               $         -
Customer acquisition costs                                    941,684                   560,824
Amortization of beneficial conversion, discount
   and placement fees to interest expense related
   to the 10% convertible note payable                      2,137,053                         -
Stock and warrants issued for services                      1,814,683                 2,309,804
Preferred stock dividends                                     272,663                   329,120
Accretion of preferred stock                                4,316,254                 4,816,989
                                                  -------------------       -------------------
Total                                                     $12,005,688                $8,016,737
                                                  ===================       ===================
</TABLE>

     The increase in losses reflect expenses in sales and marketing, product
development, and general and administrative areas that have increased at a
faster rate than revenues.  This is due to the time lag associated with product
development and market introduction as well as the long sales cycle for most of
our products and services.  We expect to continue to experience increased
operating expenses and investments during 2000, as we continue to develop new
product offerings and the infrastructure required to support our anticipated
growth.   We expect to report operating and net losses for 2000 and for one or
more years thereafter.

Twelve Months Ended December 31, 1998 and 1997.

     Net sales for the twelve months ended December 31, 1998 totaled $1,589,380,
including $485,663 for service and license sales and $1,103,717 for hardware and
software sales.  This represents a decrease of 43% below 1997 net sales of
$2,791,556, which consisted of $1,674,198 for service sales and $1,117,358 for
hardware and software sales.  We had four customers representing 71% of sales
and four customers representing 47% of sales for the years ended December 31,
1998 and 1997, respectively.  The decrease in sales for the 1998 period compared
to the 1997 period was due to the reduction of certain of our web site
development, maintenance and hosting activities during the fourth quarter of
1997 and due to a new revenue-based pricing structure for our products and
services for broadband operators.  During the second quarter of 1998, we
implemented a new pricing structure for these products and services whereby we
supply any required equipment and the products and services and the customer is
not required to pay any significant fees upon the delivery of such items.  This
structure results in a lower front-end cost

                                       25
<PAGE>

for the operator and lower initial revenues for us, in consideration for which
we expect to receive a higher percentage of advertising and transaction fees
received from the broadband operators' subscribers.

          Cost of sales as a percentage of net sales was 81.3% for the twelve
month 1998 period and 71.4% for the comparable 1997 period.

          Service Sales - Cost of service sales increased in the 1998 period as
     a percentage of service sales as the mix of sales changed from custom web
     page development, hosting and maintenance activities, which were at higher
     margins, to transactional services, such as e-banking, our Re/MAX Main
     Street product, and our enterprise products, which were at lower margins.
     We incurred development expenses to assist our customers in enabling and
     launching their sites, which included charges such as help desk set-up
     fees, credit card processing set-up fees, and costs associated with
     integrating the billing system through the Internet, totaling $49,100
     related to the Re/Max Main Street product, and also provided programming
     services to our e-banking customer at discounts, which contributed to lower
     gross margins on service sales.  In addition, the increase in cost of
     service sales in the 1998 period reflect an increase in direct costs, such
     as telephone line costs (on a per customer basis) related to the our
     Internet connectivity business coupled with decreasing revenues from that
     activity as we are selling these services to fewer customers as a result of
     our decision to emphasize our Internet content services.

          Hardware and Software Sales - Cost of hardware and software sales
     increased in the 1998 period as a percentage of hardware sales because we
     sold equipment to existing customers at lower margins.

     Sales and marketing expenses were $2,479,029 for the twelve months ended
December 31, 1998, compared to $1,197,038 for the 1997 period.  Sales and
marketing expenses as a percentage of net sales increased from 42.9% in 1997 to
156.0% in 1998.  During the 1998 period, we incurred new market development
costs associated with developing our enterprise business.  These costs consist
of expenses incurred by us, principally labor, travel and other third-party
costs such as software licenses, in connection with getting our customer's ISP
presence established, including design and branding of the customer's Internet
start page, developing local area content, and assisting our customers in
developing our Internet business presence.  We also incurred costs in the 1998
period associated with opening international markets, principally in Mexico and
Argentina, costs associated with developing sales collateral materials,
including brochures and PC based presentation software as well as additional
compensation expense as a result of employing more experienced sales people.

     Product development expenses were $1,264,287 for the twelve months ended
December 31, 1998, compared to $1,108,456 for the 1997 period.  Product
development expense as a percentage of net sales increased from 39.7% in 1997 to
79.5% in 1998.  We capitalized $281,776 of development costs during 1998 and
$124,097 during 1997 related to the development of our enterprise product
offerings.  (See discussion below regarding depreciation and amortization.)
During 1998, we continued developing our enterprise products and services,
including the development of e-commerce and the integration of DCI's
CommunityWare(R) with our software.  During 1997, we developed our initial
enterprise product, wireless cable capabilities, and initial product offerings
targeted at the medical education market.

          General and administrative expenses were $5,958,617 for the twelve
months ended December 31, 1998, compared to $1,837,330 for the 1997 period.
General and administrative expenses as a percentage of net sales increased from
65.8% in 1997 to 374.9% in 1998.  During the 1998 period, we recorded non-cash
charges of $2,870,628 for grants of common stock and options and warrants to
purchase common stock to non-employees in exchange for services, including
$1,925,000, which we incurred during the fourth quarter of the year to enhance
our activities in corporate finance, mergers and acquisitions, and public and
investor relations. We also added (in the aggregate) nine individuals in 1998 in
the finance, strategic development, and network operations areas to support our
business segments, and we incurred costs in connection with the administration
of our operating segments, including additional personnel costs, particularly
for our Chief Operating Officer, as well as administration of our financial
services business segment. Additionally, in the 1998 period we incurred costs of
$179,562 in connection

                                       26
<PAGE>

with unsuccessful business acquisition efforts and accounting, legal and other
expenses associated with capital raising activities.

     Depreciation and amortization was $791,155 for the twelve months ended
December 31, 1998, compared to $198,788 for the 1997 period. During the 1998
period, we fully amortized our software costs and recorded $403,805 of
amortization expense. We also recorded more depreciation expense as a result of
an increase in fixed assets, including our e-banking service bureau based
solution, and equipment and software to support our product development and
testing.

     Interest income was $139,806 during the twelve-month period ended December
31, 1998, compared to $168,298 for the 1997 period. During the 1998 period, we
utilized more of our cash reserves to fund our operations, which resulted in
less cash available for investment in interest bearing securities. We also
recorded interest income on the note receivable to DCI, which partially offset
the decrease in interest income from our cash investments. Our investments
consist of corporate bonds and cash equivalents.

     Net losses allocable to common stockholders were $15,762,372 for the
twelve-month period ended December 31, 1998 compared to $3,375,279 for the 1997
period. During the 1998 period, we recorded non-operating expenses for preferred
stock dividends and accretion of preferred stock to redemption value of $329,120
and $4,110,060, respectively. In addition, during 1998 we recorded $706,929 of
accretion of preferred stock for the guaranteed return in excess of the
redemption value. Additionally, the increase in losses reflect expenses in sales
and marketing, product development, and general and administrative areas that
have increased at a faster rate than net sales. This is due to the time lag
associated with product development and market introduction as well as the long
sales cycle for most of our products and services.

Liquidity and Capital Resources

     As of December 31, 1999, we had cash and cash equivalents of $4,164,371 and
working capital of $2,752,052. We financed our operations and capital
expenditures and other investing activities during 1999 primarily through the
sale of securities (See Notes 6 and 7 of Notes to Consolidated Financial
Statements for information regarding these sales of securities).

     We used $8,603,881 in cash to fund our operations for the year ended
December 31, 1999, compared to $5,228,646 for the year ended December 31, 1998.
The increase in net cash used resulted primarily from the following: (i) an
increase in costs paid for continued development of our XML-based technologies
and e-banking core applications; (ii) higher compensation costs paid to
employees; (iii) payment of costs to operate the DCI California office; and (iv)
payment of 1998 accounts payable and accrued liabilities in the first quarter of
1999.

     We used an additional $2,388,592 in cash for capital expenditures and other
investing activities during the year ended December 31, 1999, compared to
$2,380,462 during the year ended December 31, 1998.  We purchased $1,692,532 of
property and equipment, advanced DCI $593,649 for working capital and invested
$240,564 in NetIgnite prior to the consummation of the respective mergers.
Planned capital expenditures for 2000 are approximately $2.5 million, including
computer equipment, software and leasehold improvements for our new corporate
offices.

     We received $14,458,505 in operating capital from financing activities for
the year ended December 31, 1999, compared to $4,627,165 for the year ended
December 31, 1998.  During 1999, we received funds from the following financing
transactions:

     o  During August 1999, we issued a 10% convertible note payable and
        received $4,616,816 in net proceeds;

     o  During January and June 1999, we sold 3,000 and 2,000 shares,
        respectively, of series C preferred stock with a stated value of $1,000
        per share, which resulted in total net proceeds of $4,615,500;

     o  During 1999 we received $7,197,462 in cash from the issuance of our
        common stock as a result of the exercise of common stock options and
        warrants.

                                       27
<PAGE>

     During the first two months of 2000, we have received additional net
operating capital of $11,660,000 from the sale of our series B preferred stock
with warrants attached and approximately $4,976,000 from the exercise of
outstanding stock purchase warrants and options. We believe that based on our
cash and cash equivalents and working capital at February 29, 2000, we have
sufficient working capital to fund operations through at least January 1, 2002.


Item 7.  FINANCIAL STATEMENTS.

     See Financial Statements beginning on page F-1.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     Not applicable.

                                    PART III

Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.

Item 10.  EXECUTIVE COMPENSATION.

     Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  For Financial Statements filed as a part of this Report, reference is made
     to "Index to Financial Statements" on page F-1 of this Report.  For a list
     of Exhibits filed as a part of this Report, see Exhibit Index page
     following Audited Financial Statements and Notes thereto.

(b)  During the last quarter for the period covered by this Report, we did not
     file any reports on Form 8-K.

                                       28
<PAGE>

                                   SIGNATURES


     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                         WEBB INTERACTIVE SERVICES, INC.

Date:  March 24, 2000                    By /s/   Perry Evans
                                            ------------------------------------
                                            Perry Evans, 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.


/s/ Perry Evans                                                  March 24, 2000
----------------------------
Perry Evans
(President, Chief Executive
Officer and a Director)


/s/ William R. Cullen                                            March 24, 2000
----------------------------
William R. Cullen
(Chief Financial Officer and
a Director)


/s/ Stuart Lucko                                                 March 24, 2000
----------------------------
Stuart Lucko
(Controller)


/s/ Robert J. Lewis                                              March 24, 2000
----------------------------
Robert J. Lewis
(Director)


/s/ Richard C. Jennewine                                         March 24, 2000
----------------------------
Richard C. Jennewine
(Director)

                                      29

<PAGE>

Item 7.  FINANCIAL STATEMENTS.




                        WEBB INTERACTIVE SERVICES, INC.
                        -------------------------------

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----
<S>                                                                                                <C>
Report of Independent Public Accountants                                                            F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998                                        F-3

Consolidated Statements of Operations for the Years Ended December 31, 1999 and 1998                F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998      F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998                F-6-F-7

Notes to Consolidated Financial Statements                                                          F-8
</TABLE>

                                      F-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Webb Interactive Services, Inc.:

We have audited the accompanying consolidated balance sheets of WEBB INTERACTIVE
SERVICES, INC. (a Colorado corporation), formerly known as Online System
Services, Inc., as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended.  These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Webb Interactive
Services, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.


                                                             ARTHUR ANDERSEN LLP


Denver, Colorado
February 25, 2000.

                                      F-2
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                     -----------------------------
                                                                                         1999             1998
                                                                                     ------------     ------------
<S>                                                                                  <C>              <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                        $  4,164,371     $    698,339
    Accounts receivable, net (Note 2)                                                     103,132          124,912
    Accounts receivable from related party (Note 13)                                        4,000           22,925
    Note and accrued interest receivable (Note 9)                                               -          896,787
    Inventory, net                                                                              -           55,126
    Prepaid expenses                                                                      399,217           74,179
    Deferred acquisition costs                                                                  -          229,404
    Short-term deposits                                                                   444,545          101,441
                                                                                     ------------     ------------
         Total current assets                                                           5,115,265        2,203,113

Property and equipment, net (Note 3)                                                    2,352,489        1,178,628
Intangible assets, net (Notes 1 and 9)                                                 12,503,047                -
Deferred financing costs                                                                2,649,517                -
Other assets                                                                                4,216            3,535
                                                                                     ------------     ------------
         Total assets                                                                $ 22,624,534     $  3,385,276
                                                                                     ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of capital leases payable (Note 4)                               $    108,525     $     21,766
    Accounts payable and accrued liabilities                                              841,440          873,901
    Accrued salaries and payroll taxes payable                                          1,059,338          329,755
    Accrued interest payable                                                              126,028                -
    Customer deposits and deferred revenue                                                227,882          100,600
                                                                                     ------------     ------------
         Total current liabilities                                                      2,363,213        1,326,022

Capital leases payable (Note 4)                                                           115,493           39,915

Commitments and contingencies (Note 14)

10% convertible note payable, net (Note 6)                                              4,052,290                -

Stockholders' equity (Note 7):
    Preferred stock, no par value, 5,000,000 shares authorized:
         10% redeemable, convertible preferred stock, 10% cumulative return;
           85,000 and 245,000 shares issued and outstanding, respectively,
           including dividends payable of $170,295 and $241,172, respectively           1,020,295        2,691,172

         Series A redeemable, convertible preferred stock, 5% cumulative
           return; 0 and 1,400 issued and outstanding, respectively,
           including dividends payable of $0 and $10,164, respectively                          -        1,410,164

    Common stock, no par value, 20,000,000 shares authorized,
         7,830,028 and 4,642,888 shares issued and outstanding, respectively           49,513,769       16,410,300
    Warrants and options                                                                8,612,322        2,281,832
    Deferred compensation                                                                (412,707)               -
    Accumulated deficit                                                               (42,640,141)     (20,774,129)
                                                                                     ------------     ------------
         Total stockholders' equity                                                    16,093,538        2,019,339
                                                                                     ------------     ------------
         Total liabilities and stockholders' equity                                  $ 22,624,534     $  3,385,276
                                                                                     ============     ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
                           of these balance sheets.

