<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                Amendment No. 1
                                      to
                                 FORM 10-KSB/A
                                 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, 2000                              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.)

  1899 Wynkoop, Suite 600, 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, 2000: $4,014,393.

     Aggregate market value of voting stock held by non-affiliates of registrant
as of March 23, 2001: Approximately $20,145,000.

     Number of shares outstanding as of March 23, 2001: 10,354,473 shares of
common stock, no par value.

     Documents incorporated by reference:  Definitive Proxy Statement for 2001
Annual Meeting of Shareholders for Part III.
<PAGE>

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 businesses. Our AccelX product line of XML-based commerce and
buyer-seller interaction products and services provides businesses with powerful
web-site development and communication tools to attract customers, generate
leads, increase buyer-seller interaction and strengthen customer relationship
management. Our Jabber.com, Inc. subsidiary is building a business around
commercializing Jabber.org open-source technologies for real time XML-based
communications. Jabber.com is currently focused on developing and marketing
commercial-grade instant messaging software, solutions and hosting for large
enterprises, service providers and independent software vendors.

     We distribute our AccelX products and 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 AccelX products may be either licensed or delivered on an
application service provider business model whereby we would host the software
on our servers and expect to 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 January 2000, we were organized around our primary market focus on
local commerce services, with an additional business unit dedicated to e-banking
services. During the third quarter of fiscal 2000, we discontinued our e-banking
business. In January 2000, we formed a new subsidiary in order to commercialize
separately the Jabber.org instant messaging system from our AccelX business. We
intend to seek participation from external partners to help us maximize the
value of our instant messaging business.

     During July 2000, we completed a business plan for our Jabber.com
subsidiary. The plan focuses Jabber.com's business development efforts on three
areas:

     .  Providing professional services to help companies implement, customize
        and host instant messaging applications;
     .  Developing instant messaging services for businesses, which may be
        either licensed or delivered on an application service provider business
        model; and
     .  Developing open gateway services through strategic relationships with
        companies in the areas of Internet protocol telephony, mobile services,
        customer services and exchange services.

     On March 1, 2001, Jabber.com introduced the Jabber Commercial Server 2.0, a
highly scaleable Jabber server that provides the foundation for current and
future server products. Jabber Commercial Server 2.0 provides enterprises and
service providers with enhanced performance, scalability, reliability and
security compared to the Jabber open-source software. To date, Jabber.com's
activities have focused primarily on promoting the wide-spread use of the Jabber
open-source instant messaging protocol (XMPP), providing professional services
to businesses desiring to test the Jabber open-source platform and developing
the Jabber Commercial Server 2.0 software.

     We have incurred losses from operations since inception. At December 31,
2000, we had an accumulated deficit of approximately $91.5 million. The
accumulated deficit at December 31, 2000, included approximately $51.6 million
of non-cash expenses related to the following:

     .  Beneficial conversion features related to the 10% convertible note
        payable, preferred stock and preferred stock dividends;
     .  Reset of warrant exercise prices;

                                       2
<PAGE>

     .  Stock and stock options issued for services;
     .  Warrants issued to customers;
     .  Interest expense on the 10% convertible note paid by the issuance of
        similar notes;
     .  Amortization of intangible assets acquired in consideration for the
        issuance of our securities;
     .  Impairment loss on acquired intangible assets and goodwill;
     .  Write-off of securities received for our e-banking business; and
     .  Preferred stock dividends.

     As a result of the $2.5 million preferred stock private placement we
completed in February 2001, we will record an additional non-cash expense
totaling approximately $2 million associated with issuance of our series C-1
preferred stock. In addition, we will record an additional non-cash expense
totaling approximately $3.3 million associated with the reset of conversion
prices for our series B-2 preferred stock and 10% convertible note payable as
well as the reset of exercise price for certain warrants issued in connection
with our series B preferred stock private placement. We may record substantial
additional non-cash charges in connection with future financings.

RESULTS OF OPERATIONS

     In December 1999, we issued a warrant to the holder of our 10% note payable
in connection with amending the terms of our 10% note payable. This warrant was
issued in connection with the sale of our series B preferred stock, which we
completed in February 2000. We originally recorded the warrant, valued at
$2,311,475, as a series B preferred stock offering cost. We have now determined
that it is appropriate to re-characterize this warrant as additional
consideration to the note holder, and have revised our accounting for this
warrant to reflect it as a deferred financing asset related to the 10% note
payable. Accordingly, the results of operations for periods after December 1999,
have been restated to reflect such capitalization and amortization of the
$2,311,475 as additional non-cash interest expense from the date of issuance to
the date of maturity for the 10% convertible note payable, August 25, 2002. This
restatement has no effect on previously reported cash flows from operations,
investing activities, or financing activities.

     During July and September 2000, we issued 912,500 shares of common stock of
our subsidiary, Jabber.com, to Jabber.com employees, an officer of Webb and
members of the Jabber.com advisory boards for services provided to Jabber.com
and to be rendered in future periods. Certain of the shares were vested
immediately, and certain shares vest over a periods ranging from one month to
two years. We recorded the estimated fair value of these shares and the related
deferred compensation totalling $523,700 on the grant date. Through December 31,
2000, we recorded compensation expense totalling $276,337. In our previously
reported results for the year ended December 31, 2000, we recorded minority
interest on our balance sheet equal to the total value of the common stock and
did not allocate any of Jabber.com's losses to the minority shareholders of
Jabber.com. We have revised our accounting for the minority interest to reflect
the minority share of Jabber's losses in an amount equal to the minority
interest share of Jabber.com's net assets.

     This restatement and its impact on previously reported quarterly amounts
are presented below.

Unaudited Condensed Consolidated Statement of Operations:

<TABLE>
<CAPTION>
                                                                                          Year Ended
                                                                                       December 31, 2000
                                                                        ----------------------------------------------
                                                                             As Reported              As Restated
                                                                        ---------------------      -------------------
<S>                                                                     <C>                        <C>
Loss from operations                                                           $(35,578,433)            $(35,578,433)
Interest income                                                                     731,808                  731,808
Interest expense                                                                   (605,638)              (1,124,011)
Loss on foreign currency transactions                                              (130,357)                (130,357)
Loss on write-off of investment in common stock                                    (448,172)                (448,172
Loss on disposition of property and equipment                                      (344,341)                (344,341)
                                                                        -------------------      -------------------
Net loss from continuing operations                                             (36,375,133)             (36,893,506)
Net loss from discontinued operations                                              (203,372)                (203,372)
                                                                        -------------------      -------------------
Net loss before minority interest                                               (36,578,505)             (37,096,878)
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>                                                                     <C>                      <C>
Minority interest in losses of subsidiary                                                 -                  276,337
                                                                        -------------------      -------------------
Net loss                                                                        (36,578,405)             (36,820,441)
Preferred stock dividends                                                          (373,126)                (373,126)
Accretion of preferred stock to redemption value                                (11,660,000)             (11,660,000)
                                                                        -------------------      -------------------
Net loss applicable to common stockholders                                     $(48,611,631)            $(48,853,567)
                                                                        ===================      ===================
Net loss per share, basic and diluted                                                $(5.37)                  $(5.39)
                                                                        ===================      ===================
Weighted average shares outstanding, basic and diluted                            9,060,437                9,060,437
                                                                        ===================      ===================
</TABLE>

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                        March 31, 2000
                                                                        --------------------------------------------
                                                                             As Reported              As Restated
                                                                        -------------------      -------------------
<S>                                                                     <C>                      <C>
Loss from operations                                                      $      (5,346,648)       $      (5,346,648)
Interest income                                                                     161,887                  161,887
Interest expense                                                                   (174,990)                (369,380)
                                                                        -------------------      -------------------
Net loss from continuing operations                                              (5,359,751)              (5,554,141)
Net loss from discontinued operations                                               (34,791)                 (34,791)
                                                                        -------------------      -------------------
Net loss                                                                         (5,394,521)              (5,588,932)
Preferred stock dividends                                                          (373,126)                (373,126)
Accretion of preferred stock to redemption value                                (12,500,000)             (12,500,000)
                                                                        -------------------      -------------------
Net loss applicable to common stockholders                                $     (18,267,668)       $     (18,462,058)
                                                                        ===================      ===================
Net loss per share, basic and diluted                                     $           (2.11)       $           (2.13)
                                                                        ===================      ===================
Weighted average shares outstanding, basic and diluted                            8,667,640                8,667,640
                                                                        ===================      ===================
</TABLE>

<TABLE>
<CAPTION>
                                               Three Months Ended                                 Six Months Ended
                                                  June 30, 2000                                     June 30,2000
                                 --------------------------------------------      --------------------------------------------
                                      As Reported              As Restated              As Reported              As Restated
                                 -------------------      -------------------      -------------------      -------------------
<S>                                <C>                      <C>                      <C>                      <C>

Loss from operations               $      (7,118,958)       $      (7,118,958)       $     (12,465,584)       $     (12,465,584)
Interest income                              283,486                  283,486                  445,373                  445,373
Interest expense                            (172,961)                (280,170)                (347,951)                (649,550)
                                 -------------------      -------------------      -------------------      -------------------
Net loss from continuing
 operations                               (7,008,433)              (7,115,642)             (12,368,162)             (12,669,761)

Net loss from discontinued
 operations                                  (27,065)                 (27,065)                 (61,857)                 (61,857)
                                 -------------------      -------------------      -------------------      -------------------