                                      F-3
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                 December 31,
                                                                      --------------------------------
                                                                          1999                1998
                                                                      ------------        ------------
<S>                                                                   <C>                 <C>
Net revenues                                                          $  1,822,163        $  1,403,612
Net revenues from related party (Note 13)                                  122,120             185,768
                                                                      ------------        ------------

                                                                         1,944,283           1,589,380
                                                                      ------------        ------------
Cost of revenues                                                         1,656,021           1,163,537
Cost of revenues from related party (Note 13)                               78,293             128,000
                                                                      ------------        ------------

                                                                         1,734,314           1,291,537
                                                                      ------------        ------------
   Gross margin                                                            209,969             297,843

Operating expenses:
   Sales and marketing expenses                                          1,726,004           2,479,029
   Product development expenses                                          2,891,569           1,264,287
   General and administrative expenses                                   6,637,601           5,958,617
   Customer acquisition costs                                              941,684             560,824
   Depreciation and amortization                                         3,036,773             791,155
                                                                      ------------        ------------

                                                                        15,233,631          11,053,912
                                                                      ------------        ------------
   Loss from operations                                                (15,023,662)        (10,756,069)

Interest income                                                            225,712             146,830
Interest expense                                                        (2,352,062)             (7,024)
Equity in loss of subsidiary                                              (127,083)                  -
                                                                      ------------        ------------
Net loss                                                               (17,277,095)        (10,616,263)

Preferred stock dividends (Note 7)                                        (272,663)           (329,120)
Accretion of preferred stock to redemption value (Note 7)               (3,157,691)         (4,110,060)
Accretion of preferred stock for guaranteed return in excess
   of redemption value (Note 7)                                         (1,158,563)           (706,929)
                                                                      ------------        ------------
Net loss available to common stockholders                             $(21,866,012)       $(15,762,372)
                                                                      ============        ============

Loss per share, basic and diluted                                     $      (3.31)       $      (4.35)
                                                                      ============        ============

Weighted average shares outstanding, basic and diluted                   6,610,836           3,621,585
                                                                      ============        ============
</TABLE>

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

                                      F-4
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                     10% Preferred Stock                      Series C Preferred Stock
                                             -----------------------------------       -----------------------------------
                                                   Shares             Amount                Shares             Amount
                                             -----------------   ---------------       -----------------   ---------------
<S>                                          <C>                 <C>                   <C>                 <C>
Balances, December 31, 1997                           245,000        $ 1,226,376                  -        $         -
Stock issued in conjunction with private
 placements-
 Preferred stock                                       22,500            159,559                  -                  -
 Common stock                                               -                  -                  -                  -
 Common stock warrants                                      -                  -                  -                  -
 Offering costs                                             -            (18,980)                 -                  -
 Warrants issued for placement fees                         -                  -                  -                  -
 Guaranteed return on preferred stock                       -            (56,250)                 -                  -
Preferred stock dividends                                   -            259,822                  -                  -
Preferred stock and dividends converted to
 common stock                                         (22,500)          (243,650)                 -                  -

Exercises of stock options and warrants                     -                  -                  -                  -
Accretion of preferred stock to redemption value            -          1,364,295                  -                  -
Accretion of preferred stock for guaranteed
 return in excess of redemption value                       -                  -                  -                  -
Stock and stock options issued for services
 and to customer                                            -                  -                  -                  -
Net loss available to common stockholders                   -                  -                  -                  -
                                             ----------------       ------------          ---------        -----------
Balances, December 31, 1998                           245,000          2,691,172                  -                  -
Stock issued in conjunction with private
 placement-
 Series C  preferred stock                                  -                  -              5,000          5,000,000
 Offering costs                                             -                  -                  -           (384,500)
 Guaranteed return on preferred stock                       -                  -                  -         (3,931,754)
Preferred stock dividends                                   -             94,216                  -             29,121
Common stock and common stock warrants
 issued in connection with DCI merger                       -                  -                  -                  -
Common stock issued in connection with                      -                  -                  -                  -
 NI merger
Preferred stock and dividends converted to
 common stock                                        (160,000)        (1,765,093)            (5,000)        (5,029,121)
Preferred stock beneficial conversion
 feature on dividends paid through the
 issuance of common stock                                   -                  -                  -                  -
Convertible notes payable converted to
 common stock                                               -                  -                  -                  -
Exercises of stock options and warrants                     -                  -                  -                  -
10% Note Payable beneficial conversion feature              -                  -                  -                  -
Common stock warrant issued in connection
 with 10% Note Payable                                      -                  -                  -                  -
Accretion of preferred stock to redemption value            -                  -                  -          3,157,691
Accretion of preferred stock for guaranteed
 return in excess of redemption value                       -                  -                  -          1,158,563
Stock and stock options issued for services
 and to customers                                           -                  -                  -                  -
Deferred compensation                                       -                  -                  -                  -
Net loss available to common stockholders                   -                  -                  -                  -
                                             ----------------       ------------          ---------        -----------
Balances, December 31, 1999                            85,000        $ 1,020,295                  -        $         -
                                             ================       ============          =========        ===========

<CAPTION>
                                                 5% Preferred Stock            Series A Preferred Stock         Common Stock
                                             ----------------------------  ----------------------------  -------------------------
                                                Shares          Amount           Shares         Amount       Shares        Amount
                                             ------------   -------------  -------------  -------------  ------------  -----------
<S>                                          <C>            <C>            <C>            <C>            <C>           <C>
Balances, December 31, 1997                             -     $         -              -    $         -     3,315,494  $ 8,726,554
Stock issued in conjunction with private
 placement-
 Preferred stock                                    3,000       2,597,500          1,400        764,400             -            -
 Common stock                                           -               -              -              -             -       46,406
 Common stock warrants                                  -               -              -              -         5,625            -
 Offering costs                                         -        (626,855)             -       (103,001)            -       (5,520)
 Warrants issued for placement fees                     -               -              -              -             -            -
 Guaranteed return on preferred stock                   -        (316,410)             -     (1,368,328)            -    1,740,988
Preferred stock dividends                               -          59,134              -         10,164             -            _
Preferred stock and dividends converted to
 common stock                                      (3,000)     (3,059,134)             -              -       685,538    3,302,784

Exercises of stock options and warrants                 -               -              -              -       262,231      494,088
Accretion of preferred stock to redemption
 value                                                  -       1,345,765              -      1,400,000             -            -
Accretion of preferred stock for guaranteed
 return in excess of redemption value                   -               -              -        706,929             -            -
Stock and stock options issued for services
 and to customer                                        -               -              -              -       374,000    2,105,000
Net loss available to common stockholders               -               -              -              -             -            -
                                             ------------   -------------  -------------  -------------  ------------  -----------
Balances, December 31, 1998                             -               -          1,400      1,410,164     4,642,888   16,410,300
Stock issued in conjunction with private
 placement-
 Series C preferred stock                               -               -              -              -             -            -
 Offering costs                                         -               -              -              -             -            -
 Guaranteed return on preferred stock                   -               -              -              -             -    3,931,754
Preferred stock dividends                               -               -              -          2,301             -            -
Common stock and common stock warrants
 issued in connection with DCI merger                   -               -              -              -       947,626    9,239,358
Common stock issued in connection with NI merger        -               -              -              -        71,429      984,400
Preferred stock and dividends converted to
 common stock                                           -               -         (1,400)    (1,412,465)      904,981    8,206,679
Preferred stock beneficial conversion
 feature on dividends paid through the
 issuance of common stock                               -               -              -              -             -      147,025
Convertible notes payable converted to
 common stock                                           -               -              -              -        82,402      894,879
Exercises of stock options and warrants                 -               -              -              -     1,144,205    7,197,462
10% Note Payable beneficial conversion
 feature                                                -               -              -              -             -    1,967,522
Common stock warrant issued in connection
 with 10% Note Payable                                  -               -              -              -             -            -
Accretion of preferred stock to redemption
 value                                                  -               -              -              -             -            -
Accretion of preferred stock for guaranteed
 return in excess of redemption value                   -               -              -              -             -            -
Stock and stock options issued for services
 and to customers                                       -               -              -              -        36,497      534,390
Deferred compensation                                   -               -              -              -             -            -
Net loss available to common stockholders               -               -              -              -             -            -
                                             ------------   -------------  -------------  -------------  ------------  -----------
Balances, December 31, 1999                             -   $           -              -  $           -     7,830,028  $49,513,769
                                             ============   =============  =============  =============  ============  ===========

<CAPTION>
                                                       Warrants and          Deferred          Accumulated      Stockholders'
                                                          Options          Compensation          Deficit           Equity
                                                       ------------        -------------      -------------     -------------
<S>                                                    <C>                 <C>                <C>               <C>
Balances, December 31, 1997                                 165,427        $           -      $  (5,011,757)    $   5,106,600
Stock issued in conjunction with private
 placements-
 Preferred stock                                                  -                    -                  -         3,521,459
 Common stock                                                     -                    -                  -            46,406
 Common stock warrants                                    1,057,135                    -                            1,057,135
 Offering costs                                            (184,806)                   -                  -          (939,162)
 Warrants issued for placement fees                         478,448                    -                  -           478,448
 Guaranteed return on preferred stock                             -                    -                  -                 -
Preferred stock dividends                                         -                    -                  -           329,120
Preferred stock and dividends converted to
 common stock                                                     -                    -                  -                 -

Exercises of stock options and warrants                           -                    -                  -           494,088
Accretion of preferred stock to redemption                        -                    -                  -         4,110,060
 value
Accretion of preferred stock for guaranteed
 return in excess of redemption value                             -                    -                  -           706,929
Stock and stock options issued for services
 and to customer                                            765,628                    -                  -         2,870,628
Net loss available to common stockholders                         -                    -        (15,762,372)      (15,762,372)
                                                       ------------        -------------      -------------     -------------
Balances, December 31, 1998                               2,281,832                    -        (20,774,129)        2,019,339
Stock issued in conjunction with private
 placement-
 Series C preferred stock                                         -                    -                  -         5,000,000
 Offering costs                                                   -                    -                  -          (384,500)
 Guaranteed return on preferred stock                             -                    -                  -                 -
Preferred stock dividends                                         -                    -                  -           125,638
Common stock and common stock warrants
 issued in connection with DCI merger                     2,158,837                    -                  -        11,398,195
 Common stock issued in connection with NI merger                 -                    -                  -           984,400
Preferred stock and dividends converted to
 common stock                                                     -                    -                  -                 -
Preferred stock beneficial conversion
 feature on dividends paid through the
 issuance of common stock                                         -                    -                  -           147,025
 Convertible notes payable converted to
 common stock                                                     -                    -                  -           894,879
Exercises of stock options and warrants                  (1,846,830)                   -                  -         5,350,632
10% Note Payable beneficial conversion
 feature                                                          -                    -                  -         1,967,522
Common stock warrant issued in connection
 with 10% Note Payable                                    3,383,800                    -                  -         3,383,800
Accretion of preferred stock to redemption
 value                                                            -                    -                  -         3,157,691
Accretion of preferred stock for guaranteed
 return in excess of redemption value                             -                    -                  -         1,158,563
Stock and stock options issued for services
 and to customers                                         2,634,683                    -                  -         3,169,073
Deferred compensation                                             -             (412,707)                 -         (412,707)
Net loss available to common stockholders                         -                    -        (21,866,012)     (21,866,012)
                                                       ------------        -------------      -------------     -------------
Balances, December 31, 1999                             $ 8,612,322        $    (412,707)     $ (42,640,141)    $  16,093,538
                                                       ============        =============      =============     =============
</TABLE>

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

                                      F-5
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.
               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                    Year Ended
                                                                                                   December 31,
                                                                                 ----------------------------------------------
                                                                                          1999                       1998
                                                                                 --------------------        ------------------
<S>                                                                              <C>                         <C>
Cash flows from operating activities:
 Net loss                                                                               $(17,277,095)              $(10,616,263)
 Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                           3,211,532                    791,155
   Loss on sale and disposal of property and equipment                                       249,468                          -
   Provision for excess and obsolete inventory                                                55,126                          -
   Accrued interest income on advances to DCI                                                (46,379)                   (49,304)
   Reduction in note receivable for services received from DCI                               368,643                    540,372
   Stock and stock options issued for services and to customers                            2,756,366                  2,870,628
   Loss from investment in subsidiary                                                        127,083                          -
   Interest expense on 10% convertible note from beneficial conversion feature             1,967,522                          -
   Amortization of 10% convertible note payable discount                                     124,615                          -
   Amortization of 10% convertible note payable financing costs                               45,142                          -
 Changes in operating assets and liabilities:
   Decrease in accounts receivable                                                            22,533                    719,961
   Decrease (increase) in accounts receivable from related party                              18,925                    (22,925)
   Decrease in inventory                                                                           -                    180,315
   (Increase) decrease in prepaid expenses                                                  (302,083)                   175,331
   (Increase) decrease in short-term deposits and other assets                              (342,985)                    73,579
   Decrease in accounts payable and accrued liabilities                                     (490,049)                   (96,036)
   Increase in accrued salaries and payroll taxes payable                                    690,832                    113,262
   Increase in accrued interest payable                                                      107,333                          -
   Increase in customer deposits and deferred revenue                                        109,590                     91,279
                                                                                 -------------------         ------------------
   Net cash used in operating activities                                                  (8,603,881)                (5,228,646)
                                                                                 -------------------         ------------------
Cash flows from investing activities:
 Cash acquired in business combinations                                                       32,484                          -
 Proceeds from the sale of property and equipment                                            133,137                          -
 Purchase of property and equipment                                                       (1,692,532)                  (481,427)
 Capitalized software development costs                                                            -                   (281,776)
 Cash advances to DCI                                                                       (593,649)                (1,387,855)
 Payment of acquisition costs                                                                (27,468)                  (229,404)
 Investment in subsidiary                                                                   (240,564)                         -
                                                                                 -------------------         ------------------
   Net cash used in investing activities                                                  (2,388,592)                (2,380,462)
                                                                                 -------------------         ------------------
Cash flows from financing activities:
  Payments on capital leases and convertible notes payable                                  (124,443)                   (31,209)
  Proceeds from issuance of common stock and warrants                                              -                     65,441
  Proceeds from issuance of 10% convertible note payable                                   5,000,000                          -
  Proceeds from exercise of stock options and warrants                                     5,350,632                    494,088
  Proceeds from issuance of Series C Preferred Stock                                       5,000,000                          -
  Proceeds from issuance of 10% Preferred Stock                                                    -                    159,559
  Proceeds from issuance of 5% Preferred Stock and warrants                                        -                  3,000,000
  Proceeds from issuance of Series A Preferred Stock and warrants                                  -                  1,400,000
  10% convertible note payable financing costs                                              (383,184)                         -
  Stock offering costs                                                                      (384,500)                  (460,714)
                                                                                 -------------------         ------------------
   Net cash provided by financing activities                                              14,458,505                  4,627,165
                                                                                 -------------------         ------------------
Net increase (decrease) in cash and cash equivalents                                       3,466,032                 (2,981,943)
Cash and cash equivalents, beginning of year                                                 698,339                  3,680,282
                                                                                 -------------------         ------------------
Cash and cash equivalents, end of year                                                  $  4,164,371               $    698,339
                                                                                 ===================         ==================
</TABLE>