Net loss                                  (7,035,498)              (7,142,707)             (12,430,019)             (12,731,618)
Preferred stock dividends                          -                        -                 (373,126)                (373,126)
Accretion of preferred stock to
 redemption value                                  -                        -              (12,500,000)             (12,500,000)
                                 -------------------      -------------------      -------------------      -------------------
Net loss applicable to common
 stockholders                      $      (7,035,498)       $     $(7,142,707)       $     (25,303,145)       $     (25,604,744)
                                 ===================      ===================      ===================      ===================
Net loss per share, basic and
 diluted                           $           (0.77)       $           (0.78)       $           (2.85)       $           (2.88)
                                 ===================      ===================      ===================      ===================
Weighted average shares
 outstanding, basic and
 diluted                                   9,112,440                9,112,440                8,888,848                8,888,848
                                 ===================      ===================      ===================      ===================
</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                               Three Months Ended                                 Nine Months Ended
                                               September 30, 2000                                 September 30,2000
                                 --------------------------------------------      --------------------------------------------
                                  As Reported                   As Restated          As Reported                  As Restated
                                 --------------                --------------      ---------------              ---------------
<S>                              <C>                           <C>                 <C>                          <C>
Loss from operations             $   (6,749,146)               $   (6,749,146)     $   (19,215,645)             $   (19,215,645)
Interest income                          70,761                        70,761              508,096                      508,096
Interest expense                       (109,571)                     (217,958)            (457,523)                    (867,509)
                                 --------------                --------------      ---------------              ---------------
Net loss from continuing
 operations                          (7,136,037)                   (7,244,424)         (19,505,115)                 (19,915,101)
Net loss from discontinued
 operations                            (203,372)                     (203,372)            (265,129)                    (265,129)
                                 --------------                --------------      ---------------              ---------------
Net loss                             (7,339,409)                   (7,447,796)         (19,770,244)                 (20,180,230)
Preferred stock dividends                     -                             -             (373,126)                    (373,126)
Accretion of preferred stock to
 redemption value                             -                             -          (12,500,000)                 (12,500,000)
                                 --------------                --------------      ---------------              ---------------
Net loss applicable to common
 stockholders                    $   (7,339,409)               $   (7,447,796)     $   (32,643,370)             $   (33,053,356)
                                 ==============                ==============      ===============              ===============
Net loss per share, basic and
 diluted                         $        (0.80)               $        (0.81)     $         (3.63)             $         (3.67)
                                 ==============                ==============      ===============              ===============
Weighted average shares
 outstanding, basic and
 diluted                              9,217,471                     9,217,471            8,999,188                    8,999,188
                                 ==============                ==============      ===============              ===============
</TABLE>

Twelve Months Ended December 31, 2000 and 1999.

Revenues:

     Components of net revenues from continuing operations and cost of revenues
are as follows:

<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                                                December 31,
                                                                   ---------------------------------------
                                                                         2000                    1999
                                                                   ---------------         ---------------
<S>                                                                <C>                     <C>
Net revenues:
 Licenses                                                          $     2,155,990         $       392,810
 Services                                                                1,858,403                 682,877
 Hardware and third party software sales                                         -                 117,509
                                                                   ---------------         ---------------
   Total net revenues                                                    4,014,393               1,193,196
                                                                   ---------------         ---------------
Cost of revenues:
 Cost of licenses                                                          867,759                 382,951
 Cost of services                                                        2,642,745                 886,652
 Cost of hardware and third party software                                       -                  94,155
                                                                   ---------------         ---------------
   Total cost of revenues                                                3,510,504               1,363,758
                                                                   ---------------         ---------------
Gross margin                                                       $       503,889         $      (170,562)
                                                                   ===============         ===============
</TABLE>

     License revenues represent fees earned for granting customers licenses to
use our software products which we began to sell in the second half of 1999.
During the year ended December 31, 2000, we recognized $1,476,228 from the sale
of initial software licenses and $679,762 from recurring license fees. The
software license revenues in 2000 were primarily from a sale to VNU Publitec, a
European yellow page publisher, and to Vetconnect, Inc., a vertical portal that
provides Internet services for veterinarians, both of these contracts contained
up-front license fees without a recurring revenue component. While our basic
distribution model is to provide services to aggregators of small business who
agree to pay us a portion of their future revenues, thereby providing us with
the expectation of future revenues as our distribution partners sell our
services to their small business customers, late in

                                       5
<PAGE>

1999 we began offering perpetual software licenses. In addition, during 2000, we
began to license our AccelX software products under a hybrid model whereby our
customers purchase a fixed number of licenses under a perpetual license
arrangement and purchase additional licenses on a recurring revenue share basis.
Software license fees may continue to represent a significant portion of license
revenue for at least the next several quarters as these fees are generally
significantly larger than are the initial fees paid by those distribution
partners who agree to pay us a portion of their future revenues. We estimate
that it will take those distribution partners up to one year or more after they
commence distribution of our AccelX services to develop a significant base of
small businesses using these services for the recurring revenues to become
significant. Recurring license revenues in 2000 and 1999 were primarily a result
of fees earned from Switchboard, Inc. in the form of quarterly guaranteed
minimum payments required to maintain limited exclusivity for our Site Builder
product for a segment of the United States market. Switchboard's exclusivity
rights terminated on June 30, 2000, and Switchboard will not, therefore, pay
quarterly guaranteed minimum payments in the future.

     Services revenues consist 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, hosting fees and fees for ongoing maintenance and support. Our net
revenues from services were $1,858,403 for the year ended December 31, 2000,
which represents an increase of 172.1% when compared with the year ended
December 31, 1999. The increase is primarily due to an increase in professional
service revenue of $805,121 we earned in connection with the integration of our
software products with our customers; increases in revenue recognized from
support and maintenance agreements of $240,251 for our AccelX software; and
service revenues during 2000 totaling $305,875 for our Jabber.com subsidiary.

     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 products and services. During the year ended December 31,
1999, we sold equipment totaling $117,539 to customers with whom we had existing
contracts to provide equipment. We do not anticipate significant revenues from
hardware and equipment sales in future periods.

     During the fourth quarter of 2000, it became apparent that most large
aggregators of small businesses were delaying software and technology purchase
decisions due to uncertainties with regard to the domestic economy, a reluctance
to make significant investments in new Internet-related products and services
and management changes or reorganizations at many of these companies. These
factors appear to be continuing to cause a slow down in purchase decisions by
many of our potential domestic customers and may continue to do so for much of
2001. This could result in lower domestic sales of our products and services,
particularly for our AccelX products and services, than contemplated in our
business plan for the year. In addition, to the extent that purchase decisions
are made, they may be for lower up-front license fees and professional services
in order to reduce our customers' financial commitments and to put a greater
emphasis on revenue sharing arrangements. This also could result in lower
revenues in 2001 than contemplated in our business plan.

Cost of Revenues:

     Cost of revenues as a percentage of net revenues from continuing operations
was 87.4% for the year ended December 31, 2000, compared to 114.3% for the year
ended December 31, 1999.

              Cost of license revenues - Cost of license revenues consists of
     compensation costs associated with personnel who assist our customers in
     delivering services to end users, third party content software license
     fees, and third party transaction fees. Cost of license revenues were
     $867,759 for the year ended December 31, 2000, or 40.2% of net license
     revenues, compared with $382,951, or 97.5% of net license revenues for the
     year ended December 31, 1999. The absolute dollar increase was primarily
     attributable to (i) costs of $151,625associated with the establishment of
     our client services infrastructure during the second half of 2000,
     primarily for compensation and contractor expenses, to assist our
     distribution partners in the sell-through of our products and services to
     small business; (ii) third party license fees we purchased for $90,000 for
     map publishing; and (iii) costs totalling $496,264 associated with
     delivering software enhancements for which we earn monthly license fees.
     Since our business plan is heavily dependent on

                                       6
<PAGE>

     recurring revenue from our distribution partners, we will continue to incur
     costs in assisting our distribution partners in obtaining market
     penetration and sell-through of our products and services and these costs
     may be significant.

               Cost of service revenues - Cost of service revenues consists 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 was
     $2,642,745 for the year ended December 31, 2000, or 142.2% of net service
     revenues, compared with $886,652, or 129.8% of net service revenues for the
     year ended December 31, 1999. The absolute dollar increase was attributable
     to (i) providing a higher volume of professional services to our customers,
     which accounted for $894,989 of the increase; and (ii) incurring $695,246
     more costs associated with our network operating center, which we placed
     into service during the second quarter of 1999. Our network operating
     center has been built to accommodate our current customer base as well as
     significant additional projected growth. Consequently, the current cost to
     operate the network operating center is high compared to current revenues
     and will remain relatively high for at least the next several quarters as
     we continue to execute on our business plan. We also anticipate that cost
     of service revenues will increase in absolute dollars as well as a
     percentage of service revenues for at least the next several quarters as we
     build the support infrastructure for our Jabber.com subsidiary.

               Cost of hardware and third party software revenues - Cost of
     hardware and software revenues consists of computer and third party
     software purchased for resale to cable operators. Due to the change in our
     business model, equipment sales are not expected to be significant in
     future periods.