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

                                      F-6
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
                                                                                                       Year Ended
                                                                                                      December 31,
                                                                                    ----------------------------------------------
                                                                                            1999                       1998
                                                                                    -------------------       --------------------
<S>                                                                                 <C>                       <C>
Supplemental disclosure of cash flow information:
Cash paid for interest                                                                      $    59,056                 $    7,024

Supplemental schedule of non-cash investing and financing activities:
   Common stock and warrants issued in business combinations                                $12,382,595                  $       -
   Accretion of preferred stock to redemption value                                           3,157,691                  4,110,060
   Accretion of preferred stock for guaranteed return in excess of
         redemption value                                                                     1,158,563                    706,929
   Preferred stock dividends paid or to be paid in common stock                                 272,663                    329,120
   Preferred stock and dividends converted to common stock                                    8,206,679                  3,302,784
   Stock and stock options issued for services and value to customers                         2,756,366                  2,870,628
   Common stock warrants issued for offering costs                                                    -                    478,448
   Beneficial conversion of 10% convertible note payable                                      1,967,522                          -
   Discount of 10% convertible note payable                                                     124,615                          -
   Convertible notes payable converted to common stock                                          894,879                          -
   Capital leases for equipment                                                                 195,405                     68,750
</TABLE>

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

                                      F-7
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               (FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  ORGANIZATION AND BUSINESS

     Webb Interactive Services, Inc. (the "Company"), formerly known as Online
System Services, Inc., was incorporated on March 22, 1994, under the laws of
Colorado, and principal operations began in 1995. The Company develops next
generation Internet applications for unlocking the potential of local market e-
commerce, including the development of XML-based technologies that facilitate
buyer-seller interaction and enable individuals and local businesses to easily
manage their web-based communications. In addition, the Company also provides an
online banking solution, marketed generally to financial institutions having
less than $500 million in assets, using a service bureau approach to e-banking,
which enables institutions to provide many of the capabilities and services
available to the larger financial institutions without the cost associated with
the development of institution-specific systems.

     On June 2 and June 30, 1999, the Company consummated its acquisitions of
NetIgnite, Inc. ("NI") and Durand Communications, Inc. ("DCI"), respectively.
DCI's and NI's shareholders exchanged all of their shares for shares of the
Company's common stock in business combinations that were recorded using the
purchase method of accounting.  The consolidated financial statements of the
Company reflect the results of operations of NI and DCI from the consummation of
the acquisitions through December 31, 1999. The consideration paid in excess of
the fair market value of the tangible assets acquired was recorded as intangible
assets and goodwill. Because the business now operated by the Company has never
been profitable, and due to the other risks and uncertainties discussed herein,
it is reasonably possible that an analysis of these long-lived assets in future
periods could result in a conclusion that they are impaired, and the amount of
the impairment could be substantial.

     The Company derives revenues principally from licenses of its software;
professional services fees for customization of its software, assisting its
customers in configuring and integrating the Company's software applications;
service bureau application fees; and hosting and support services.  Prior to
June 1999, the Company also earned revenues from the sale of design and
consulting services for web site development, network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and web sites, training course fees, and monthly fees paid by customers for
Internet access which the Company provided.

     The Company has not been profitable since inception.  The Company competes
in an intensively competitive industry, which has been characterized by price
erosion, rapid technological change, short product life cycles, and rapidly
changing business models.  Significant technological changes in the Internet
access and broadband data delivery require that the Company expend significant
funds in order to compete in an ever-changing marketplace.  The Company has
expended significant funds to develop its current product offerings.  During
2000, the Company anticipates increased operating expenses and research and
development expenditures, which are necessary for the Company to further develop
and market its products, and to achieve market acceptance of its products in
sufficient quantities to achieve positive cash flow from operations.  Based on
its cash balances at February 25, 2000, the Company believes that it has
sufficient cash to fund operations through December 2001. The Company's future
revenues are highly dependent upon the use of its products by the customers of
its distribution partners who have entered into business relationships with the
Company. The Company is also highly dependant on certain key personnel. There
can be no guarantee that the Company will be successful in marketing its
products or that it will be able to achieve positive cash flow from operations.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries.  All significant intercompany
balances and transactions have been eliminated in consolidation.

     Business Combinations

     Business combinations which have been accounted for under the purchase
method of accounting include the results of operations of the acquired
businesses from the date of acquisition. Net assets of the companies acquired
are recorded at their fair value to the Company at the date of acquisition (See
Note 9).

                                      F-8
<PAGE>

     Use of Estimates

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

     Cash and Cash Equivalents

     For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include highly liquid investments with original maturities of 90
days or less that are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates.

     Concentration of Credit Risk

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable.  The Company has no significant off balance-sheet
concentrations of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company maintains the
majority of its cash with financial institutions that it believes to be of high
credit quality in the form of demand deposits, and denominates the majority of
its transactions in U.S. dollars.

     The Company performs ongoing evaluations of its customers' financial
condition and generally does not require collateral, except for billings in
advance of work performed, and maintains reserves for potential credit losses.
Accounts receivable are shown net of allowance for doubtful accounts of $4,000
and $18,000 at December 31, 1999 and 1998, respectively.

     As discussed in Note 11, the Company has three and five customers that
accounted for more than 10% of 1999 and 1998 revenues, respectively, and four
and three customers that accounted for more than 10% of accounts receivable as
of December 31, 1999 and 1998, respectively.

     Inventory

     At December 31, 1998, inventory consisted of computer hardware purchased
for resale to its customers and was stated at the lower of cost (first-in,
first-out) or market.

     Property and Equipment

     Property and equipment is stated at cost and depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets.  Maintenance and repairs are expensed as incurred and improvements are
capitalized.

     Long-Lived Assets

     Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Any long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.

     Intangible Assets and Goodwill

     Intangible assets and goodwill relate to purchase transactions and are
being amortized on a straight-line basis over three years.  Subsequent to
acquisitions which result in goodwill, the Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining useful
life of goodwill may

                                      F-9
<PAGE>

warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that intangible assets and goodwill should be
evaluated for possible impairment, the Company uses an estimate of the
undiscounted cash flows over the remaining life of the intangible assets and
goodwill in measuring whether the intangible assets and goodwill are
recoverable. The Company recorded $2,523,351 of intangible assets and goodwill
amortization expense for the year ended December 31, 1999.

     Capitalized Software Development Costs and Research and Development Costs

     The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards  No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS 86").
Capitalization of development costs of software products begins once the
technological feasibility of the product is established.  The establishment of
technological feasibility is highly subjective and requires the exercise of
judgment by management.  Based on the Company's product development process,
technological feasibility is established upon completion of a detailed program
design.  Capitalization ceases when such software is ready for general release,
at which time amortization of the capitalized costs begins.

     During 1998 and 1999, the Company determined that the time between
technological feasibility and general release is short, consequently, the
Company did not capitalize software development costs but expensed those costs
as incurred.  During 1998, $403,805, representing all capitalized software
costs, were fully amortized.  Product development costs relating principally to
the design and development of non-software products are generally expensed as
incurred.  The cost of developing routine software enhancements are expensed as
product development costs as incurred.

     Fair Value of Financial Instruments

     The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables, payables, and capital leases. As of December 31,
1999 and 1998, the carrying values of such instruments approximated their fair
values. Based upon interest rates currently available to the Company, the fair
value of the Note Payable is estimated to be $4,167,822.

     Customer Acquisition Costs

     The Company capitalizes acquisition costs to acquire customers if the
related customer contract contains guarantees of minimum revenue which supports
the amount paid and amortizes those costs over the term the guaranteed revenue
is recognized.  When the contract does not specify guaranteed revenue, the
Company expenses the acquisition costs when incurred.

     Revenue Recognition

     The Company recognizes software license revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"), which requires the Company to
recognize revenue on software transactions only when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations remain, the fee is fixed or determinable, and collectibility is
probable.

     Revenue from software license fees is recognized upon delivery, provided
that no future Company obligation exists.  If obligations do exist, revenue is
deferred until the obligation is satisfied, which may require the Company to
recognize revenue from software licenses over the term of the contract.  In
instances where the Company charges monthly license fees, revenue is recognized
in the month the license is provided. Guaranteed minimum revenue is recognized
on a straight-line basis over the period the minimum applies.

     Revenue from professional services billed on a time and materials basis is
recognized as performed. Revenue from fixed price long-term contracts are
recognized on the percentage of completion method for individual contracts,
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized in the
ratio that costs incurred bear to total estimated contract costs. The Company's
use of the percentage of completion method of revenue recognition requires
estimates of percentage of project completion. Changes in job performance,
estimated profitability and final contract settlements may result in revisions
to costs and income in the period in which the revisions are determined.
Provisions for any estimated losses on uncompleted contracts are made in the
period in which such losses are determinable. In instances when the work
performed on fixed price agreements is of relatively short duration, the Company
uses the completed contract method


                                      F-10
<PAGE>

accounting whereby revenue is recognized when the work is completed. Customer
advances and billed amounts due from customers in excess of revenue recognized
are recorded as deferred revenue.

     Revenue from service bureau fees is recognized in the month the service is
provided.

     Revenue from hosting, maintenance and support agreements is recognized on a
straight-line basis over the life of the related agreement.

     In multiple element arrangements when vendor specific objective evidence
does not exist for the individual elements, all revenue from the arrangement is
deferred until the earlier of the point at which (a) such sufficient vendor-
specific objective evidence does exist or (b) all elements of the arrangement
have been delivered. In some instances, the Company recognizes all the revenue
from the arrangement on a straight-line basis over the life of the related
agreement.

     Revenue from hardware sales is recognized upon shipment, or when title
passes to the customer.

     Estimates of returns and allowances are recorded in the period of the sale
based on the Company's historical experience and the terms of individual
transactions.

     Income Taxes

     The current provision for income taxes represents actual or estimated
amounts payable on tax return filings each year.  Deferred tax assets and
liabilities are recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and amounts reported
in the accompanying balance sheets, and for operating loss and tax credit
carryforwards.  The change in deferred tax assets and liabilities for the period
measures the deferred tax provision or benefit for the period.  Effects of
changes in enacted tax laws on deferred tax assets and liabilities are reflected
as adjustments to the tax provision or benefit in the period of enactment.  The
Company's deferred tax assets have been reduced by a valuation allowance to the
extent it is more likely than not, that some or all of the deferred tax assets
will not be realized (See Note 12).

     Stock-Based Compensation

     The Company accounts for its employee stock option plans and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and related interpretations. As such,
compensation expense related to employee stock options is recorded if, on the
measurement date, the fair value of the underlying stock exceeds the stock
option exercise price. The Company adopted the disclosure-only provisions of
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which
allows entities to continue to apply the provisions of APB Opinion No. 25 for
transactions with employees and provide pro forma disclosures for employee stock
grants made in 1996 and future years as if the fair-value-based method of
accounting in SFAS 123 had been applied to these transactions.

     The Company accounts for warrants issued for services to non-employees in
accordance with SFAS 123 and related interpretations.  Certain grants of
warrants require the use of variable plan accounting whereby the warrants are
valued using the Black-Scholes option pricing model at the date of issuance and
at each subsequent balance sheet date with final valuation on the vesting date.
The Company records deferred compensation expense based on the calculated values
and records expense over the vesting term of the warrant.

     Net Loss Per Share

     Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS 128"), and Securities and Exchange Commission Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic
net loss per share is computed by dividing net loss available to common
shareholders
                                      F-11
<PAGE>

for the period by the weighted average number of common shares outstanding for
the period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and potential common shares
outstanding during the period if the effect of the potential common shares is
dilutive. As a result of the Company's net losses, all potentially dilutive
securities, as indicated in the table below, would be anti-dilutive and are
excluded from the computation of diluted loss per share.

<TABLE>
<CAPTION>
                                                      December 31,
                                                -----------------------
                                                   1999         1998
                                                ----------   ----------
       <S>                                      <C>          <C>
       Stock options                             2,770,055    1,758,665
       10% convertible note payable                496,524      -
       Warrants and underwriter options            973,149    1,190,612
       10% Preferred Stock                         102,030      300,401
       Series A Preferred Stock                     -           246,964
                                                ----------   ----------
       Total                                     4,341,758    3,496,642
                                                ==========   ==========
</TABLE>

     The number of shares excluded from the earning per share calculation
because they are anti-dilutive, using the treasury stock method, were 1,489,286
and 1,317,854 for the years ended December 31, 1999 and 1998, respectively.

     Comprehensive Income

     Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 establishes
standards for reporting comprehensive income and its components in financial
statements.  Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources.  From its inception through
December 31, 1999, the Company has not had any material transactions that are
required to be reported in comprehensive income as compared to its net loss.

     Accounting for the Costs of Computer Software Development or Obtained for
Internal Use

     Effective January 1, 1999, the Company adopted the provisions of Statement
or Position 98-1, "Accounting for the Costs of Computer Software Development or
Obtained for Internal Use" ("SOP 98-1"). This statement establishes standards
for the capitalization of costs related to internal use software. In general,
costs incurred during the development stage are capitalized, while the costs
incurred during the preliminary project and post-implementation stages are
expensed.

     Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The Statement establishes accounting and reporting standards for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - An
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to fiscal years beginning after June 15, 2000. The Company does
not typically enter into arrangements that would fall under the scope of
SFAS 133 and thus, management believes SFAS 133 will not
significantly affect its financial condition and results of operations.

     In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," ("SOP 98-9"). SOP 98-9
amends certain paragraphs of SOP 97-2, to require the application of a residual
method of accounting for software revenue when certain conditions exist. SOP 98-
9 also amends SOP 98-4,

                                      F-12
<PAGE>

"Deferral of the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"), to
extend the deferral of the application of certain passages of SOP 97-2 provided
by SOP 98-4 through fiscal years beginning on or before March 25, 1999. All
other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. All other provisions of SOP 98-9
are effective for transactions entered into in fiscal years beginning after
March 15, 1999. Earlier adoption is permitted, however, retroactive application
is prohibited. The Company believes SOP 98-9 will not materially impact its
financial statements.

     In December 1999, the Securities and Exchange Commission Staff released
SAB No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides interpretive guidance on the recognition, presentation and disclosure
of revenue in financial statements. SAB 101 must be applied to financial
statements no later than the first fiscal quarter of 2000. The Company is
currently reviewing SAB 101 to determine what impact, if any, adoption of this
SAB will have on its financial position or results of operations.

     Reclassifications

     Certain reclassifications to prior year financial statements have been made
to conform to the current year's presentation.

(3)  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                                         December 31,
                                                  -------------------------
                                                     1999           1998
                                                  -----------    ----------

              Computer equipment                  $ 2,658,213    $1,238,966
              Office furniture and equipment          222,494       207,639
              Purchased software                      807,283       243,492
              Leasehold improvements                   66,657        66,657
              Assets under construction               -             163,426
                                                  -----------    ----------
                                                    3,754,647     1,920,180
              Less accumulated depreciation        (1,402,158)     (741,552)
                                                  -----------    ----------
              Net property and equipment          $ 2,352,489    $1,178,628
                                                  ===========    ==========

     Certain office equipment, computer equipment and software is pledged as
collateral for capital leases payable (See Note 4).

     The Company depreciates computer equipment, office equipment, and software
over three to five years, office furnishings over seven years, and leasehold
improvements over the life of the lease. Depreciation expense was $687,661 and
$387,181 for the years ended December 31, 1999 and 1998, respectively.


                                      F-13
<PAGE>

(4)  CAPITAL LEASES PAYABLE

     Capital leases payable consist of the following:

<TABLE>
<CAPTION>
                                                                December 31,
                                                            -------------------
                                                               1999      1998
                                                            ---------  --------
     <S>                                                    <C>        <C>
     Capital lease payable in monthly principal and
     interest payments of $2,828, for thirty-six months
     beginning November 1, 1998, effective interest rate
     of 16%, secured by software                            $  58,261  $ 47,393

     Capital lease payable in monthly principal and
     interest payments of $624, for twenty-four months
     beginning May 1, 1998, effective interest rate of
     12.3%, secured by computer equipment                       2,957     9,684

     Capital lease payable in monthly principal and
     interest payments of $195, for thirty-six months
     beginning March 10, 1998, effective interest rate
     of 22%, secured by office equipment                        2,395     4,016

     Capital lease payable in quarterly principal and
     interest payments of $22,994, for eight quarters
     beginning January 1, 2000, effective interest rate
     of 16.47%, secured by cash certificate of deposit        160,405         -

     Capital lease payable in monthly principal and
     interest payments of $198, for thirty-six months
     beginning April 26, 1996, effective interest rate
     of 19.7%, secured by a phone system                            -       588
                                                            ---------  --------

                                                              224,018    61,681
     Less current portion                                    (108,525)  (21,766)
                                                            ---------  --------
                                                            $ 115,493  $ 39,915
                                                            =========  ========
</TABLE>

     Future minimum lease payments under capital leases as of December 31, 1999
are as follows:

<TABLE>
     <S>                                                    <C>
     2000                                                   $ 131,274
     2001                                                     125,643
                                                            ---------
        Total minimum lease payments                          256,917
        Less amount representing interest                     (32,899)
                                                            ---------
                                                            $ 224,018
                                                            =========
</TABLE>

     The net book value of assets under capital lease was $239,296 and $64,641
for the years ended December 31, 1999 and 1998, respectively.


                                      F-14
<PAGE>

(5)  CONVERTIBLE NOTES PAYABLE

     Subsequent to the agreement to acquire DCI (See Note 9), the Company issued
convertible notes payable to DCI creditors totaling $942,885.  The notes were
convertible at the election of the holder into a number of common shares at
conversion prices equal to $9.61 and the greater of $9.75 or the closing bid
price on the conversion date.  During 1999, holders of the convertible notes
payable converted $894,879 of principal and accrued interest payable into 82,402
shares of the Company's common stock at conversion prices per share ranging from
approximately $9.61 to $14.75 as summarized in the following table:

<TABLE>
<CAPTION>
                                 Note Payable
                                  and Accrued              Common Stock               Common Stock
                                   Interest                   Shares                   Conversion
   Conversion Date                 Converted                  Issued                Price per Share
----------------------       -------------------       -------------------       --------------------
<S>                          <C>                       <C>                       <C>
July 15, 1999                           $236,509                    16,034                     $14.75
September 27, 1999                       144,150                    15,000                       9.61
September 28, 1999                        49,011                     5,100                       9.61
September 29, 1999                       112,437                    11,700                       9.61
September 30, 1999                        50,938                     5,000                      10.19
October 1, 1999                          106,250                    10,000                      10.63
October 4, 1999                           78,501                     7,753                      10.13
October 5, 1999                           15,684                     1,600              9.61 to 10.13
October 7, 1999                           72,308                     7,231                      10.00
October 15, 1999                          29,091                     2,984                       9.75
                             -------------------       -------------------
Total                                   $894,879                    82,402
                             ===================       ===================
</TABLE>

(6)  10% CONVERTIBLE NOTE PAYABLE

     On August 25, 1999, the Company entered into a Securities Purchase
Agreement and executed a $5,000,000 three-year 10% Convertible Promissory Note
(the "Note Payable"). Net proceeds to the Company were $4,616,816 after
deducting $383,184 in financing costs. The financing costs were recorded as a
deferred asset and are being amortized as additional interest expense over the
term of the Note Payable. During 1999, the Company recorded $45,142 of
additional interest expense as a result of amortizing the deferred financing
costs.

     On December 18, 1999, the terms of the Note Payable were amended at the
Company's request as the Company believed this would facilitate its ability to
raise additional working capital (See Note 16). In consideration for the
holder's agreement to exchange the Note Payable for an amended note with terms
the Company believed to be more favorable to the Company, the Company issued to
the holder a five-year warrant representing the right to acquire 136,519 shares
of the Company's common stock at an exercise price of $18.51 per share.

     The material amendments to the Note Payable and the warrant are as follows:
(i) the conversion price for the Note Payable was set at $10.07 per share until
March 22, 2000; (ii) to eliminate the variable conversion price feature of the
Note Payable (iii) to enable the Company to require the conversion of one-half
of the principal amount of the Note Payable upon certain events; (iv) to
eliminate certain of the Company's rights to pre-pay the Note Payable; (v) in
the event that the Company forces the conversion of one-half of the principal
amount of the Note Payable, to permit the holder to elect to have the interest
thereafter due and payable on the Note Payable paid in shares of the Company's
common stock or additional Notes Payable similar to the 10% convertible Note
Payable; and (vi) to provide for the amendment in the exercise price of the
warrant on September 30, 2000, if the market price for the Company's common
stock is then less than $11.44.

     The Note Payable is convertible into shares of common stock at a conversion
price of $10.07 per share.  The conversion price between March 22, 2000 and
September 30, 2000 is $10.07 per share.  The conversion price after September
29, 2000 will continue to be $10.07 per share unless the market price for the
Company's common stock at that time is less than $10.07.  In this event, the
conversion price will be adjusted and will be the greater of (i) the average of
the five lowest closing bid prices during the period from September 1, 2000
through September 29, 2000 and (ii) $8.00.

     The Company can  prepay the Note Payable at any time after August 25, 2000,
if the closing bid price for its common stock for 20 consecutive trading days is
at least 200% of the conversion price then in effect.  The redemption price
would equal 115% of the face amount of the Note Payable, plus accrued and unpaid
interest.

                                      F-15
<PAGE>

     The Note Payable bears interest at the rate of 10% per annum.  If the
Company forces the conversion of one-half of the Note Payable, the holder may
thereafter elect to have the interest on the Note Payable paid either in shares
of the Company's common stock or by the issuance of additional Notes Payable.

     The holder of the Note Payable has been granted two five-year warrants for
136,519 shares each, one exercisable at $11.44 per share and one exercisable at
$18.51 per share.  The exercise price for both warrants will be subject to
adjustment on September 29, 2000, if the market price for the Company's common
stock is then less than the exercise price of the warrants.  In this event, the
exercise price will be equal to the average closing bid prices for the period
from September 1, 2000 through September 29, 2000.  Each of the warrants is also
subject to anti-dilution protection in the event of the issuance of our common
stock at prices less than the exercise prices for the warrant or the then
current price for our common stock and for stock splits, stock dividends and
other similar transactions.

     The Company valued the warrants utilizing the Black-Scholes option pricing
model using the following assumptions:

<TABLE>
<CAPTION>
                                                                                        Issue Date
                                                                 ------------------------------------------------------
                                                                      August 25, 1999               December 18, 1999
                                                                 ----------------------        ------------------------
          <S>                                                    <C>                           <C>
          Recorded value                                                     $1,072,325                      $2,311,475
          Exercise price                                                     $    11.44                      $    18.51
          Fair market value of common stock on grant date                    $    10.13                      $    21.06

          Option life                                                           5 years                         5 Years
          Volatility rate                                                           104%                            104%
          Risk free rate of return                                                    6%                              6%
          Dividend rate                                                               0%                              0%
</TABLE>

     The fair value of the warrant issued on August 25, 1999 was recorded as an
additional discount to the Note Payable and will be amortized as additional
interest expense over the term of the Note Payable.  For the year ended December
31, 1999, the Company recorded $124,615 of additional interest expense related
to this warrant.  The value of the warrant issued on December 18, 1999 was
recorded as a deferred placement costs related to the sale of the Company's
Series B Preferred Stock (See Note 16).

     Due to the conversion feature associated with the Note Payable, the Company
accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional interest expense.  Based on current generally accepted accounting
principles, the computed value of the Guaranteed Return of $1,967,522 was
initially recorded as a reduction of the Note Payable and an increase to
additional paid-in capital on the date of issuance, even though the Note Payable
was not then convertible and was subject to redemption prior to the date that it
first becomes convertible.  The Guaranteed Return reduction to the Note Payable
totaling $1,967,522 was amortized as additional interest expense from the date
of issuance to the earliest date of conversion which was during the fourth
quarter of 1999.

     On February 18, 2000, the holder converted $2,500,000 of the outstanding
Note Payable into 248,262 shares of the Company's common stock and also
exercised a warrant to purchase 136,519 shares of the Company's common stock,
resulting in proceeds to the Company of $1,561,777 (See Note 16).


(7)  STOCKHOLDERS' EQUITY

     Series C Preferred Stock

     On January 11, 1999, the Company completed a private placement of preferred
stock which resulted in gross proceeds of $3,000,000.  The Company sold 3,000
shares of its Series C cumulative, convertible, redeemable

                                      F-16
<PAGE>

preferred stock (the "Series C Preferred Stock"). Net proceeds to the Company
were $2,755,500 after deducting $244,500 in offering costs.

     In addition, the Company also issued a warrant which entitled the holder to
purchase, at a price of $1,000 per share, up to 2,000 shares of the Company's
Series C Preferred Stock.  This warrant also granted the Company the right to
require the holder to exercise such warrants.  On June 18, 1999, the Company
exercised this right and sold 2,000 shares of the Series C Preferred Stock for
net proceeds of $1,860,000 after deducting $140,000 in offering costs.

     The Series C Preferred Stock specified a 4% per annum cumulative, non-
compounding dividend based on the stated value of $1,000 per share.  Each share
of Series C Preferred Stock was convertible, at the option of the holder
thereof, at any time after February 1, 1999, into the number of shares of common
stock equal to $1,000 divided by the lesser of (i) 140% of the closing bid price
of the common stock on the date of the issuance of the Series C Preferred Stock
being converted (initially $20.48), or if less and if the conversion is
occurring at least 120 days after the issuance of the Series C Preferred Stock
being converted, 100% of the closing bid price of the Company's common stock on
the trading day closest to the date that is 120 days after the Series C
Preferred Stock that is being converted was issued or (ii) the average of the
five lowest closing bid prices of common stock during the 44 consecutive trading
days immediately preceding the conversion of the Series C Preferred Stock
conversion date.

     Due to the conversion feature associated with the Series C Preferred Stock,
the Company accounted for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend.  The computed value of the
Guaranteed Return of $3,931,754 was initially recorded as a reduction of the
Series C Preferred Stock and an increase to additional paid-in capital.  The
Guaranteed Return reduction to the Series C Preferred Stock was accreted, as
additional dividends, by recording a charge to income available to common
stockholders from the date of issuance to the earliest date of conversion.  The
Company also recorded annual dividends of $40 per share as a reduction of income
available to common stockholders which totaled $29,121 for the year ended
December 31, 1999.

     The difference between the stated redemption value of $1,000 per share and
the recorded value on January 11, 1999, and June 18, 1999 (the dates upon which
the Series C Preferred Stock were issued) totaling $4,316,254 (which includes
$1,158,563 of accretion of preferred stock for the Guaranteed Return in excess
of the redemption value) was accreted as a charge to income available to common
stockholders on the date that the Series C was first convertible, which occurred
in the first and second quarters of 1999, respectively, and was comprised of the
following:

<TABLE>
<CAPTION>
                                                                   Closings
                                                ---------------------------------------------------
                                                   June 18, 1999               January 11, 1999
                                                ----------------------       ----------------------
<S>                                             <C>                          <C>
     Guaranteed Return                                      $   17,691                 $  3,914,063
     Series C Preferred Stock offering costs                   140,000                      244,500
                                                ----------------------       ----------------------
     Total accretion recorded                               $  157,691                 $  4,158,563
                                                ======================       ======================
</TABLE>

     During 1999, the investor converted all of the 5,000 shares of the Series C
Preferred Stock, including accrued dividends payable of $29,121 into 480,508
shares of the Company's common stock at conversion prices per share ranging from
approximately $8.59 to $11.13 as summarized in the following table:


                                      F-17
<PAGE>

<TABLE>

                                           Number of Shares
                             --------------------------------------------
                                   Series C                                      Common Stock
                                   Preferred                                       Conversion
  Conversion Date                   Stock                Common Stock           Price per Share
-------------------          ------------------       -------------------     -------------------
<S>                          <C>                       <C>                       <C>
February 10, 1999                         1,500                   140,157               $10.74
February 11,1999                            500                    46,724                10.74
February 26, 1999                           500                    45,683                11.00
July 6, 1999                              1,000                    90,843                11.13
July 20, 1999                               700                    63,141                11.13
August 25, 1999                             150                    17,597                 8.59
September 7, 1999                           650                    76,363                 8.59
                             ------------------       -------------------
Total                                     5,000                   480,508
                             ==================       ===================
</TABLE>

     10% Preferred Stock

     On March 12, 1998, as a result of a private placement completed on December
31, 1997, the Company sold an additional 2.25 units of its 10% cumulative,
convertible, redeemable preferred stock (the "10% Preferred Stock") which
resulted in gross proceeds of $225,000, consisting of an aggregate of 22,500
shares of 10% Preferred Stock, 5,625 shares of common stock, and warrants to
purchase 4,500 shares of common stock.  Net proceeds to the Company were
$198,236 after deducting $26,764 in offering costs.