Operating Expenses:

     Sales and marketing expenses consist primarily of employee compensation,
cost of travel, advertising and public relations, trade show expenses, and costs
of marketing materials. Sales and marketing expenses were $3,039,673 for the
year ended December 31, 2000, or 75.7% of net revenues compared with $1,726,004,
or 144.7% of net revenues for the year ended December 31, 1999. These expenses
included $468,972 in 2000, for our Jabber.com subsidiary. The increase in
absolute dollars was primarily attributable to (i) higher employee compensation
costs totalling $395,172 as a result of increased hiring in 2000; (ii) increased
commission expense of $227,762 as a result of increased revenues; (iii) an
increase in employee recruiting fees totalling $309,407; (iv) an increase in
travel expenses totalling $105,168 primarily associated with opening European
markets and a general increase in airfares during the second half of 2000; and
(v) an $319,221 increase in fees paid to consultants for market research and
costs related to the outsourcing of public relations and the redesign of our web
site. 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 software products and services. During 2000 and 1999, all
product development costs were expensed as incurred. Product development
expenses were $5,376,972 for the year ended December 31, 2000, or 133.9% of net
revenues compared with $2,891,569 or 242.3% of net revenues for the year ended
December 31, 1999. Product development expenses in 2000 include the development
of our AccelX software products and our Jabber.com instant messaging products,
which we began developing in the second quarter of 2000. During the year ended
December 31, 2000, we incurred expenses totaling $3,960,382 developing our
AccelX products and $1,416,590 developing our Jabber products. In addition to
the costs we incurred developing our Jabber.com products, the increase in
absolute dollars was due primarily to (i) higher employee compensation costs
totalling $2,090,295 as a result of hiring additional employees in 2000; (ii) an
increase in contract labor totalling $530,942 to augment our development team;
and (iii) an increase in employee recruiting costs totalling $137,499. 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.

                                       7
<PAGE>

    General and administrative expenses consist primarily of employee
compensation, consulting expenses, fees for professional services, and non-cash
expense related to stock and warrants issued for services. General and
administrative expenses were $10,341,650 for the year ended December 31, 2000,
or 257.6% of net revenues compared with $6,311,544, or 529.0% of net revenues
for the year ended December 31, 1999. These expenses include $4,682,641 for
2000, for our Jabber.com subsidiary. The increase in absolute dollars was
primarily attributable to (i) consulting fees totaling $2.8 million, incurred
with Diamond Technology Partners Inc. in connection with the development of our
business plan for our Jabber.com subsidiary, of which $680,000 will be paid in
securities of Jabber.com, Inc. on the date of the closing of the first third-
party equity financing of Jabber.com; (ii) higher employee compensation costs
totalling $360,512 primarily as a result of an increase in the number of
employees in 2000; (iii) increased travel expenses totalling $249,912 primarily
as a result of more international travel and a general increase in airfares
during the second half of 2000 ; (iv) severance costs totalling $281,912
associated with employee terminations within our operations and product
development areas; and (v) increased office rent and related facility costs
totalling $183,905 as we moved to a new office location during the second
quarter of 2000. In future periods, 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. On June 30, 1999, we issued a warrant to purchase
150,000 shares of our common stock to Switchboard, Inc. in connection with the
license agreement we entered into with them on the same date. The warrant vested
on the date of issuance and there was no performance obligation associated with
the issuance of the warrant. In 1998, we commenced a warrant issuance program,
which was terminated in 1999, related to our broadband cable business in which
we issued warrants for an aggregate of 11,667 shares to two cable operators
during 1999. There were no performance obligations associated with the issuance
of these warrants. Because these agreements did not contain minimum guaranteed
revenues or performance obligations, we did not have any past transactions with
these customers, and due to the start-up nature of these services and other
uncertainties regarding these arrangements, we recorded expense for customer
acquisition costs on the date of issuance totalling $941,684 for the years ended
December 31 1999, or 78.9% of 1999 net revenues. As a matter of general business
practice, we do not enter into transactions with our customers in which we incur
customer acquisition costs.

    Depreciation and amortization was $9,155,123 for the year ended December 31,
2000, compared to $2,902,523 for the year ended December 31, 1999. We recorded
more depreciation expense in 2000 as a result of an increase in fixed assets
primarily from construction of our network operating center, which was placed in
service in the second quarter of 1999, and computer hardware and third party
software to support our AccelX services and computer equipment to support our
product development team. We also amortized the intangible assets and goodwill
we acquired in the Durand Communications, NetIgnite, and Update Systems
acquisitions and recorded $8,347,207 and $2,523,351 of amortization expense for
the years ended December 31, 2000 and 1999, respectively. Because our business
has never been profitable, and due to the other risks 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. If we determine that these long-
lived assets are impaired, we would record a charge to earnings, which could be
as much as the remaining net book value of the assets.

     During the year ended December 31, 2000, we recorded an impairment loss in
our AccelX business segment totaling $8,168,904 from our assessment of the
impairment of assets we purchased in connection with our acquisitions of Durand
Communications and Update Systems. The impaired assets consisted of developed
technology and goodwill as summarized in the following table:

<TABLE>
<CAPTION>
                                                    Durand                    Update                   Total
                                                --------------             -------------           ------------
<S>                                             <C>                        <C>                     <C>

Developed technology                            $    3,261,751             $           -           $  3,261,751
Goodwill                                             1,471,346                 3,435,807              4,907,153
                                                --------------             -------------           ------------
 Total impairment loss                          $    4,733,097             $   3,435,807           $  8,168,904
                                                ==============             =============           ============
</TABLE>

                                       8
<PAGE>

     Durand was acquired in 1999. The primary asset that Webb acquired in this
transaction was the group communications software developed by Durand. Elements
of the Durand technology have been integrated with our Jabber.com instant
messaging software. NetIgnite was acquired in 1999 for its web site publishing
technology, which has been integrated into our AccelX product line. Update
Systems was acquired during the first week of 2001. Update Systems had developed
a notification product for small businesses which we believed could be easily
integrated into our AccelX product line and, pending this integration, sold as a
stand-alone product. Based on a review of the acquired technologies in
combination with our evolving business plan, we determined that only a portion
of such acquired technologies are utilized in our current products. Further,
substantially less revenue had been recorded from products incorporating the
acquired technologies than was originally expected and our current estimated
revenues projected to be earned from the purchased technologies are also less
than previously forecasted. During the fourth quarter of 2000, it became
apparent that due to an overall economic slow down and its impact on our
customers, coupled with substantial volatility in the capital and business
environment and delays in purchasing decisions for new Internet-related products
and services by large aggregators of small businesses, that the carrying amount
of the acquired intangibles should be assessed for impairment. As a result, we
assessed impairment by comparing the estimated undiscounted net cash flows
expected to be generated from our current product offerings which use the
purchased technologies to their remaining net book values of the assets. Our
analysis showed that such assets were in fact impaired. Accordingly, the
impairment charge was recorded based upon the difference between the carrying
amount and the estimated fair value of the assets, determined using the net
present value of the estimated future cash flows. We will continue to evaluate
the carrying value of the remaining intangible assets for possible impairment.
Such a review may indicate further impairment that would require us to record
additional losses in future periods and those losses could be substantial.

Other Income and Expenses:

     Interest income was $731,808 for the year ended December 31, 2000, compared
to $225,712 for the year ended December 31, 1999. We earn interest by investing
surplus cash in highly liquid investment funds or AAA or similarly rated
commercial paper.

     Interest expense was $1,124,011 for the year ended December 31, 2000,
compared to $2,352,062 for the year ended December 31, 1999. We recorded the
following interest expense related to the 10% convertible note payable:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                               ---------------------------------------------
                                                                      2000                       1999
                                                               -------------------       -------------------
<S>                                                            <C>                       <C>
                                                                   (As Restated -
                                                                   See Note 23 to
                                                                      Notes to
                                                                    Consolidated
                                                                      Financial
                                                                     Statements)
Interest paid with principal-in-kind notes                         $       154,110            $            -
Amortization of discount                                                   198,744                   124,615
Amortization of financing costs                                            591,075                    45,142
Beneficial conversion feature                                                    -                 1,967,522
                                                                   ---------------            --------------
   Total non cash interest expense                                         943,929                 2,137,279
Interest expense payable in cash                                            63,014                   173,973
                                                                   ---------------            --------------
   Total 10% note payable interest expense                         $     1,006,943            $    2,311,252
                                                                   ===============            ==============
</TABLE>

                                       9
<PAGE>

     Loss on disposition of property and equipment totalled $344,341 for the
year ended December 31, 2000. This resulted primarily from the relocation of our
offices and the write off of unamortized leasehold improvements, including the
cost of our computer center build-out, and disposed of existing office
furnishings and equipment.

Discontinued Operations:

     On September 12, 2000, we sold our e-banking segment to a privately held
company for consideration valued at $487,873, which was approximately the same
as the net book value of the net assets of this segment. We received $39,700 in
cash and 181,176 shares of the purchaser's common stock recorded at a value of
approximately $2.47 per share. We estimated the fair value of the stock based on
our assessment of the buyers business prospects and the value of the assets we
sold to them.

     At the time of the sale, which closed in September 2000, the purchaser had
in place temporary financing and had initiated efforts to obtain permanent
financing. Due to the specific circumstances surrounding the purchaser and the
overall valuation environment for early-stage technology companies at the end of
2000, we reviewed the recorded value of these shares and determined that their
value was likely to be permanently impaired. The additional funding did not
materialize and in February 2001, the purchaser closed its business. As a
result, we determined that the fair market value as of December 31, 2000, was
zero, and that the decline in value was not temporary. Accordingly, we recorded
a charge to earnings totaling $448,172 for the year ended December 31, 2000.

     The sale of this segment is reflected as a sale of discontinued operation
in our consolidated financial statements. Accordingly, the revenues, costs and
expenses of these discontinued operations have been excluded from the respective
captions in the Consolidated Statement of Operations and have been reported as
"Loss from discontinued operations, net of taxes," for all years presented.

     Summarized financial information for the discontinued operations is as
follows (Note: 2000 amounts include activity through September 12, 2000 only):

<TABLE>
<CAPTION>
                                                                                  Years Ended
                                                                                  December 31,
                                                               -----------------------------------------------
                                                                       2000                       1999
                                                               --------------------        -------------------
<S>                                                            <C>                         <C>
Net revenues                                                           $     73,092                $   751,087
Cost of revenues and operating expenses                                     276,364                    830,863
Net loss from discontinued operations                                      (203,272)                   (79,776)
</TABLE>

                                       10
<PAGE>

Minority Interest:

     Minority interest arises from the allocation of losses in our Jabber.com
subsidiary to its minority stockholders.  During 2000, we granted Jabber.com
common stock to three Company officers and other third parties for services
rendered and to be rendered which vest over time, from the date of issuance
through September 2002.  We allocate a portion of Jabber.com's net losses to the
minority stockholders to the extent of their share in net assets of Jabber.  For
the year ended December 31, 2000, we allocated $276,337 of Jabber.com's losses
to its minority stockholders.  If, in future periods, Jabber.com sell stock to
parties other than Webb, we will allocate additional Jabber.com losses to
minority stockholders.

Net Loss Applicable to Common Stockholders:

     Net loss allocable to common stockholders was $48,853,667 for the year
ended December 31, 2000, compared to $21,866,012 for the year ended December 31,
1999. We recorded non-cash expenses for the following items:

<TABLE>
<CAPTION>
                                                                                            Year Ended
                                                                                           December 31,
                                                                           ---------------------------------------------
                                                                                  2000                       1999
                                                                           -------------------        -------------------
                                                                             (As Restated -
                                                                             See Note 23 to
                                                                                Notes to
                                                                              Consolidated
                                                                                Financial
                                                                               Statements)
<S>                                                                         <C>                           <C>
Amortization of intangible assets and goodwill                                  $ 8,347,207                   $ 2,523,351
Impairment loss                                                                   8,168,904                             -
Stock and warrants issued for services                                            1,478,232                     1,814,682
Customer acquisition costs                                                                -                       941,684
Amortization of discount and placement fees to interest
    expense and non-cash interest related to the 10% convertible
    note payable                                                                    943,929                     2,137,279
Write-of of investment in common stock                                              448,172                             -
Preferred stock dividends                                                           373,126                       272,663
Accretion of preferred stock                                                     11,660,000                     4,316,254
                                                                           ----------------              ----------------
Total                                                                           $31,419,570                   $12,005,913
                                                                           ================              ================
</TABLE>

     The increase in losses reflect losses from Jabber.com totaling $7,600,756
for the year ended December 31, 2000, and expenses in the 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 during 2001, from Jabber.com and 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 2001 and
for one or more years thereafter.

                                       11
<PAGE>

     Twelve Months Ended December 31, 1999 and 1998.

Revenues:

     Components of net revenues from continuing operations and cost of revenues
are as follows:

<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                                                December 31,
                                                               -----------------------------------------------
                                                                      1999                        1998
                                                               -------------------        --------------------
<S>                                                            <C>                        <C>
Net revenues:
  Licenses                                                              $  392,810                  $   97,892
  Services                                                                 682,877                     160,673
  Hardware and software                                                    117,509                   1,103,717
                                                               -------------------        --------------------
  Total net revenues                                                     1,193,196                   1,362,282
                                                               -------------------        --------------------
Cost of revenues
  Cost licenses                                                            382,951                     215,142
  Cost of services                                                         886,652                      65,315
  Cost of hardware and software                                             94,155                     905,234
                                                               -------------------        --------------------
  Total cost of revenues                                                 1,363,758                   1,185,691
                                                               -------------------        --------------------
  Gross margin                                                          $ (170,562)                 $  176,591
                                                               ===================        ====================
</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.

     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 $682,877 for the year ended December 31, 1999, which represents an increase
of 325.0% 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.  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 supplied any required
equipment and the products and services.  Consequently the customer was not
required to pay any significant fees upon the delivery of such items.  Our net
revenues from the resale of hardware and software was $117,539 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 had existing
contracts to provide equipment.

Cost of Revenues:

     Cost of revenues as a percentage of net revenues from continuing operations
was 114.3% for the year ended December 31, 1999 compared to 87.0% for the year
ended December 31, 1998.

                                       12
<PAGE>

          License revenues - Cost of license revenues consists 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 revenues - Cost of service revenues consists 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
     $886,652 for the year ended December 31, 1999, or 129.8% of net service
     revenues, as compared to $65,315 for the year ended December 31, 1998, or
     40.7% of 1998 net service revenues.  The increases in costs were due to
     providing professional services for two new customers at lower margins as
     the contracts specify future revenue sharing arrangements 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.

          Hardware and software revenues - Cost of hardware and software
     revenues consists of computer and third-party software purchased for resale
     to distribution partners. Cost of hardware and software revenue was 80.1%
     of hardware and software net revenues for the year ended December 31, 1999
     compared to 82.0% of hardware and software 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.

Operating Expenses:

     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
144.7% of net revenues as compared to $2,479,029, or 182.0% 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.

     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 242.3% of net revenues as
compared to $1,264,287, or 92.8% of net revenues for the year ended December 13,
1998.  During 1999, all product development costs were 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.

     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 $6,311,544 for the year ended December 31, 1999, or
529.0% of net revenues as compared to $5,668,795, or 416.1% 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

                                       13
<PAGE>

accounting fees generally associated with regulatory filings; (iii)
increases in office rent expense; (iv) increases in investor relation expenses;
and (v) costs incurred associated with operating the Durand Communications
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.

     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 78.9% of net revenues as compared to $560,824, or 41.2% 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 $2,902,523 for the year ended December
31, 1999, compared to $650,202 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 to
support our product development team. We also began amortizing the intangible
assets and goodwill we acquired in the Durand Communications and NetIgnite
acquisitions and recorded $2,523,351 of amortization expense in 1999.

Other Income and Expenses:

     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 Durand Communications.

     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 $2,311,252 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) $45,142 related to the amortization of
financing fees.

Discontinued Operations:

     In September 2000, we sold our e-banking business segment to a privately
held company. Consequently, the sale of this segment is reflected as a sale of
discontinued operation in our consolidated financial statements. Accordingly,
the revenues, costs and expenses of these discontinued operations have been
excluded from the respective captions in the Consolidated Statement of
Operations and have been reported as "Loss from discontinued operations, net of
taxes," for all years presented as summarized in the following table:

                                                           Year Ended
                                                          December 31,
                                            ----------------------------------
                                                  1999               1998
                                            ---------------     --------------
Net revenues                                       $751,087          $ 227,098
Cost of revenues and operating expenses             830,863            536,621
Loss from operations                                (79,776)          (309,523)


Net Loss Applicable to Common Stockholders:

     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:

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                                                December 31,
                                                               ---------------------------------------------
                                                                       1999                      1998
                                                               -------------------       -------------------
<S>                                                            <C>                       <C>
SAmortization 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                                                              2,137,279                         -
Stock and warrants issued for services                                   1,814,082                 2,309,804
Preferred stock dividends                                                  272,663                   329,120
Accretion of preferred stock                                             4,316,254                 4,816,989
                                                               -------------------       -------------------
Total                                                                  $12,005,913                $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.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2000, we had cash and cash equivalents of $4,856,686 and
working capital of $2,880,961.  We financed our operations and capital
expenditures and other investing activities during 2000 primarily through the
sale of securities (See Notes 8 and 10 of Notes to Consolidated Financial
Statements for information regarding these sales of securities).

     We used $15,633,783 in cash to fund our operations for the year ended
December 31, 2000, compared to $8,603,881 for the year ended December 31, 1999.
The increase in net cash used resulted primarily from (i) cash used by the
operations of Jabber.com which totaled approximately $5.2 million, (ii) an
increase in costs paid for continued development of our products and services;
(iii) increased direct costs and support costs associated with increased head
count; (iv) payment of 1999 performance bonuses in the first quarter of 2000;
and (v) costs incurred in 2000 associated with opening European markets.

     We used an additional $2,315,784 in cash for investing activities,
including $2,138,370 for purchases of property and equipment, during the year
ended December 31, 2000, compared to $2,388,592 during the year ended December
31, 1999.

     In order to maintain operations and business and product development
efforts at planned levels for both our AccelX and Jabber.com businesses, we will
need to raise additional capital by the middle of fiscal 2001. The timing of the
need for this capital has been accelerated due to our continuing to internally
fund the development of our Jabber.com business.

     We believe that our cash and cash equivalents and working capital at
December 31, 2000, plus the net proceeds of the offering of $2.5 million of
preferred stock that we completed during February 2001, will be adequate to
sustain our operations to June 2001. In addition to the remaining $2.5 million
expected to be raised pursuant to the preferred stock financing, we are in
active discussions with strategic and institutional investors for additional
funding. However, the conditions required to be satisfied for the preferred
stock investor to be obligated to purchase the remaining $2.5 million of
preferred stock may not be met and we have no commitments for any additional
funding. There can be no assurances that the discussions for additional
investments will be successful, or if successful, that the terms of any
additional investments will be acceptable to us. If we are not successful in
obtaining funding in appropriate amounts or at appropriate terms, we would
consider significant reductions in our operations and the sale of all or a
portion of our interest in our Jabber.com subsidiary. Any such reduction in
either our operations or business and development efforts or the sale of our
interest in Jabber.com could have a material adverse affect on our operating
results and financial condition. In its report accompanying the

                                       15
<PAGE>

audited financial statements, Arthur Andersen LLP expressed substantial doubt
about our ability to continue as a going concern.

EXPOSURE TO FOREIGN CURRENCY RISK

     During 2000, we expanded our operations to include customers located in
Europe and we opened an office in Amsterdam.  As a result, we are subject to
exposure resulting from changes in the Euro (our subsidiary's functional
currency) and other currencies related to the United States dollar.  Further,
from time to time, we may agree to accept a receivable denominated in currencies
other than our functional currencies (i.e., the United States Dollar and the
Euro).  During 2000, we recorded $130,357 of transaction loss related to
exchange rate changes between the Euro and the U.S. Dollar on a receivable from
a customer denominated in the Euro.