     The 10% Preferred Stock entitles the holder to voting rights of one vote
per share and specifies a 10% per annum cumulative, non-compounding dividend
based on the stated value of $10 per share. The Company may redeem the 10%
Preferred Stock at any time for $10 per share.

     Each share of 10% Preferred Stock is convertible at any time after
September 30, 1998, at the election of the holder thereof, into the number of
shares of common stock of the Company equal to $10 divided by the lesser of (i)
$10 or (ii) 80% of the average per share closing bid price of the Company's
common stock for the five trading days immediately preceding the 10% Preferred
Stock conversion date.

     Due to the conversion feature associated with the 10% Preferred Stock, the
Company accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional preferred stock dividend.  The computed value of the Guaranteed
Return of $56,250 was initially recorded as a reduction of the 10% Preferred
Stock and an increase to additional paid-in capital.  The Guaranteed Return
reduction to the 10% Preferred Stock was accreted, as additional dividends, by
recording a charge to income available to common stockholders during 1998 from
the date of issuance to the earliest date of conversion. The Company will also
record annual dividends of $1 per share as a reduction of income available to
common stockholders, whether or not declared by the Board of Directors, which
totaled $94,216 and $259,822 for the years ended December 31, 1999 and 1998,
respectively.  The Company has the option to pay the dividends either in cash or
in common stock upon conversion.  It is the Company's intention to pay the
accrued dividends on the 10% Preferred Stock through the issuance of its common
stock at the time the 10% Preferred Stock is converted.  Consequently, the
Company has recorded the dividends payable within the preferred stock balance in
the accompanying balance sheets, which totaled $170,295 and $241,172 as of
December 31, 1999 and 1998, respectively.

     The difference between the stated redemption value of $10 per share and the
recorded value was accreted as a charge to income available to common
stockholders during the year ended December 31, 1998 and was comprised of the
following:

                                      F-18
<PAGE>

    Guaranteed return                                          $ 56,250
    Value of common stock                                        46,406
    Value of common stock warrants                               19,035
    10% Preferred Stock offering costs                           18,980
                                                             ----------
    Total accretion recorded                                   $140,671
                                                             ----------

     The common stock was valued based on the closing price of the Company's
common stock March 12, 1998 of $8.25.  The 4,500 common stock warrants issued
with the 10% Preferred Stock, valued at $19,035, entitle the holder to purchase
one share of the Company's common stock for a purchase price of $15 per share at
any time during the three-year period commencing on the closing date.

     The warrants were valued utilizing the Black-Scholes option pricing model
using the following assumptions:

<TABLE>
<S>                                                             <C>
     Exercise price                                              $15.00
     Fair market value of common stock on grant date             $ 8.25
     Option life                                                3 years
     Volatility rate                                                 98%
     Risk free rate of return                                      5.13%
     Dividend rate                                                    0%
</TABLE>

     During January and February 2000, holders exercised warrants to purchase
12,000 shares of the Company's common stock, resulting in proceeds to the
Company of $180,000 (See Note 16).

     During 1999 and 1998, 182,500 shares of the Company's 10% Preferred Stock,
including accrued dividends payable of $183,747, were converted into 235,348
shares of the Company's common stock with conversion prices per share ranging
from approximately $3.64 to $10.00 as summarized in the following table:

<TABLE>
<CAPTION>
                                                  Number of Shares
                                   ---------------------------------------------
                                           10%                                              Common Stock
                                         Preferred                Common                     Conversion
         Conversion Date                   Stock                  Stock                    Price per Share
      ----------------------       -------------------       -------------------       ---------------------
      <S>                          <C>                       <C>                       <C>
      November 4, 1998                          10,000                    29,321                      $ 3.64
      November 10, 1998                         10,000                    23,798                        4.49
      November 11, 1998                          2,500                     5,123                        5.14
      January 5, 1999                           10,000                    11,590                        9.46
      January 7, 1999                           10,000                    11,039                        9.98
      January 14, 1999                           5,000                     5,422                       10.00
      January 15, 1999                          60,000                    66,248                       10.00
      January 19, 1999                          10,000                    10,858                       10.00
      January 20, 1999                          25,000                    27,636                       10.00
      January 28, 1999                          10,000                    11,077                       10.00
      February 2, 1999                          20,000                    22,083                       10.00
      February 25, 1999                         10,000                    11,153                       10.00
                                   -------------------       -------------------
      Total                                    182,500                   235,348
                                   ===================       ===================
</TABLE>

     During January and February 2000, 85,000 shares of the 10% Preferred Stock
were converted into 102,302 shares of the Company's common stock (See Note 16).


     Series A Preferred Stock

     On November 9, 1998, the Company completed a private placement which
resulted in gross proceeds of $1,400,000.  The Company sold 1,400 shares of its
Series A cumulative, convertible, redeemable preferred stock

                                      F-19
<PAGE>

(the "Series A Preferred Stock") and warrants to purchase 140,000 shares of
common stock. Net proceeds to the Company were $1,287,300 after deducting
$112,700 in offering costs.

     The Series A Preferred Stock specified a 5% per annum cumulative, non-
compounding dividend based on the stated value of $1,000 per share.

     Each share of Series A Preferred Stock was convertible, at the option of
the holder thereof, into such number of shares of common stock of the Company
equal to $1,000, plus the amount of any accrued and unpaid dividends the Company
elected to pay in common stock, divided by the lesser of (i) $5.71 or (ii) 80%
of the average closing bid price of the shares of common stock for the lowest
five consecutive trading days within the 20 days immediately preceding the
Series A Preferred Stock conversion date.

     Due to the conversion feature associated with the Series A Preferred Stock,
the Company accounted for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend.  The computed value of the
Guaranteed Return of $1,368,328 was initially recorded as a reduction of the
Series A Preferred Stock and an increase to additional paid-in capital.  The
Guaranteed Return reduction to the Series A Preferred Stock was accreted, as
additional dividends, by recording a charge to income available to common
stockholders on the date of issuance.  The Company also recorded annual
dividends of $50 per share as a reduction of income available to common
stockholders, which totaled $2,301 and $10,164 for the years ended December 31,
1999 and 1998, respectively.  The Company had the option to pay the dividends
either in cash or in common stock upon conversion.  The Company paid the accrued
dividends on the Series A Preferred Stock through the issuance of its common
stock at the time the Series A Preferred Stock was converted.  Consequently, the
Company recorded the dividends payable within the preferred stock balance in the
accompanying balance sheets, which totaled $10,164 as of December 31, 1998.

     The difference between the stated redemption value of $1,000 per share and
the recorded value on November 9, 1998, totaling $2,106,929 (which includes
$706,929 of accretion of preferred stock for the Guaranteed Return in excess of
the redemption value), was accreted as a charge to income available to common
stockholders during 1998 and was comprised of the following:

<TABLE>
      <S>                                                      <C>
      Guaranteed return                                        $1,368,328
      Value of common stock warrants                              635,600
      Series A Preferred Stock offering costs                     103,001
                                                               ----------
      Total accretion recorded                                 $2,106,929
                                                               ==========
</TABLE>

     The 140,000 common stock purchase warrant issued in the above private
placement, valued at $635,600, entitled the holder to purchase one share of the
Company's common stock for a purchase price of $5.71 per share at any time
during the five-year period commencing on November 9, 1998.  The warrant was
valued utilizing the Black-Scholes option pricing model using the following
assumptions:

<TABLE>
      <S>                                                       <C>
      Exercise price                                            $  5.71
      Fair market value of common stock on grant date           $  6.03
      Option life                                               5 years
      Volatility rate                                              94.7%
      Risk free rate of return                                     5.13%
      Dividend rate                                                   0%
</TABLE>

     During January 1999, the holder converted all 1,400 shares of the Series A
Preferred Stock into 247,367 shares of the Company's common stock at a
conversion price of $5.71 per share and exercised the warrant to purchase
140,000 shares of the Company's common stock, resulting in proceeds to the
Company of $799,400.

     In connection with services provided with the issuance of the Series A
Preferred Stock, the Company also issued to the placement agent a warrant to
purchase 20,000 shares of the Company's common stock for a purchase price of
$5.71 per share at any time during the three-year period commencing November
1998.  The Company

                                      F-20
<PAGE>

recorded $75,948 in offering costs related to the warrants, which were valued
utilizing the Black-Scholes option pricing model using the following
assumptions:

<TABLE>
<S>                                                                <C>
          Exercise price                                           $ 5.71
          Fair market value of common stock on grant date          $ 6.03
          Option life                                              3 years
          Volatility rate                                            94.7%
          Risk free rate of return                                   5.13%
          Dividend rate                                                 0%
</TABLE>

     During July 1999, the holders exercised the warrant and purchased 20,000
shares of the Company's common stock, resulting in proceeds to the Company of
$114,200.

     5% Preferred Stock

     On May 22, 1998, the Company completed a private placement which resulted
in gross proceeds of $3,000,000.  The Company sold 3,000 shares of its 5%
cumulative, convertible, redeemable preferred stock (the "5% Preferred Stock")
and warrants to purchase 50,000 shares of common stock.  Net proceeds to the
Company were $2,678,750 after deducting $321,250 in offering costs.

     The 5% Preferred Stock specified a 5% per annum cumulative non-compounding
dividend based on the stated value of $1,000 per share.

     Each share of 5% Preferred Stock was convertible, at the option of the
holder thereof, into such number of shares of common stock equal to $1,000, plus
the amount of any accrued and unpaid dividends the Company elected to pay in
common stock, divided by the lesser of (i) $16.33 or (ii) 86% of the average
closing bid price of the Company's common stock for the five trading days
immediately preceding the 5% Preferred Stock conversion date.

     Due to the conversion feature associated with the 5% Preferred Stock, the
Company accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional preferred stock dividend.  The computed value of the Guaranteed
Return of $316,410 was initially recorded as a reduction of the 5% Preferred
Stock and an increase to additional paid-in capital.  The Guaranteed Return
reduction to the 5% Preferred Stock was accreted, as additional dividends, by
recording a charge to income available to common stockholders from the date of
issuance to the earliest date of conversion.  The Company also recorded annual
dividends of $50 per share as a reduction of income available to common
stockholders which totaled $59,134 for the year ended December 31, 1998.

     The difference between the stated redemption value of $1,000 per share and
the recorded value on May 22, 1998, totaling $1,345,765, was accreted as a
charge to income available to common stockholders during 1998 and was comprised
of the following:

<TABLE>
                    <S>                                 <C>
                    Guaranteed return                   $  316,410
                    Value of common stock warrants         402,500
                    5% Preferred Stock offering costs      626,855
                                                       -----------
                    Total accretion recorded           $ 1,345,765
                                                       ===========
</TABLE>

     The 50,000 common stock purchase warrants issued with the 5% Preferred
Stock, valued at $402,500, entitle the holder to purchase one share of the
Company's common stock for a purchase price of $16.33 per share at any time
during the three-year period commencing on May 22, 1998.  In addition, the
Company also issued 50,000 common stock purchase warrants, valued at $402,500,
to the placement agent as offering costs with the same terms.  The warrants were
valued utilizing the Black-Scholes option pricing model using the following
assumptions:


                                      F-21
<PAGE>

<TABLE>
               <S>                                                   <C>
               Exercise price                                        $ 16.33
               Fair market value of common stock on grant date       $ 13.50
               Option life                                           3 years
               Volatility rate                                            98%
               Risk free rate of return                                 5.13%
               Discount rate                                               0%
</TABLE>

     During January 2000, the holder exercised the warrant and purchased 100,000
shares of common stock resulting in proceeds to the Company of $1,633,000 (See
Note 16).

     During 1998, all 3,000 shares of the 5% Preferred Stock, including accrued
dividends payable of $59,134, were converted into 627,296 shares of the
Company's common stock at conversion prices per share ranging from approximately
$3.28 to $8.87 as summarized in the following table:

<TABLE>
<CAPTION>
                                                     Number of Shares                          Common Stock
                                      ---------------------------------------------
                                          5% Preferred                 Common                   Conversion
            Conversion Date                   Stock                    Stock                     Price per
                                                                                                   Share
          ----------------------       -------------------       -------------------       --------------------
          <S>                          <C>                       <C>                       <C>
          July 30, 1998                                500                    56,907                      $8.87
          September 16, 1998                           250                    54,950                       4.62
          September 25, 1998                           325                    74,646                       4.43
          October 30, 1998                              75                    23,379                       3.28
          November 3, 1998                             100                    29,722                       3.44
          November 5, 1998                             500                   122,617                       4.17
          November 10, 1998                          1,250                   265,075                       4.83
                                            --------------             -------------
          Total                                      3,000                   627,296
                                            ==============             =============
</TABLE>

     Liquidation Preference of Preferred Stock

     The Company's 10% Preferred Stock has preference in involuntary liquidation
before any distribution to the holders of the Company's common stock as follows:

     Holders of the 10% Preferred Stock are entitled to receive from the
Company's remaining net assets (after payment of the Company's debts and other
liabilities) the amount of $10 per share of 10% Preferred Stock in cash plus
payment of all accrued but unpaid cumulative dividends.  Holders of the 10%
Preferred Stock are not entitled to receive any other payments if the Company
liquidates, dissolves or winds-up its business.

     Common Stock

     On November 5, 1999 and 1998, the Company executed a four-month and one-
year consulting agreement, respectively, with a financial consulting firm to
enhance Company activities in corporate finance, mergers and acquisitions, and
public and investor relations.  In addition, if the consulting firm introduces
the Company to a lender or equity purchaser, the Company is required to pay the
consultant a cash fee at the time of closing.  To date, the Company has not paid
a cash fee for this service.  In connection with the agreements, the Company
issued restricted shares of its common stock for commencement bonuses as
follows:

<TABLE>
<CAPTION>
                                                                       November 5,
                                                  ---------------------------------------------------
                                                            1999                         1998
                                                  ----------------------       ----------------------
          <S>                                     <C>                          <C>
          Common shares issued                                    30,000                      350,000
          Date of issuance                              December 2, 1999             November 5, 1998
          Fair market value on date of issuance                 $  14.81                       $ 5.50
          Value of common stock                                 $444,390                   $1,925,000
</TABLE>

                                     F-22
<PAGE>

     The Company recorded expense on the date of issuance for the commencement
bonuses equal to the value of the common stock granted as the shares are not
refundable to the Company, even if the agreement is terminated by either party.