                                       16
<PAGE>

Item 7. FINANCIAL STATEMENTS


                        WEBB INTERACTIVE 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, 2000 and 1999                                         F-3

Consolidated Statements of Operations for the Years Ended December 31, 2000 and 1999                 F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000 and 1999       F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2000 and 1999               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), and subsidiaries as of December 31,
2000 and 1999, 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Webb Interactive Services, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, among other factors, the Company has incurred significant
and recurring losses from operations and its operations have used substantial
amounts of cash. Such losses are expected to continue in the near future. To
fund such operating losses, the Company will require additional capital and the
availability of such capital is uncertain. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

                                                             ARTHUR ANDERSEN LLP

Denver, Colorado
   March 1, 2001.

                                      F-2
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                               --------------------------------
                                                                                   2000               1999
                                                                               -------------      -------------
<S>                                                                            <C>                <C>
                                                                               (As Restated -
                                                                               See Note 23)
                             ASSETS
Current assets:
    Cash and cash equivalents                                                  $  4,856,686       $  4,164,371
    Restricted cash                                                                 525,000                  -
    Accounts receivable, net (Note 2)                                               469,639             76,806
    Prepaid expenses                                                                301,657            399,217
    Notes receivable from Company officers (Note 3)                                 198,444                  -
    Net current assets of discontinued operations (Note 15)                               -             30,326
    Short-term deposits                                                             370,522            444,545
                                                                               ------------       ------------

       Total current assets                                                       6,721,948          5,115,265
Property and equipment, net (Note 4)                                              2,830,132          1,668,599
Intangible assets, net of accumulated amortization of
    $10,870,312 and $2,523,351, respectively (Notes 13 and 14)                    6,001,667         12,503,047
Net long-term assets of discontinued operations (Note 15)                                 -            683,890
Deferred financing costs                                                            815,301          2,649,517
Other assets                                                                         51,689              4,216
                                                                               ------------      -------------

       Total assets                                                            $ 16,420,737       $ 22,624,534
                                                                               ============       ============

              LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of capital leases payable (Note 5)                         $    227,876       $    108,525
    Accounts payable and accrued liabilities                                      2,142,731            771,417
    Accrued salaries and payroll taxes payable                                    1,232,844            936,849
    Accrued interest payable                                                         63,014            126,028
    Customer deposits and deferred revenue                                          174,522             44,882
    Net current liabilities of discontinued operations (Note 15)                          -            375,512
                                                                               ------------       -----------

       Total current liabilities                                                  3,840,987          2,363,213

Capital leases payable (Note 5)                                                           -            115,493
10% convertible note payable, net of discount of $295,676 and
       $947,710, respectively (Note 7)                                            2,358,434          4,052,290

Commitments and contingencies

Stockholders' equity
    Preferred stock, no par value, 5,000,000 shares authorized:
       Series B-2 convertible preferred stock, 978 and none
         shares issued and outstanding, respectively                                912,286                  -

       10% redeemable, convertible preferred stock, 10%
          cumulative return; none and 85,000 shares issued and
          outstanding, respectively, including dividends payable                          -          1,020,295
          of none and $170,295, respectively

    Common stock, no par value, 60,000,000 shares authorized,
       10,354,473 and 7,830,028 shares issued and outstanding, respectively      85,506,004         49,513,769

    Warrants and options                                                         15,450,237          8,612,322
    Deferred compensation                                                          (154,774)          (412,707)
    Accumulated other comprehensive income                                            1,371                  -
    Accumulated deficit                                                         (91,493,808)       (42,640,141)
                                                                               ------------       ------------

              Total stockholders' equity                                         10,221,316         16,093,538
                                                                               ------------       ------------

              Total liabilities and stockholders' equity                       $ 16,420,737       $ 22,624,534
                                                                               ============       ============
</TABLE>

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

                                      F-3
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              Year Ended
                                                                             December 31,
                                                                    ------------------------------
                                                                        2000              1999
                                                                    ------------      ------------
<S>                                                                 <C>               <C>
                                                                    (As Restated -
                                                                    See Note 23)

Net revenues                                                        $  4,014,393      $  1,193,196
Cost of revenues                                                       3,510,504         1,363,758
                                                                    ------------      ------------

   Gross margin                                                          503,889          (170,562)
                                                                    ------------      ------------
Operating expenses:
   Sales and marketing                                                 3,039,673         1,726,004
   Product development                                                 5,376,972         2,891,569
   General and administrative                                         10,341,650         6,311,544
   Customer acquisition costs                                                  -           941,684
   Depreciation and amortization                                       9,155,123         2,902,523
   Impairment loss (Note 14)                                           8,168,904                 -
                                                                    ------------      ------------

                                                                      36,082,322        14,773,324
                                                                    ------------      ------------

   Loss from operations                                              (37,096,878)      (14,943,886)

Interest income                                                          731,808           225,712
Interest expense                                                      (1,124,011)       (2,352,062)
Loss on foreign currency transactions                                   (130,357)                -
Loss on write-off of investment in common stock                         (448,172)                -
Loss on disposition of property and equipment                           (344,341)                -
Equity in loss of subsidiary                                                   -          (127,083)
                                                                    ------------      ------------

Net loss from continuing operations                                  (36,893,506)      (17,197,319)
Loss from discontinued operations (Note 15)                             (203,372)          (79,776)
                                                                    ------------      ------------

Net loss before minority interest                                    (37,096,878)      (17,277,095)
Minority interest in losses of subsidiary                                276,337                 -
                                                                    ------------      ------------

Net loss                                                             (36,820,541)      (17,277,095)
Preferred stock dividends (Note 8)                                      (373,126)         (272,663)
Accretion of preferred stock to stated value (Note 8)                (11,660,000)       (3,157,691)
Accretion of preferred stock for beneficial conversion feature in
excess of stated value (Note 8)                                                -        (1,158,563)
                                                                    ------------      ------------

Net loss applicable to common stockholders                          $(48,853,667)     $(21,866,012)
                                                                    ============      ============
Net loss applicable to common stockholders from continuing
   operations per share, basic and diluted                          $      (5.37)     $      (3.30)
                                                                    ============      ============
Net loss applicable to common stockholders per share from
   discontinued operations, basic and diluted                       $      (0.02)     $      (0.01)
                                                                    ============      ============

Net loss applicable to common stockholders per share, basic and     $      (5.39)     $      (3.31)
   diluted
                                                                    ============      ============

Weighted average shares outstanding, basic and diluted                 9,060,437         6,610,836
                                                                    ============      ============
</TABLE>


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

                                      F-4
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

  FOR THE YEARS ENDED DECEMBER 31, 2000  (As Restated - See Note 23) AND 1999

<TABLE>
<CAPTION>


                                                           Preferred Stock             Common Stock        Warrants and
                                                       ------------------------  ------------------------
                                                         Shares       Amount       Shares       Amount       Options
                                                       ----------  ------------  ----------  ------------  ------------
<S>                                                    <C>         <C>           <C>         <C>           <C>
Balances, December 31, 1998                               246,400  $  4,101,336   4,642,888   $16,410,300  $  2,281,832
Stock issued in private placement of preferred stock        5,000     5,000,000           -             -             -
   Offering costs                                               -      (384,500)          -             -             -
   Beneficial conversion feature of preferred stock             -    (3,931,754)          -     3,931,754             -
Preferred stock dividends                                       -       125,638           -             -             -
Common stock and common stock warrants issued in
   connection with DCI merger                                   -             -     947,626     9,239,358     2,158,837
Common stock issued in connection with NI merger                -             -      71,429       984,400             -
Preferred stock and dividends converted to common
   stock                                                 (166,400)   (8,206,679)    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    (1,846,830)
10% note payable beneficial conversion feature                  -             -           -     1,967,522             -
Common stock warrant issued in connection with
   10% note payable                                             -             -           -             -     3,383,800
Accretion of preferred stock to stated value                    -     3,157,691           -             -             -
Accretion of preferred stock for beneficial conversion
   feature in excess of stated value                            -     1,158,563           -             -             -
Stock and stock options issued for services and to
   customers                                                    -             -      36,497       534,390     2,634,683
Deferred compensation                                           -             -           -             -             -
Net loss                                                        -             -           -             -             -
Comprehensive Income                                            -             -           -             -             -
                                                       ----------  ------------  ----------  ------------  ------------

Balances, December 31, 1999                                85,000     1,020,295   7,830,028    49,513,769     8,612,322

 Series B-2 preferred stock issued in private
  placement                                                12,500    12,500,000           -             -             -
   Cash offering costs                                          -      (840,000)          -             -             -
   Value of warrants issued for common stock                    -    (8,622,986)          -             -     8,622,986
   Beneficial conversion feature of preferred stock             -    (3,037,014)          -     3,037,014             -
Accretion of preferred stock to stated value                    -    11,660,000           -             -             -
Preferred stock dividends                                       -         2,733           -             -             -
Beneficial conversion feature on 10% preferred
   stock dividends converted to common stock                    -             -           -       370,393             -
Conversion of preferred stock and dividends to
   common stock                                           (96,522)  (11,770,742)  1,231,438    11,770,742             -
Conversion of 10% note payable to common stock                  -             -     248,262       803,569             -
Common stock and common stock warrants issued in
   connection with Update acquisition                           -             -     278,411     8,630,741     1,364,676
Exercise of warrants and options                                -             -     751,334    11,132,885    (3,892,442)
Stock and stock options issued for services                     -             -      15,000       246,891       519,554
Deferred compensation                                           -             -           -             -       223,141
Other comprehensive income                                      -             -           -             -             -
Net loss                                                        -             -           -             -             -
Comprehensive income                                            -             -           -             -             -
                                                       ----------  ------------  ----------   -----------  ------------
Balances, December 31, 2000                                   978  $    912,286  10,354,473   $85,506,004  $ 15,450,237
                                                       ==========  ============  ==========   ===========  ============

<CAPTION>
                                                                                          Accumulated
                                                                                             Other
                                                          Deferred       Accumulated     Comprehensive Comprehensive Stockholders

                                                        Compensation       Deficit          Income        Income         Equity
                                                       --------------   -------------    -------------  ------------  ------------
<S>                                                    <C>              <C>              <C>           <C>            <C>
Balances, December 31, 1998                            $            -   $  (20,774,129)  $           -    $        -  $   2,019,339
Stock issued in private placement of preferred stock                -                -               -             -      5,000,000
   Offering costs                                                   -                -               -             -       (384,500)
   Beneficial conversion feature of preferred stock                 -                -               -             -              -
Preferred stock dividends                                           -          (125,638)             -             -              -
Common stock and common stock warrants issued in
   connection with DCI merger                                       -                -               -             -     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                             -                -               -             -      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
Accretion of preferred stock to stated value                        -       (3,157,691)              -             -              -
Accretion of preferred stock for beneficial conversion
   feature in excess of stated value                                -       (1,158,563)              -             -              -
Stock and stock options issued for services and to
   customers                                                        -                -               -             -      3,169,073
Deferred compensation                                        (412,707)               -               -             -       (412,707)
Net loss                                                            -      (17,277,095)              -   (17,277,095)   (17,277,095)
                                                                                                        ------------
Comprehensive Income                                                -                -               -   (17,277,095)             -
                                                                                                        ============

                                                       --------------   --------------   -------------                -------------
Balances, December 31, 1999                                  (412,707)     (42,640,141)              -             -     16,093,538

 Series B-2 preferred stock issued
  in private placement                                              -                -               -             -     12,500,000
   Cash offering costs                                              -                -               -             -       (840,000)
   Value of warrants issued for common stock                        -                -               -             -              -
   Beneficial conversion feature of preferred stock                 -                -               -             -              -
Accretion of preferred stock to stated value                        -      (11,660,000)              -             -              -
Preferred stock dividends                                           -           (2,733)              -             -              -
Beneficial conversion feature on 10% preferred
   stock dividends converted to common stock                        -         (370,393)              -             -              -
Conversion of preferred stock and dividends to
   common stock                                                     -                -               -             -              -
Conversion of 10% note payable to common stock                      -                -               -             -        803,569
Common stock and common stock warrants issued in
   connection with Update acquisition                               -                -               -             -      9,995,417
Exercise of warrants and options                                    -                -               -             -      7,240,443
Stock and stock options issued for services                   711,787                -               -             -      1,478,232
Deferred compensation                                        (453,854)               -               -             -       (230,713)
Other comprehensive income                                          -                -           1,371         1,371          1,371
Net loss                                                            -      (36,820,541)              -   (36,820,541)   (36,820,541)
                                                                                                        ------------
Comprehensive income                                                -                -               -  $(36,819,170)             -
                                                       --------------   --------------   -------------  ============  -------------
Balances, December 31, 2000 (As Restated -
   See Note 23)                                        $     (154,774)  $  (91,493,808)  $       1,371                $  10,221,316
                                                       ==============   ==============   =============                =============
</TABLE>

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

                                      F-5
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                          Year Ended
                                                                                                          December 31,
                                                                                                --------------------------------
                                                                                                     2000              1999
                                                                                                --------------    --------------
<S>                                                                                             <C>               <C>
                                                                                                 (As Restated -
                                                                                                 See Note 23)
Cash flows from operating activities:
   Net loss                                                                                      $(36,820,541)     $(17,277,095)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                                 9,506,483         3,211,532
      Impairment loss                                                                               8,168,904                 -
      Minority interest in losses of subsidiary                                                      (276,337)                -
      Stock and stock options issued for services and to customers                                  1,478,232         2,756,366
      Loss on sale and disposal of property and equipment                                             344,341           249,468
      Notes payable issued for interest on 10% convertible note payable                               154,110                 -
      Bad debt expense                                                                                147,882                 -
      Write-off of investment in common stock                                                         448,172                 -
      Accrued interest income on notes receivable                                                      (2,617)                -
      Provision for excess and obsolete inventory                                                           -            55,126
      Accrued interest income on advances to DCI                                                            -           (46,379)
      Reduction in note receivable for services received from DCI                                           -           368,643
      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                                           198,744           124,615
      Amortization of 10% convertible note payable financing costs                                    591,075            45,142
   Changes in operating assets and liabilities:
      Increase in restricted cash                                                                    (525,000)                -
      (Increase) decrease in accounts receivable                                                     (510,391)           41,458
      (Increase) decrease in prepaid expenses                                                          97,560          (302,083)
      Decrease (Increase) in short-term deposits and other assets                                      26,550          (342,985)
      Increase (decrease) in accounts payable and accrued liabilities                               1,281,917          (490,049)
      Increase in accrued salaries and payroll taxes payable                                          173,506           690,832
      (Decrease) increase in accrued interest payable                                                 (63,014)          107,333
      (Decrease) increase in customer deposits and deferred revenue                                   (53,360)          109,590
                                                                                                 ------------      ------------
      Net cash used in operating activities                                                       (15,633,784)       (8,603,881)
                                                                                                 ------------      ------------
Cash flows from investing activities:
   Cash acquired in business combinations                                                                   -            32,484
   Proceeds from the sale of property and equipment                                                    10,279           133,137
   Net proceeds from sale of discontinued operation                                                    8,134                 -
   Purchase of property and equipment                                                              (2,138,370)       (1,692,532)
   Notes receivable from Company officers                                                            (195,827)                -
   Cash advances to DCI                                                                                     -          (593,649)
   Payment of acquisition costs                                                                             -           (27,468)
   Investment in equity method investee                                                                     -          (240,564)
                                                                                                 ------------      ------------
      Net cash used in investing activities                                                        (2,315,784)       (2,388,592)
                                                                                                 ------------      ------------
Cash flows from financing activities:

   Payments on capital leases and convertible notes payable                                          (259,931)         (124,443)
   Proceeds from issuance of series B preferred stock and warrants                                 12,500,000                 -
   Proceeds from issuance of 10% convertible note payable and warrant                                       -         5,000,000
   Proceeds from exercise of stock options and warrants                                             7,240,443         5,350,632
   Proceeds from issuance of series C preferred stock                                                       -         5,000,000
   10% convertible note payable financing costs                                                             -          (383,184)
   Series B preferred stock and warrant offering costs                                               (840,000)         (384,500)
                                                                                                 ------------      ------------
      Net cash provided by financing activities                                                    18,640,512        14,458,505
                                                                                                 ------------      ------------
Net increase in cash and cash equivalents                                                             690,944         3,466,0
Effect of foreign currency exchange rate charges on cash                                                1,371                 -
Cash and cash equivalents, beginning of year                                                        4,164,371           698,339
                                                                                                 ------------      ------------
Cash and cash equivalents, end of year                                                           $  4,856,686      $  4,164,371
                                                                                                 ============      ============
</TABLE>

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

                                      F-6
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
                                                                                         Year Ended
                                                                                        December 31,
                                                                              ---------------------------------
                                                                                   2000               1999
                                                                              --------------     --------------
<S>                                                                           <C>                <C>
                                                                               (As Restated -
                                                                               See Note 23)
Supplemental disclosure of cash flow information:
      Cash paid for interest                                                  $   168,943        $     59,056

Supplemental schedule of non-cash investing and financing activities:
      Common stock and warrants issued in business combinations               $ 9,995,417        $ 12,382,595
      Accretion of preferred stock to stated value                             11,660,000           3,157,691
      Accretion of preferred stock for beneficial conversion
      feature in excess of stated value                                                 -           1,158,563
      Preferred stock dividends paid in common stock                              373,126             272,663
      Preferred stock and prior period cumulative and dividends
      converted to common stock                                                11,770,742           8,206,679
      10% note payable converted to common stock                                  803,569                   -
      Common stock received from sale of e-banking business                       448,172                   -
      Convertible notes payable converted to common stock                               -             894,879
      Capital leases for equipment                                                263,788             195,405
</TABLE>

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

                                      F-7
<PAGE>

                        WEBB INTERACTIVE SERVICES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)     ORGANIZATION AND BUSINESS

        Webb Interactive Services, Inc. (with its subsidiaries collectively
referred to as the "Company" or "Webb"), was incorporated on March 22, 1994,
under the laws of Colorado, and principal operations began in 1995. We develop
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, in July 2000, we
formed a majority owned subsidiary, Jabber.com, Inc. ("Jabber.com"). Jabber.com
is engaged in the early stages of several projects that are implementing the
Jabber.org XML-based open-source instant messaging platform for portal services,
enterprise messaging, financial services applications and enhanced mobile and
telephony integration.

        During 2000 and 1999, we consummated our acquisitions of Update Systems,
Inc. ("Update"), NetIgnite, Inc. ("NI") and Durand Communications, Inc. ("DCI"),
respectively. Their shareholders exchanged all of their shares for shares of
Webb common stock in business combinations that were recorded using the purchase
method of accounting. The accompanying consolidated financial statements reflect
the results of operations of these acquisitions from the date of consummation of
the acquisitions. The consideration paid in excess of the fair market value of
the tangible assets acquired was recorded as intangible assets and goodwill.

        On September 16, 2000, we sold our e-banking business to a privately
held company for cash and stock. The accompanying consolidated financial
statements reflect the sale of this segment as a discontinued operation.