     In February 1999, the Company entered into a third consecutive six-month
agreement with an individual to provide the Company consulting services in his
capacity as the Company's Chief Operating Officer and subsequent duties as Chief
Financial Officer. Pursuant to the terms of the agreement, in addition to a
monthly cash fee of $15,000, the consultant earned shares of the Company's
common stock determined by dividing $15,000 by the fair market value of the
common stock on the last trading day of the month. During the year ended
December 31, 1999, the Company issued 6,497 shares of common stock under this
agreement valued in the aggregate $90,000.

     In February 1998, the Company entered into two consecutive six month
agreements with an individual to provide the Company consulting services in his
capacity as the Company's Chief Operating Officer.  Pursuant to the terms of the
agreement, the consultant was paid $30,000 per month, each month, which was
comprised of $15,000 in cash payments and 2,000 shares of the Company's common
stock.  During the year ended December 31, 1998, the Company issued 24,000
shares of common stock under this agreement.

     Stock Option Plan

     During 1995, the Company adopted the 1995 Stock Option Plan (the "Plan").
Under the terms of the Plan, the Company may grant options for up to 3,500,000
shares, at exercise prices equal to the stock's fair market value on the date of
grant.  The options vest over various terms with a maximum vesting period of 42
months and expire after a maximum of ten years.  As of December 31, 1999, the
Company had options outstanding for 2,770,055 shares.

     A summary of the status of the Plan as of December 31, 1999 and 1998 and
changes during the years then ended is presented in the tables and narrative
below:

<TABLE>
<CAPTION>
                                                            1999                                                1998
                                      -----------------------------------------------     ----------------------------------------
                                                                 Weighted Average                              Weighted Average
                                              Shares              Exercise Price             Shares              Exercise Price
                                      -------------------     -----------------------     --------------     ---------------------
<S>                                   <C>                      <C>                        <C>                <C>
Outstanding at beginning of year                1,758,665              $ 5.93                1,002,910                 $2.26
Granted                                         2,101,897               12.03                1,416,350                  8.09
Exercised                                        (452,773)               2.71                 (240,331)                 1.89
Forfeited and canceled                           (637,734)               9.24                 (420,264)                 6.76
                                           --------------                                 ------------
Outstanding at end of year                      2,770,055              $10.31                1,758,665                 $5.93
                                           ==============            =========            ============             ============
Exercisable at end of year                        468,861              $ 7.62                  346,401                 $2.50
                                           ==============            =========            ============             ============
Weighted average fair value of options
     Granted during year                            $8.83                                        $5.34
                                           ==============                                 ============
</TABLE>

                                      F-23
<PAGE>

     The status of total stock options outstanding and exercisable under the
Plan as of December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                            Stock Options Outstanding                Stock Options Exercisable
                    ------------------------------------------  --------------------------------------
                                                  Weighted                                 Weighted
                                     Weighted      Average                    Weighted      Average
     Range of                        Average      Remaining                   Average      Remaining
     Exercise         Number of      Exercise    Contractual     Number of    Exercise    Contractual
      Prices           Shares         Price      Life (Years)     Shares       Price      Life (Years)
------------------  ------------   ----------   --------------  -----------  ----------  -------------
<S>                 <C>            <C>          <C>             <C>          <C>         <C>
$   1.63  -   4.08      120,550      $ 2.76           4.99          53,250      $ 3.02        5.55
    4.09  -  10.21    1,610,040        8.54           5.74         389,611        7.85        5.13
    10.22 -  21.06    1,039,465       13.93           6.36          26,000       13.37        6.55
                    -----------                                 ----------
$    1.63 -  21.06    2,770,055      $10.31           5.72         468,861      $ 7.62        5.76
                    ===========    ==========    =============  ==========    ==========  ============
</TABLE>

     Pro Forma Fair Value Disclosures

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998, respectively: risk-free interest
rate of 5.68 and 5.01 percent, no expected dividend yields, expected lives of
3.0 years, and expected volatility ranging from 118 and 104 percent,
respectively. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.

     Cumulative compensation costs recognized in pro forma net loss available to
common stockholders with respect to options that are forfeited prior to vesting
are adjusted as a reduction of pro forma compensation expense in the period of
forfeiture.

     Had compensation cost for options granted been determined consistent with
SFAS 123, the Company's net loss available to common stockholders and net loss
available to common stockholders per common and common equivalent share would
have been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                         1999                                             1998
                                    -------------------------------------------      -------------------------------------------
                                         As Reported              Pro Forma               As Reported              Pro Forma
                                    -------------------      ------------------      -------------------      ------------------
<S>                                 <C>                      <C>                     <C>                      <C>
Net loss available to common
 stockholders                              $(21,866,012)           $(24,897,608)                                    $(17,124,629)
                                    ===================      ==================      ===================      ==================
Net loss available to common
 stockholders per share-basic and
  diluted                                  $      (3.31)           $      (3.77)            $      (4.35)           $      (4.73)
                                    ===================      ==================      ===================      ==================
</TABLE>

     Because the fair value method of accounting required by SFAS 123 has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.

     IPO Common Stock Warrants-

     In connection with the initial public offering ("IPO") in May 1996, the
Company issued 1,265,000 units, each unit consisting of one share of common
stock and one common stock purchase warrant and 110,000 similar warrants to the
underwriter (collectively the "IPO Warrants").  Two IPO Warrants entitled the
holders to purchase one share of common stock at a price of $9.00 per share or
the holders had the option of using a cashless exercise provision whereby
holders could surrender a portion of the stock received upon exercise of their
IPO Warrants as consideration for the exercise price for the IPO Warrants
exercised.

     In May 1999, the Company received $3,056,871 in net proceeds, after
deducting offering costs of $17,387 from the exercise of the IPO Warrants and
issued 341,578 shares of common stock.  In addition, the Company

                                      F-24
<PAGE>

issued 131,614 shares of common stock as a result of holders of the IPO Warrants
utilizing the cashless exercise provision of the Warrant. As of December 31,
1999, all of the IPO Warrants have been exercised or have expired.

     In connection with the initial public offering in May 1996, the Company
issued to the underwriters an option to purchase 110,000 shares of the Company's
common stock at an exercise price of $8.10 per share for a period of four years
beginning May 1997.  As of December 31, 1999 and 1998, 3,300 units had been
exercised.

     During January and February 2000, holders exercised their warrants to
purchase 84,042 shares of common stock resulting in proceeds to the Company of
$645,789 (See Note 16).

     Stock Option Based Compensation Expense

     During 1999 and 1998, the Company granted stock options under the Plan to
several consultants in connection with agreements to provide the Company with
services related to developing financing sources and strategic alliances as well
as investor relations.  The terms of the agreements range from approximately six
months to three years.  The Company issued in the aggregate 52,168 and 89,000
shares during 1999 and 1998, respectively, of its common stock at exercise
prices ranging from $4.00 to $11.00.  The Company applied variable plan
accounting pursuant to SFAS 123 and valued these options utilizing the Black-
Scholes option pricing model on the vesting dates using the following
assumptions:

<TABLE>
<CAPTION>
          <S>                                                         <C>
          Exercise price                                              $4.00 to $11.00
          Fair market value of common stock on grant date             $5.50 to $16.25
          Option life                                                    1 to 7 years
          Volatility rate                                                 95% to 104%
          Risk free rate of return                                     4.52% to 6.00%
          Dividend rate                                                            0%
          Vesting period                                     Date of grant to 3 years
</TABLE>

     The Company recorded expense for these options totaling $1,074,432 and
$160,328 for the years ended December 31, 1999 and 1998, respectively.

     On November 24, 1998, in connection with the merger with DCI (See Note 9),
the Company granted stock options to the employees of DCI under the Plan to
purchase an aggregate of 83,000 shares of the Company's common stock at an
exercise price of $7.63 per share. The options were granted to these individuals
in their capacity as employees of the Company and vest over a three-year period
and can be exercised over a seven-year period.

     On June 30, 1999, as a result of the consummation of the merger with DCI,
the Company recorded the intrinsic value of the options whereby the difference
between the fair market value of the Company's common stock on June 30, 1999
($17.50 per shares) and the exercise price of the options ($7.63 per share) is
expensed over the vesting period of the options.  The Company recorded expense
for these options totaling $205,861 and $13,549 for the years ended December 31,
1999 and 1998, respectively.

     Exercise of Common Stock Warrants

     In November and December 1999, holders of warrants to purchase common stock
issued in connection with the acquisition of DCI (See Note 9) exercised 78,577
warrants, including 66,644 utilizing the cashless exercise provision of the
Agreements.  As a result, the Company issued 44,740 shares of its common stock,
including 32,807 from the cashless exercises, resulting in proceeds to the
Company totaling $121,238.

     Common Stock Warrants Issued in Private Placement

     In connection with a private placement of the Company's common stock in
March 1996, the Company issued warrants to purchase 18,450 shares of the
Company's common stock at an exercise price of $2.25 per share, which vested
immediately and are exercisable for 5 years.  On the date of issuance, the
Company determined the

                                      F-25
<PAGE>

warrants had a nominal value. During 1999 and 1998, 13,500 and 3,600 warrants
were exercised, respectively, and as of December 31, 1999, 900 warrants were
outstanding.

     Summary of Outstanding Warrants and Options For Common Stock Issued Outside
the Plan

<TABLE>
<CAPTION>
                                                     December 31, 1999                            December 31, 1998
                                           --------------------------------------     ----------------------------------------
                                             Underwriter                                Underwriter
                                             Options and              Common            Options and              Common
                             Conversion        Warrants                Share              Warrants                Share
      Description              Ratio          Outstanding            Equivalents         Outstanding            Equivalents
-------------------------    ----------    ------------------     ---------------     ----------------     -----------------
<S>                          <C>           <C>                    <C>                 <C>                  <C>
  Common stock warrants
    issued in IPO                2:1                -                     -              1,265,000               632,500
  Option to purchase
    common stock
    issued to underwriter
    in IPO (See Note 16)         1:1          106,700               106,700                106,700               106,700
  Option to purchase
    common stock
    warrants issued to
    underwriter in IPO           2:1                -                     -                106,700                53,350
  Common stock
    warrants issued in
    common stock
    private placement            1:1              900                   900                 14,400                14,400
  Common stock warrants
    issued in connection
    with 10% Preferred
    Stock (See Note 16)          1:1           53,500                53,500                 53,500                53,500
  Common stock warrants
   issued in connection
    with 5% Preferred
    Stock (See Note 16)          1:1          100,000               100,000                100,000               100,000
  Common stock warrants
    issued in connection
    with Series A
    Preferred Stock              1:1                -                     -                140,000               140,000
  Common stock warrants
    issued to placement
    agent in Series A
    Preferred Stock              1:1                -                     -                 20,000                20,000
  Common stock warrants
    issued in connection
    with DCI merger
    (See Notes 9 and 16)         1:1          207,182               207,182                      -                     -
  Common stock warrants
    issued to 10%
    convertible Note
    Payable                      1:1          273,038               273,038                      -                     -
  Common stock warrants
    issued to customers
    (See Note 16)                1:1          231,829               231,829                 70,162                70,162
                                         ------------           -----------           ------------        --------------
  Total                                       973,149               973,149              1,876,462             1,190,612
                                         ============           ===========           ============        ==============
</TABLE>



                                      F-26
<PAGE>

(8)  NET REVENUES

     Net revenues consist of software license fees; service bureau application
provider service fees; service fees for professional services for software
integration, configuration, custom programming, hosting and software support and
maintenance; and computer hardware sales.  Net revenues are comprised of the
following:

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                               December 31,
                                                          ----------------------
                                                             1999        1998
                                                          ----------  ----------
<S>                                                       <C>         <C>
Net revenues:
 License                                                  $  392,810  $  140,914
 Service bureau application provider service fees            263,888     132,959
 Services                                                  1,170,076     211,790
 Hardware and software                                       117,509   1,103,717
                                                          ----------
 Total net revenues                                       $1,944,283  $1,589,380
                                                          ==========  ==========
</TABLE>

     During July 1999, the Company sold two customer contracts to an unrelated
third party, including computer hardware, for approximately $270,000. The
Company provided services and equipment under the terms of the original
contracts enabling the customers to provide Internet access to their end users.
The Company recorded $138,504 of service revenue for the year ended December 31,
1999 related to providing services to the purchaser of these two contracts.
Revenue recognized by the Company from these contracts totaled approximately
$6,000 for the year ended December 31, 1999.

(9)  ACQUISITIONS

     DURAND COMMUNICATIONS, INC.

     On June 30, 1999, Durand Acquisition Corporation ("DAC"), a wholly owned
subsidiary of the Company, completed a merger with DCI, a developer and marketer
of Internet "community" building tools, by exchanging 947,626 of the Company's
common stock for all of the common stock of DCI at an exchange ratio of 2.46
shares of the Company's common stock for each share of DCI's common stock.  In
addition, outstanding DCI options and warrants to purchase common stock were
converted at the same exchange ratio into 242,293 options and warrants to
purchase the Company's common stock.  The acquisition of the assets and
liabilities was recorded using the purchase method of accounting whereby the
consideration paid of $14,216,876 was allocated based on the fair values of the
assets and liabilities acquired with the excess consideration over the fair
market value of tangible assets of $14,132,445 recorded as intangible assets.
The Company has determined that substantially all of the intangible assets
acquired are represented by the value of the developed technology, workforce and
goodwill acquired from DCI.

Total consideration for the merger is as follows:

<TABLE>
<S>                                                          <C>
          Value of common stock issued                       $ 9,239,358
          Value of warrants and options issued                 1,504,349    (a)
          Liabilities assumed                                  2,190,566    (b)
          Acquisition expenses                                 1,282,603
                                                             -----------
          Total purchase price                               $14,216,876
                                                             ===========
</TABLE>

The purchase price was allocated to the assets acquired based on their fair
market values as follows:

                                      F-27
<PAGE>

<TABLE>
          <S>                                                             <C>
          Cash and cash equivalents                                       $    23,739
          Other current assets                                                 23,708
          Property and equipment                                               36,984
                                                                          -----------
          Total tangible assets acquired                                       84,431
          Developed technologies, goodwill and other intangibles           14,132,445
                                                                          -----------
          Total assets acquired                                           $14,216,876
                                                                          ===========
</TABLE>

(a)  242,293 warrants and options issued, which were valued using the Black-
     Scholes option pricing model using the following assumptions:

<TABLE>
          <S>                                                  <C>
          Exercise prices                                      $4.30 to $20.33
          Fair market value of common stock on
            measurement date                                             $9.75
          Option lives                                            1 to 9 years
          Volatility rate                                                 104%
          Risk free rate of return                                        5.0%
          Dividend rate                                                     0%
</TABLE>

(b)  The liabilities assumed by the Company included a $1,168,173 note payable
     and accrued interest from DCI to the Company which was forgiven at the
     consummation of the transaction.

     In connection with the merger, the Company issued a warrant to financial
advisory firm to purchase 50,150 shares of the Company's common stock at an
exercise price of $8.85. The warrant is exercisable for a period of five years.
The Company recorded $654,488 in acquisition costs for the warrant, which was
valued using the Black-Scholes option pricing model utilizing the following
assumptions:

<TABLE>
          <S>                                                    <C>
          Exercise price                                          $ 8.85
          Fair market value of common stock on grant date         $15.50
          Option life                                            5 Years
          Volatility rate                                            104%
          Risk free rate of return                                   5.0%
          Dividend rate                                                0%
</TABLE>

     The transaction with DCI resulted in $14,132,445 of intangible assets
(primarily developed technologies, workforce and goodwill).  These intangible
assets will be amortized over their estimated economic lives of three years.
The purchase price allocation is subject to adjustment based on the final
determination of the fair value of the assets and liabilities assumed, which
could take as long as one year from June 30, 1999.

     The results of operations of DCI are included in the Company's results from
the date of the DCI acquisition and all significant intercompany balances and
transactions have been eliminated in consolidation.

     NETIGNITE, INC.

     On March 10, 1999, the Company acquired a controlling interest in a newly
formed company, NetIgnite 2, LLC ("NetIgnite").  NetIgnite was a development
stage company which the Company formed with a predecessor company by the name of
NetIgnite, Inc. ("NI"), the sole shareholder and founder of which was Perry
Evans, the founder and past President of MapQuest.com.  The Company was, as a
result of this transaction, entitled to 99.5% of NetIgnite's operating income
and approximately 60% of any proceeds upon the sale of NetIgnite.  NI was
entitled to .5% of NetIgnite's operating income and approximately 40% of any
proceeds upon the sale of NetIgnite.  Mr. Evans entered into an Employment
Agreement with the Company which has an initial term of two years, provides for
a minimum annual salary of $190,000 and the granting of stock options to
purchase 80,000 shares of

                                      F-28
<PAGE>

common stock at an exercise price of $12.25, one-third of such option shares to
vest annually during the next three years subject to Mr. Evans' continuous
employment by the Company.

     Prior to June 2, 1999, the Company utilized the equity method of accounting
for this subsidiary and recorded a loss from this investment totaling $127,083
for the year ended December 31, 1999.

     On June 2, 1999, the Company acquired the assets and liabilities of NI in
exchange for 71,429 shares of common stock valued at $984,400.  The acquisition
of these assets and liabilities was recorded using the purchase method of
accounting whereby the consideration paid was allocated based on the fair values
of the assets and liabilities acquired with the excess consideration of $893,953
being recorded as an intangible asset, primarily developed technologies and
goodwill.  These intangible assets will be amortized over their estimated
economic lives of three years.  The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the assets and
liabilities assumed, which could take as long as one year from June 2, 1999.

     The results of operations of NetIgnite are included in the Company's
results from the date of the NI acquisition and all significant intercompany
balances and transactions have been eliminated in consolidation.

     The following table summarizes the results of operations for the Company on
a pro forma basis as if both the acquisitions had occurred on January 1, 1998:

                                                         PRO FORMA
                                                  YEAR ENDED DECEMBER 31,
                                              -------------------------------
                                                  1999               1998
                                              ------------       ------------
Net revenues                                  $  1,928,118       $  1,606,896
Net loss available to common stockholders     $(27,434,184)      $(21,735,056)
Loss per share, basic and diluted             $      (4.15)      $      (6.00)

(10) CUSTOMER ACQUISITION COSTS

     During 1999 and 1998, the Company granted warrants to three and one
customers, respectively, to purchase in the aggregate 161,667 and 70,162 shares,
respectively, of the Company's common stock at exercise prices ranging from
$8.77 to $9.94 per share which may be exercised at any time during the one to
three-year periods from the date of issuance.  Because the agreements entered
into by the Company did not contain minimum guaranteed revenue and due to the
start-up nature of these services and other uncertainties regarding these
arrangements, the Company recorded expense for customer acquisition costs of
$941,684 and $560,824 for the years ended December 31, 1999 and 1998,
respectively.  The Company valued these options utilizing the Black-Scholes
option pricing model using the following assumptions:

<TABLE>
<CAPTION>
                                                                           1999                        1998
                                                                    ------------------        --------------------
          <S>                                                       <C>                       <C>
          Exercise prices                                              $9.19 to $9.94                 $ 8.77
          Fair market value of common stock on grant date             $8.81 to $15.50                 $11.69
          Option lives                                                   1 to 3 Years                3 years
          Volatility rate                                                        104%                     98%
          Risk free rate of return                                       5.0% to 6.0%                   4.52%
          Dividend rate                                                            0%                      0%
</TABLE>

     In January 2000, a warrant holder exercised its warrant to purchase 7,000
shares of the Company's common stock resulting in proceeds to the Company of
$68,250 (See Note 16).


                                      F-29
<PAGE>

(11)  MAJOR CUSTOMERS

     A substantial portion of the Company's sales is derived from a limited
number of customers.  The Company's sales to customers in excess of 10% of net
sales for the years ended December 31, 1999 and 1998, are as follows:

<TABLE>
<CAPTION>
                                                       1999                  1998
                                                 -----------------     ----------------
          <S>                                    <C>                   <C>
          Customer A                                  $500,000              $       -
          Customer B                                   364,365                227,098
          Customer C                                   325,000                      -
          Customer D                                         -                440,109
          Customer E                                         -                277,301
          Customer F                                   122,120                185,768
</TABLE>

     The Company's accounts receivable balances from customers in excess of 10%
of the accounts receivable and accrued revenue receivables balance for the years
ended December 31, 1999 and 1998, are as follows:


                                             1999            1998
                                            -------        -------
          Customer B                        $21,825        $18,350
          Customer D                              -         72,821
          Customer F                          4,000         22,925
          Customer G                         19,000              -
          Customer H                         35,000              -
          Customer I                         17,056              -

(12)  INCOME TAXES

      The provision for income taxes includes the following:

                                                        Year Ended
                                                       December 31,
                                            -------------------------------
                                                1999                1998
                                            -----------         -----------
Current:
  Federal                                    $        -         $         -
  State                                               -                   -
                                            -----------         -----------
  Total current provision                             -                   -
                                            -----------         -----------
Deferred:
  Federal                                    (5,497,115)         (3,583,883)
  State                                        (533,543)           (347,847)
  Valuation allowance                         6,030,658           3,931,730
                                            -----------         -----------
  Total deferred provision (benefit)                  -                   -
                                            -----------         -----------
  Total provision                           $         -         $         -
                                            ===========         ===========

     The statutory federal income tax rate was 34% for the years ended December
31, 1999 and 1998.  Differences between the income tax expense reported in the
statements of operations and the amount reported by applying the statutory
federal income tax rate to loss available to common shareholders before income
taxes are as follows:

                                                      Year Ended
                                                     December 31,
                                               ------------------------------
                                                    1999               1998
                                               -----------        -----------
Benefit at statutory rate                      $(7,434,444)       $(5,359,206)
Increase (decrease) due to:
 State income taxes                               (721,578)          (520,158)
 Nondeductible expenses                          2,125,364          1,947,634
 Valuation allowance                             6,030,658          3,931,730
                                               -----------        -----------
 Income tax provision                          $         -        $         -
                                               ===========        ===========



                                     F-30
<PAGE>

Components of net deferred assets (liabilities) as of December 31, 1999 and 1998
are as follows:
                                                          Year Ended
                                                         December 31,
                                               ------------------------------
                                                   1999               1998
                                               ------------       -----------
Current:
  Accrued liabilities and other reserves       $     77,920       $    21,894
  Deferred revenue                                   85,000                 -

Non-current:
  Depreciation                                       21,788            14,137
  Book amortization in excess of tax                 44,035           123,202
  Net operating losses                           11,882,482         5,921,334
                                               ------------       -----------
  Total net deferred tax assets                  12,111,225         6,080,567
  Valuation allowance                           (12,111,225)       (6,080,567)
                                               ------------       -----------
  Net deferred tax assets                      $          -       $         -
                                               ============       ===========

     For income tax purposes, the Company has approximately $31,856,000 of net
operating loss carryforwards that expire at various dates through 2019. The Tax
Reform Act of 1986 contains provisions that may limit the net operating loss
carryforwards available to be used in any given year in the event a significant
change in ownership. Realization of net operating loss carryforwards is
dependent on generating sufficient taxable income prior to its expiration dates.

     During 1999 and 1998, the Company increased its valuation allowance by
$6,030,658 and $3,931,730, respectively, due mainly to uncertainty relating to
the realizability of the 1999 and 1998 net operating loss carryforwards. The
amount of the deferred tax assets considered realizable could be adjusted in the
near term if future taxable income materializes.

(13) RELATED PARTY TRANSACTIONS

     Customer

     A director of the Company is also the general partner and chief executive
officer for one of the Company's customers. The Company entered into a contract
during August 1997, as amended, whereby the Company provides its products and
services to the customer for several markets. The expiration dates of the
contract and related amendments range from August 1999 to July 2000. The Company
earns revenue from the sale of computer hardware, engineering fees, equipment
installation fees, and royalties from subscriber Internet access and content
fees. The Company recognized revenue totaling $122,120 and $185,768 for the
years ended December 31, 1999 and 1998, respectively. Included in accounts
receivable at December 31, 1999 and 1998 are amounts due from the customer
totaling $4,000 and $22,925, respectively.

     Legal Services

     The Company's vice-president of administration and corporate counsel, who
began his employment with the Company in 1999, is also a partner in the firm the
Company retains for its legal services. During the year ended December 31, 1999,
the Company paid $268,412 in legal fees to the firm and $8,013 was included in
the Company's accounts payable balance as of December 31, 1999.



                                      F-31
<PAGE>

(14) COMMITMENTS AND CONTINGENCIES

 Minimum future annual lease payments as of December 31, 1999 are as follows:

               2000                              $  837,813
               2001                                 847,335
               2002                                 556,348
               2003                                 584,878
               2004                                 599,136
               Thereafter                           299,568
                                                 ----------
                                                 $3,725,078
                                                 ==========

     The total operating lease expense for the years ended December 31, 1999 and
1998, was $368,168 and $363,709, respectively.

     In November 1999, the Company entered into a three-year application service
provider agreement whereby the Company pays approximately $7,300 per month for
financial application software hosting services. The term of the agreement is
for three years and the Company has the right to terminate the agreement at any
time for a termination fee of 30% of the remaining monthly payments. Total
payments under this agreement are expected to be approximately $265,000.

     On January 14, 2000, the Company entered into a two-year software lease
agreement which specifies an initial payment of $50,000 and thereafter quarterly
lease payments of $54,412 beginning January 2000. Total lease payments are
$485,296 (See Note 17).

     On February 2, 2000, the Company entered into a three-year lease for a
second office location. Total lease payments are $61,539 in 2000, $63,693 in
2001 and $65,922 in 2002.

     The Company has entered into employment agreements with R. Steven Adams and
its executive officers, including William R. Cullen, Perry Evans, Gwenael Hagan
and Andre Durand which takes effect only if a change of control of 30% or more
of our outstanding voting stock occurs. If a change of control occurs, these
agreements provide for the continued employment (at similar responsibility and
salary levels) of the employee for a period of three years after the change of
control. During this three year period, if the Company (or a successor entity)
terminates the employee's employment without cause or if the employee terminates
his employment for a good reason, then the Company (or a successor entity) must
pay a lump sum severance to the employee equal to three years salary (including
bonus), accelerate the vesting of all outstanding options held by the employee
and allow the employee to continue to participate in our benefit and welfare
plans (or those of the successor entity) for a period of three years after the
employment terminates.

(15) BUSINESS SEGMENT INFORMATION

     The Company supports products and services that simplify and support e-
commerce transactions in local markets by providing an interactive framework of
local commerce and community-based services comprised of publishing, content
management, community-building and communications. In addition, the Company
supports products and services for electronic banking applications, targeting
credit unions, community banks, and savings and loan institutions with a full
line of e-banking transaction processing and account management services. The
Company has two reportable business segments: Local Commerce/Enterprise and e-
Banking.

     Local Commerce/Enterprise consists of Internet application solutions which
provide merchants options for reaching their target customers through simple
tools that publicize their company, product and service offerings; buyers to
quickly find rich information about merchants and their offerings; and buyers
and sellers a more effective and efficient transaction.

     e-Banking consists of an online banking solution, marketed generally to
financial institutions having less than $500 million in assets, using a service
bureau approach to e-banking, which enables institutions to provide many of the
capabilities and services available to the larger financial institutions without
the cost associated with the development of institution-specific systems.

     Corporate Activities consists of general corporate expenses, including
capitalized costs that are not allocated to specific business segments. Assets
of corporate activities include unallocated cash, receivables, prepaid expenses,
note receivable, deferred acquisition costs, deposits, intangible assets
acquired in mergers, and corporate use of property and equipment.