        We derive revenues principally from licenses of our software;
professional services fees for customization of our software, assisting our
customers to configure and integrate our software applications; and hosting and
support services. Prior to June 1999, we also earned revenues from the sale of
design and consulting services for Website development, network engineering
services, mark-ups on computer hardware, third-party software sold to customers,
maintenance fees charged to customers to maintain computer hardware and
Websites, training course fees, and monthly fees paid by customers for Internet
access which we provided.

        We have not been profitable since inception. Our ability to become
profitable depends on the ability to market our products and services and
generate revenues sufficient to exceed our expenses. The success of our revenue
model will depend upon many factors including the success of our distribution
partners in marketing their products and services; and 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 charge, or whether current or future pricing levels will be
sustainable. We are also highly dependent on certain key personnel.

        At December 31, 2000, we had $4,856,686 in cash and cash equivalents and
$2,423,579 in working capital. We have expended significant funds to develop our
current product offerings and we anticipate increased operating expenses and
research and development expenditures in 2001, which are necessary for us to
further develop and market our products as well as to achieve market acceptance
of our products in sufficient quantities to achieve positive cash flow from
operations. Our continued viability depends, in part, on our ability to obtain
additional profitable customer contracts and to obtain additional capital
through debt or equity financing sufficient to fund our expected operations. We
believe that our cash and cash equivalents and working capital plus the proceeds
from the preferred stock private placement that was completed during February
2001 (See Note 22), will be adequate to sustain our operations through May 2001.
In

                                      F-8
<PAGE>

addition to the remaining $2.5 million expected to be raised pursuant to the
preferred stock financing, we are in active discussions with strategic and
institutional investors for an additional $10 million of financing which we
believe would be sufficient to fund our operations through at least the first
quarter of 2002. However, we have no commitments for the $10 million financing
and the conditions to the private investor's obligation to purchase the
additional $2.5 million worth of our preferred stock may not be satisfied.
Therefore, there can be no assurances that either of these financings will be
completed, or if completed, that the terms of any such financings will be
acceptable to us. If we are not successful in obtaining funding in appropriate
amounts or at appropriate terms, we would consider significant reductions in our
operating activities and the sale of all or a portion of our interest in our
Jabber.com, Inc. subsidiary.

        As a result of our continuing operating losses and limited working
capital to fund expected operating losses, substantial doubt exists about Webb's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should Webb be unable to continue as a going concern.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Principles of Consolidation

        The accompanying consolidated financial statements include the accounts
of Webb and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The net loss
attributable to the minority stockholders' interests which relates to our
Jabber.com subsidiary, is recorded based upon the minority interest share in the
net assets of Jabber.com.


        Revenue Recognition

        Webb generates revenues from the license of its software products and
from professional service arrangements. Software license revenue is recognized
in accordance with the American Institute of Certified Public Accountants
Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2") and
related interpretations, and amendments as well as Technical Practice Aids
issued from time to time by the American Institute of Certified Public
Accountants.

        The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") in
December 1999. As amended, SAB 101 provides further interpretive guidance for
publicly traded companies on the recognition, presentation, and disclosure of
revenue in the accompanying financial statements. In June 2000, the SEC issued
SAB No. 101B, delaying the implementation of SAB 101 until the fourth quarter of
2000. The provisions of SAB 101 had no material impact on Webb's revenue
recognition policies and presentation as reflected in the accompanying
consolidated financial statements.

        We recognize revenue on software arrangements only when persuasive
evidence of an agreement exists, customer acceptance, if any, has occurred,
delivery has occurred, our fee is fixed or determinable, and collectibility is
probable.

        Under certain circumstances, software license revenue is deferred until
all criteria of SOP 97-2 are met. Certain arrangements contain provisions, which
result in the recognition of revenue from software licenses ratably over the
term of the contract. In instances where we charge monthly license fees, revenue
is recognized on a month-by-month basis as the fees are determined and become
collectable.

        Revenue from professional services billed on a time and materials basis
is recognized as the services are performed and amounts due from customers are
deemed collectible and are contractually non-refundable. Revenue from fixed
price long-term contracts is recognized on the percentage of completion method
for individual contracts. Revenues are recognized in the ratio that costs
incurred bear to total estimated contract costs. The 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, or if we are unable to make sufficiently accurate
estimates of costs at the outset of the arrangement, we use the completed
contract method of 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 maintenance and support agreements is recognized on a
straight-line basis over the term of the related support and maintenance
agreement.

        We follow the provisions of EITF 00-3, "Application of AICPA SOP 97-2,
`Software Revenue Recognition,' to Arrangements That Include the Right to Use
Software Stored on Another Entity's Hardware," for software arrangements that
include provisions for hosting. Under the EITF consensus, if the customer has
the contractual right to take possession of the software at anytime during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on its own hardware or contract with another party
unrelated to the vendor to host the software, then the software portion of the
arrangement is accounted for under SOP 97-2. If the customer does not have this
right, then the fee for the entire arrangement is recognized on a straight-line
basis over the life of the related arrangement.

                                      F-9
<PAGE>

     For software arrangements with multiple elements, we apply the residual
method prescribed by SOP 98-9. Revenue applicable to undelivered elements,
principally software maintenance, training, hosting and limited implementation
services, is deferred based on vendor specific objective evidence ("VSOE") of
the fair value of those elements. VSOE is established by the price of the
element when it is sold separately (i.e., the renewal rate for software
maintenance and normal prices charged for training, hosting and professional
services). Revenue applicable to the delivered elements is deemed equal to the
remainder/residual amount of the fixed arrangement price. Assuming none of the
undelivered elements are essential to the functionality of any of the delivered
elements, we recognize the residual revenue attributed to the delivered elements
when all other criteria for revenue recognition for those elements have been
met.

        We believe our current revenue recognition policies and practices are
consistent with the provisions of SOP 97-2, as amended by SOP 98-4 and SOP 98-9,
which were issued by the American Institute of Certified Public Accountants, as
well as other related authoritative literature. Implementation guidelines for
these standards, as well as potential new standards, could lead to unanticipated
changes in our current revenue recognition policies. Such changes could affect
the timing of our future revenue and results of operations.

        Business Combinations

        Business combinations that have been accounted for under the purchase
method of accounting include the results of operations of the acquired
businesses from the date of acquisition. We recorded the assets and liabilities
of the companies we acquired at their estimated fair values on the date of
acquisition (See Note 13).

        Use of Estimates

        The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires Webb's 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, cash and cash equivalents 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. The recorded amounts for cash equivalents
approximate fair value due to the short-term nature of these financial
instruments. Restricted cash includes cash certificates of deposits for
collateral on our office lease lease totalling $525,000 as of December 31, 2000.

        Concentration of Credit Risk

        Financial instruments that potentially subject us to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. We have no significant off balance-sheet concentrations of
credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. We maintain our cash in the form of demand
deposits with financial institutions that we believe to be of high credit
quality.

        We perform ongoing evaluations of our customers' financial condition and
generally do not require collateral. Allowances for uncollectible accounts
receivable are determined based upon information available and historical
experience. Accounts receivable are shown net of allowance for doubtful accounts
totalling $151,882 and $4,000 as of December 31, 2000 and 1999, respectively.

                                     F-10
<PAGE>

        As discussed in Note 17, three customers in both 2000 and 1999 account
for more than 10% each of 2000 and 1999 revenues, and three and four customers
account for more than 10% each of accounts receivable as of December 31, 2000
and 1999, respectively.

        Property and Equipment

        Property and equipment is stated at cost or estimated fair value upon
 acquisition and depreciation is provided using the straight-line method over
 the estimated useful lives of the respective assets, generally ranging from
 three to seven years. Maintenance and repairs are expensed as incurred and
 improvements are capitalized.

        Long-Lived Assets, Intangible Assets and Goodwill

        In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," ("SFAS 121"), we evaluate the
carrying value of our long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less the cost to sell the assets.

        Intangible assets and goodwill are being amortized on a straight-line
basis over their estimated economic lives of three years. Subsequent to
acquisitions which result in intangible assets and goodwill, we continually
evaluate whether later events and circumstances have occurred that indicate the
remaining useful life of the intangible assets and goodwill may warrant revision
or that the remaining balance may not be recoverable. When factors indicate that
intangible assets and goodwill should be evaluated for possible impairment, we
use 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.

        We recorded amortization expense totalling $8,347,207 and $2,523,351
for the years ended December 31, 2000 and 1999, respectively. We also recorded
an impairment loss on certain intangible assets and goodwill for the year ended
December 31, 2000, totalling $8,168,904 (See Notes 13 and 14). As of December
31, 2000, approximately $290,000 of our intangible assets consisted of goodwill.

        We will continue to evaluate the carrying value of the remaining
intangible assets for possible impairment. Such a review may indicate further
impairment that would require us to record additional impairment losses in
future periods and those losses could be substantial.

Cost of Revenues
----------------

     Cost of revenues include nominal direct cost of delivering software, direct
labor costs for maintenance and support and professional services, and an
allocation of overhead costs.

        Capitalized Software Development Costs, Purchased Software Technology
and Research and Development Costs

        Software development costs are capitalized in accordance with SFAS 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 Webb's management. Based on our 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.

        We have determined that the time between technological feasibility and
general release is short, consequently, we have not capitalized software
development costs but expensed those costs as incurred. Product development
costs relating principally to the design and development of software products
are generally
                                     F-11
<PAGE>

expensed as incurred. The cost of developing routine software enhancements is
expensed as incurred.

     Intangibles, net in the accompanying consolidated balance sheets include
amounts allocated to software products acquired in business combinations.  These
costs are being amortized over three years.  Remaining unamortized costs were
$5,711,616 and $9,965,564 as of December 31, 2000 and 1999, respectively.