                                      F-32
<PAGE>

Net Sales
--------------------------------------------------------------------------------
                                                             Year Ended
                                                             December 31,
                                                    ----------------------------
                                                       1999              1998
                                                    -----------       ----------

Local commerce/enterprise                            $1,193,196       $1,362,282
e-Banking                                               751,087          227,098
                                                     ----------       ----------
Total net sales                                      $1,944,283       $1,589,380
                                                     ==========       ==========
Net Loss
--------------------------------------------------------------------------------
                                                           Year Ended
                                                          December 31,
                                                  ------------------------------
                                                      1999              1998
                                                  ------------     -------------

Local commerce/enterprise                         $ (5,378,071)    $ (4,578,160)
e-Banking                                               30,193         (309,523)
Corporate activities                               (11,929,217)      (5,728,580)
                                                  ------------     ------------
Net loss                                          $(17,277,095)    $(10,616,263)
                                                  ============     ============


Assets
--------------------------------------------------------------------------------
                                                             December 31,
                                                   -----------------------------
                                                       1999              1998
                                                   ------------       ----------
Local commerce/enterprise                           $ 1,651,481       $  696,219
e-Banking                                               714,216          416,071
Corporate activities                                 20,258,837        2,272,986
                                                    -----------       ----------
Total                                               $22,624,534       $3,385,276
                                                    ===========       ==========


                                      F-33
<PAGE>

Property and Equipment, net
--------------------------------------------------------------------------------
                                                             December 31,
                                                     ---------------------------
                                                        1999             1998
                                                     ----------       ----------
Local commerce/enterprise                            $1,378,408      $   516,918
e-Banking                                               683,890          397,721
Corporate activities                                    290,191          263,989
                                                     ----------      -----------
Total                                                $2,352,489      $ 1,178,628
                                                     ==========      ===========

Depreciation and Amortization
--------------------------------------------------------------------------------
                                                              Year Ended
                                                             December 31,
                                                     ---------------------------
                                                        1999             1998
                                                     ----------       ----------
Local commerce/enterprise                            $  576,306       $  546,824
e-Banking                                               134,250          140,953
Corporate activities                                  2,500,976          103,378
                                                     ----------       ----------
Total                                                $3,211,532       $  791,155
                                                     ==========       ==========


Property and Equipment Additions
-----------------------------------------------------------------------------
                                                          Year Ended
                                                         December 31,
                                               ------------------------------
                                                   1999                1998
                                               ----------            --------
        Local commerce/enterprise              $1,121,102            $221,672
        e-Banking                                 420,418             124,652
        Corporate activities                      151,012             135,103
                                               ----------            --------
        Total                                  $1,692,532            $481,427
                                               ==========            ========

(16) SUBSEQUENT EVENTS

     Business Acquisition

     On January 7, 2000, the Company acquired assets of Update Systems, Inc.
("Update"), a developer and provider of e-communication solutions for businesses
in the highly competitive world of Internet relationships, by issuing 278,411
shares of the Company's common stock. In addition, outstanding Update options to
purchase common stock were exchanged into 49,704 options to purchase the
Company's common stock. The acquisition of the assets was recorded using the
purchase method of accounting whereby the consideration paid of $10,060,417 was
allocated based on the fair values of the assets acquired with the excess
consideration over the fair market value of tangible assets of $10,014,485
recorded as intangible assets. The Company has determined that substantially all
of the intangible assets acquired are represented by the value of the developed
technology and workforce acquired from Update.

Total consideration for the merger is as follows:

          Value of common stock issued                         $ 8,630,741
          Value of options issued                                1,364,676 (a)
          Acquisition expenses                                      65,000
                                                               -----------
          Total purchase price                                 $10,060,417
                                                               ===========

The purchase price was allocated to the assets acquired based on their fair
market values as follows:

           Acquired property and equipment                          $    45,932
           Developed technologies, goodwill and other intangibles    10,014,485
                                                                    -----------
           Total assets acquired                                    $10,060,417
                                                                    ===========

(a)  49,704 warrants and options issued, valued using the Black-Scholes option
     pricing model using the following assumptions:

           Exercise prices                                              $ 4.33
           Fair market value of common stock on
              measurement date                                          $29.50
           Option lives                                                5 years
           Volatility rate                                                 104%
           Risk free rate of return                                        5.0%
           Dividend rate                                                     0%

                                      F-34
<PAGE>

     The transaction with Update resulted in $10,014,485 of intangible assets
(primarily developed technologies, workforce and goodwill). These intangible
assets will be amortized over their estimated economic lives of three years. The
purchase price allocation is subject to adjustment based on the final
determination of the fair value of the assets acquired, which could take as long
as one year from January 7, 2000.

  Series B Preferred Stock

     On February 18, 2000, the Company completed a private placement which
resulted in gross proceeds of $12,500,000. The placement was made pursuant to a
securities purchase agreement entered into on December 31, 1999. The Company
sold 12,500 shares of its Series B convertible preferred stock (the "Series B
Preferred Stock"), including warrants to purchase 343,750 shares of the
Company's common stock. Net proceeds to the Company were approximately
$11,660,000 after deducting approximately $840,000 in offering costs.

     The Series B Preferred Stock is convertible into shares of the Company's
common stock, initially at $20.00. The conversion rate for the Series B
Preferred Stock is subject to potential resets. The first will be on the date
that a registration statement relating to the common stock issuable upon
conversion of the Series B Preferred Stock is declared effective by the SEC and
the second will be on the later of November 18, 2000 or three months after the
effective date of the registration statement. The adjustment price on each such
date shall be the then market price for the Company's common stock if lower than
the then effective conversion price but will not be less than $8.00 per share.

     Due to the conversion feature associated with the Series B Preferred Stock,
the Company must account for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend. The computed value of the
Guaranteed Return of $2,434,957 is limited to the relative fair value of the
Series B Preferred Stock, which totaled $2,434,957 and is initially recorded as
a reduction of the Series B Preferred Stock and an increase to additional paid-
in capital. The Guaranteed Return reduction to the Series B Preferred Stock will
be accreted, as additional dividends, by recording a charge to income available
to common stockholders from the date of issuance to the earliest date of
conversion.

     In connection with the 10% convertible note payable (See Note 6), the terms
of the note payable agreement were amended on December 18, 1999 whereby the
Company issued the note holder a five-year warrant to purchase 136,519 shares of
the Company's common stock at an exercise price of $18.51 per share in
consideration for the note holder's agreement to exchange the note for an
amended note with terms more favorable for the Company to facilitate the sale of
the Company's Series B Preferred Stock. The Company recorded deferred offering
costs related to the Series B Preferred Stock for the issuance of the warrant
valued at $2,311,475.

     The difference between the stated redemption value of $1,000 per share and
the recorded value on February 18, 2000, totaling $12,500,000, will be accreted
as a charge to income available to common stockholders on the date the Series B
Preferred Stock is first convertible is comprised of the following:

        Guaranteed return                                         $ 2,434,957
        Value of common stock warrants                              6,913,568
        Value of common stock warrant issued to holder of 10%
          note payable                                              2,311,475
        Series B Preferred Stock offering costs                       840,000
                                                                  -----------
        Total accretion recorded                                  $12,500,000
                                                                  ===========

     The 343,750 common stock purchase warrants issued with the Series B
Preferred Stock, valued at $7,038,891 based on the relative fair value of the
warrants using the Black-Scholes option pricing model compared to the net
proceeds received by the Company, entitles the holder to purchase one share of
the Company's common stock for a purchase price initially set at $20.20, equal
to 101% of the initial conversion price of the preferred stock at any time
during the five-year period commencing on February 18, 2000. The exercise price
for the warrants is subject to being reset based upon future market prices for
the Company's common stock. The warrant was valued utilizing the Black-Scholes
option pricing model using the following assumptions:

                                     F-35
<PAGE>

          Exercise price                                         $20.20
          Fair market value of common stock on grant date        $66.88
          Option life                                           5 Years
          Volatility rate                                           120%
          Risk free rate of return                                    0%
          Discount rate                                             6.7%

     Conversion of 10% Convertible Note Payable

     On February 18, 2000, the holder converted $2,500,000 of the outstanding
Note Payable into 248,262 shares of the Company's common stock at an exercise
price of $10.07 per share.

     Exercise of Common Stock Warrants

     During January and February 2000, holders of warrants exercised their right
to purchase 451,515 shares of the Company's common stock resulting in proceeds
to the Company totaling $4,976,226 as summarized in the following table:

<TABLE>
<CAPTION>
                                               Common
                                                Stock          Exercise      Common       Proceeds
                                               Warrant           Price       Stock         To the
   Warrant Exercised                         Exercised         Per Share     Issued        Company
--------------------------------             ---------     -------------     -------     -----------
<S>                                          <C>           <C>               <C>         <C>
10% preferred stock warrants                    12,000            $15.00      12,000        180,000
IPO representative warrants                     90,727              8.10      84,042        645,789
Warrants issued in connection
  with the DCI merger                          105,269     6.61 to 10.16     103,607        887,410
Warrant issued in connection
  with 5% Preferred Stock                      100,000             16.33     100,000      1,633,000
Warrant issued to customer                       7,000              9.75       7,000         68,250
Warrant issued to 10%
  convertible note holder                      136,519             11.44     136,519      1,561,777
                                               -------                       -------     ----------
                                               451,515                       443,168     $4,976,226
                                               =======                       =======     ==========
</TABLE>

     Included in the common stock issued in connection with the exercise of the
IPO representative warrants and the warrants issued in connection with the DCI
merger are 8,992 and 6,865 shares, respectively, issued to the holders as a
result of utilizing the cashless exercise provision of the Agreements for the
exercise of 11,000 and 8,527 warrants, respectively.


                                     F-36
<PAGE>

     Conversion of 10% Preferred Stock

     During January and February 2000, 85,000 shares of the 10% Preferred Stock,
including accrued dividends payable of $173,027, were converted into 102,302
shares of the Company's common stock at conversion prices of $10.00 as
summarized in the following table:

                                      Number of Shares
                                 -------------------------
                                   10%                         Common Stock
                                 Preferred        Common        Conversion
         Conversion Date           Stock           Stock       Price per Share
         ---------------         ---------        ------       ---------------
        January 11, 2000            80,000        96,240          $ 10.00

        February 14, 2000            5,000         6,062            10.00
                                                  ------          -------
                                                  85,000          102,302
                                                  ======          =======
     Lease Agreements

     On January 14, 2000, the Company entered into a two-year software license
lease agreement which specifies an initial payment of $50,000 and thereafter
quarterly payments of $54,412. Total lease payments will be $485,296. The lease
is secured by a one-year cash certificate of deposit totaling $267,685.

     On February 2, 2000, the Company entered into a three-year lease for a
second office location. Total lease payments are $61,539 in 2000, $63,693 in
2001 and $65,922 in 2002.

                                      F-37
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.
                               INDEX TO EXHIBITS
                 FORM 10-KSB (For Year Ended December 31, 1999)

(a)  Listing of Exhibits:

     2.1   Agreement and Plan of Merger dated March 19, 1998 among Webb, Durand
           Acquisition Corporation and Durand Communications, Inc. (1)
     2.2   Asset Purchase Agreement, including exhibits thereto, dated December
           27, 1999, between Webb Interactive Services, Inc., Update Systems,
           Inc. and Kevin Schaff. (2)
     2.3   Agreement and Plan of Merger between Webb and NetIgnite, Inc., dated
           June 1, 1999 (3)
     3.1   Articles of Incorporation, as amended, of Webb (4)
     3.2   Bylaws of Webb (5)
     4.1   Specimen form of Webb's Common Stock certificate (6)
     4.2   Stock Option Plan of 1995 (5)
     4.3   Form of Incentive Stock Option Agreement for Stock Option Plan of
           1995 (5)
     4.4   Form of Nonstatutory Stock Option Agreement for Stock Option Plan of
           1995 (5)
     4.5   Form of Warrant issued in 1996 to private investors (5)
     4.6   Form of Warrant Agreement issued in 1997 and 1998 to private
           investors (1)
     10.1  Form of Nondisclosure and Nonsolicitation Agreement between Webb and
           its employees (4)
     10.2  Office Lease for Webb's principal offices commencing May 2000*
     10.3  Form of Change of Control Agreement between Webb and certain
           employees (7)
     10.4  Operating and Member Control Agreement dated March 10, 1999, among
           NetIgnite2, LLC, Webb and NetIgnite, Inc., Buy-Sell Agreement dated
           March 10, 1999, among NetIgnite2, LLC, Webb and NetIgnite, Inc. and
           Employment Agreement dated March 10, 1999, among Webb, NetIgnite2,
           LLC and Perry Evans (7)
     10.5  Electronic Banking Service Contract dated May 28, 1997 between Webb
           and Rockwell Federal Credit Union (7)
     10.6  Online Banking Service Agreement dated February 10, 1999 between Webb
           and CU Cooperative Systems, Inc. (7)
     10.7  Internet/Business Site Development & Host Agreement dated November
           12, 1997, as amended January, 2000, between Webb and ReMax
           International, Inc.*
     10.8  Securities Purchase Agreement dated August 25, 1999 between Webb and
           Castle Creek (8)
     10.9  Promissory Note dated August 25, 1999 issued by Webb to Castle Creek
           (8)
     10.10 Amendment dated December 18, 1999 to Securities Purchase Agreement
           dated August 25, 1999 between Webb and Castle Creek (9)
     10.11 First Amendment dated December 18, 1999 to Promissory Note dated
           August 25, 1999 issued by Webb to Castle Creek (9)
     10.12 Stock Purchase Warrant dated December 18, 1999 issued by Webb to
           Castle Creek (9)
     10.13 Securities Purchase Agreement dated December 31, 1999, between Webb,
           Marshall Capital Management and Castle Creek. Included as exhibits to
           the Securities Purchase Agreement are the proposed form of Warrant
           and the Registration Rights Agreement (10)
     10.14 Articles of Amendment setting forth the terms of the Series B
           Convertible Preferred Stock (11)
     10.15 Development, Access and License Agreement, as amended, effective
           June 30, 1999 between Webb and Switchboard, Inc. (12)
     10.16 Engineering Services Agreement, effective June 30, 1999, between
           Webb and Switchboard, Inc. (12)
     13    The registrant intends to deliver to its shareholders a copy of 1999
           Annual Report on form 10-KSB (without exhibits), in lieu of a
           separate Annual Report to Shareholders
     21    Subsidiaries of Webb Interactive Services, Inc.*
     23.1  Consent of Arthur Andersen LLP*
     27    Financial Data Schedule*
-----------------------------
*    Filed herewith.
<PAGE>

(1)  Filed with the Form 10-KSB Annual Report for the year ended December 31,
     1997, Commission File No. 0-28462.
(2)  Filed with the Form 8-K Current Report, filed January 14, 2000, Commission
     File No. 0-28642.
(3)  Filed with the Form 10-QSB for the quarter ended June 30, 1999, Commission
     File No. 0-28642.
(4)  Filed with the Registration Statement on Form S-3, filed January 29, 1999,
     Commission File No. 333-71503.
(5)  Filed with the initial Registration Statement on Form SB-2, filed April 5,
     1996, Commission File No. 333-3282-D.
(6)  Filed with the Registration Statement on Form S-3, filed September 24,
     1999, Commission File No. 333-86465.
(7)  Filed with the Form 10-KSB Annual Report for the year ended December 31,
     1998, Commission File No. 0-28462.
(8)  Filed with the Form 8-K Current Report, filed September 2, 1999, Commission
     File No. 0-28642.
(9)   Filed with Amendment No. 2 to Webb's Registration Statement on Form S-3,
     filed January 3, 2000, Commission File No. 333-87887
(10)   Filed with the Form 8-K Current Report, filed January 5, 2000, Commission
     File No. 0-28642.
(11) Filed with the Form 8-K Current Report, filed February 25, 2000, Commission
     File No. 0-28642.
(12) Filed with the Registration Statement on Form S-3, filed September 2, 1999,
     Commission File No. 333-86465.