        Fair Value of Financial Instruments

        Financial instruments consist of cash and cash equivalents, trade and
notes receivable, and the 10% note payable. As of December 31, 2000 and 1999,
the carrying values of such instruments approximated their fair values. Based
upon interest rates currently available for debt with comparable terms and
characteristics, the fair value of the 10% note payable is estimated to be
$1,953,612.

        Foreign Currencies

        The functional currency of our foreign subsidiary is the Euro.  Assets
and liabilities of this subsidiary are translated to U.S. dollars at year-end
exchange rates, and income statement items are translated at the exchange rates
present at the time such transactions arise. Resulting translation adjustments
are recorded as a separate component of accumulated other comprehensive income.
Gains and losses resulting from foreign currency transactions are included in
income.

        Transactions demonimated in currencies other than the Euro are recorded
based on exchange rates at the time such transactions arise. Subsequent changes
in exchange rates result in foreign currency transaction gains and losses which
are reflected in income as unrealized (based on period-end translation) or
realized (upon settlement of the transaction). Unrealized transaction gains and
losses applicable to permanent investments by Webb in its foreign subsidiary
are included as cumulative translation adjustments, and unrealized translation
gains and losses applicable to short-term intercompany receivables from or
payables to Webb and its foreign subsidiary are included in income.

        Customer Acquisition Costs

        Costs to acquire customers, including the issuance of our securities,
are capitalized if the related customer contract contains guarantees of minimum
revenue that support the amount paid. Such capitalized costs are amortized over
the term the guaranteed revenue is recognized. When the contract does not
provide for guaranteed revenue or counter-party performance obligations,
acquisition costs are expensed when incurred and are reflected as operating
expenses in the captioned labeled "Customer Acquisition Costs" in the
accompanying Consolidated Statements of Operations. Prior to July 1999, we
issued warrants to purchase our common stock to four customers and recorded the
warrants as customer acquisition costs (See Note 16). As a matter of general
business practice, we do not enter into transactions with our customers in which
we incur customer acquisition costs.

        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

                                     F-12
<PAGE>

assets and liabilities are reflected as adjustments to the tax provision or
benefit in the period of enactment. Our 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 18).

        Stock-Based Compensation

        Employee stock option plans and other employee stock-based compensation
arrangements are accounted for 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. We 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.

        Equity instruments issued to non-employees are accounted for 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 reporting date with final valuation on the vesting date. Such
instruments can result in substantial volatility in our results of operations
until they are vested. We record deferred compensation expense based on the
calculated values as of December 31, 2000 and 1999, and record expense over the
vesting term of the warrant.

        In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. We adopted the
provisions of FIN No. 44 in July 2000. There was no significant impact on our
financial position or results of operations as a result of the application of
FIN No. 44.

        Net Loss Per Common Share

        Net loss per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic net
loss per share is computed by dividing net loss applicable to common
shareholders 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 our 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, and
there are no differences between basic and diluted per share amounts for all
years presented.

                                                        December 31,
                                              --------------------------------
                                                   2000               1999
                                              --------------     -------------
Stock options                                     4,128,070         2,770,055
10% convertible note payable                        263,566           496,524
Warrants and underwriter options                    729,318           923,918
Series B-2 preferred stock                           95,844                 -
10% preferred stock                                       -           102,030
                                              -------------      ------------
Total                                             5,216,798         4,292,527
                                              =============      ============

        The number of shares excluded from the earnings per share calculation
because they are anti-dilutive, using the treasury stock method were 2,222,989
and 1,489,286 for the years ended December 31, 2000 and 1999, respectively.

                                     F-13
<PAGE>

        Comprehensive Income (Loss)

        Comprehensive income (loss) includes net earnings (loss) and other
non-owner changes to stockholders' equity not reflected in net income (loss)
applicable to common stockholders. The components of accumulated other
comprehensive income, as presented on the accompanying consolidated balance
sheets, consists of cumulative translation adjustment from assets and
liabilities of our foreign subsidiary.

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

        Effective January 1, 1999, we adopted the provisions of Statement of
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. During the year ended December 31, 2000, we capitalized $113,657 of
costs associated with the implementation of our accounting system.

        Recent Accounting Pronouncements

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 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 measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards 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 delayed the effective
date of SFAS 133 to financial quarters and financial years beginning after June
15, 2000. We historically have not entered into arrangements that would fall
under the scope of SFAS 133.

        Reclassifications

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

(3)     NOTES RECEIVABLE FROM COMPANY OFFICERS

        During 2000, the Company loaned a total of $195,827 to two officers of
the Company pursuant to demand notes with full recourse bearing interest at 8%
per annum. Interest is payable monthly commencing July 1, 2000.

(4)     PROPERTY AND EQUIPMENT

        Property and equipment consists of the following:

                                                         December 31,
                                                -------------------------------
                                                    2000              1999
                                                -------------     -------------
Computer equipment                               $ 1,518,443        $ 1,663,927
Office furniture and equipment                       480,514            222,494
Purchased software                                 1,298,139            807,283
Leasehold improvements                               496,453             66,657
                                                ------------      -------------
                                                   3,793,549          2,760,361
Less accumulated depreciation                       (963,417)        (1,091,762)
                                                ------------      -------------
Net property and equipment                       $ 2,830,132        $ 1,668,599
                                                ============      =============

        Certain office equipment, computer equipment and software is pledged as
collateral for capital leases payable (See Note 5).

        During the year ended December 31, 2000, we recorded losses on
disposition of property and equipment totalling $344,341 for the year ended
December 31, 2000, primarily from the relocation of our offices and the write-
off of unamortized leasehold improvements, including the cost of our computer
center build-out, and disposed of existing office furnishings and equipment.


                                     F-14
<PAGE>

        Computer equipment, office equipment, and software is depreciated over
three to five years, office furnishings over seven years, and leasehold
improvements over the shorter of its economic life or the life of the lease.
Depreciation expense totalled $1,159,522 and $553,411 for the years ended
December 31, 2000 and 1999, respectively.

(5)     CAPITAL LEASES PAYABLE

        Capital leases payable consist of the following:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                ---------------------------------
                                                                     2000               1999
                                                                --------------     --------------
<S>                                                             <C>                <C>
 Capital lease payable in quarterly principal and interest
     payments of $33,778, for eight quarters beginning
     January 1, 2000, effective interest rate of 15.06%,
     secured by cash certificate of deposit                        $ 119,721           $     -


 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                           83,682           160,405


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                                              24,473            58,261

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

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
                                                                ------------       -----------
                                                                     227,876           224,018
Less  current portion                                               (227,876)         (108,525)
                                                                ------------       -----------
                                                                    $      -         $ 115,493
                                                                ============       ===========
</TABLE>

        Future minimum lease payments under capital leases as of December 31,
2000 are as follows:

2001                                                         $ 260,364
Less amount representing interest                              (32,488)
                                                         -------------
                                                             $ 227,876
                                                         =============

        The net book value of assets under capital lease totalled $374,114 and
$239,296 for the years ended December 31, 2000 and 1999, respectively.

(6)     CONVERTIBLE NOTES PAYABLE

        On June 30, 1999, the date the merger with DCI was consummated, we
assumed DCI convertible notes payable totalling $606,894 which were convertible
at any time at the election of the holders into a number of our common shares at
a conversion price equal to $9.61 per share, which was the fair value of our
common stock on the date the merger was announced. Subsequent to the agreement
to acquire DCI (See Note 13), we issued convertible notes payable to DCI
creditors totalling $335,991. The notes were convertible anytime at the election
of the holder into a number of our common shares at conversion prices equal to
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 our common stock at
conversion prices per share ranging from approximately $9.61 to $14.75 as
summarized in the following table:


                                     F-15
<PAGE>

<TABLE>
<CAPTION>
                                                                                Common
                                       Note Payable                             Stock
                                        And Accrued       Common Stock        Conversion
                                         Interest            Shares            Price per
         Conversion Date                 Converted           Issued              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>

(7)     10% CONVERTIBLE NOTE PAYABLE

        On August 25, 1999, we entered into a Securities Purchase Agreement and
executed a $5,000,000 three-year 10% Convertible Promissory Note (the "10% note
payable"). We received net proceeds totalling $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 10% note payable.

        In order to facilitate the sale of our series B preferred stock, the
terms of the 10% note payable agreement were amended on December 18, 1999. The
material amendments to the 10% note payable and the warrant were as follows: (i)
to set the conversion price for the 10% note payable at $10.07 per share until
March 22, 2000; (ii) to eliminate the variable conversion price feature of the
10% note payable (iii) to enable us to require the conversion of one-half of the
principal amount of the 10% note payable upon certain events; (iv) to eliminate
certain of our rights to pre-pay the 10% note payable; (v) in the event that we
force the conversion of one-half of the principal amount of the 10% note
payable, to permit the holder to elect to have the interest thereafter due and
payable on the 10% note payable paid in shares of our common stock or additional
Notes Payable ("PIK notes") with terms similar to the 10% note payable; and (vi)
to provide for the amendment in the exercise price of the warrant on September
30, 2000, if the market price of our common stock was then less than $11.44.

        The 10% note payable was initially convertible into shares of our common
stock at a conversion price of $10.07 per share. The conversion price is subject
to anti-dilution protection in the event we issue common stock at prices less
than the conversion price for the 10% note payable or the then current price for
our common stock and for stock splits, stock dividends and other similar
transactions. As a result of the private placement of preferred stock we
completed in February 2001, the conversion price was reset to $2.50 per share.
As a result, we will record non-cash interest expense totalling $2,394,234 in
the first quarter of 2001 (See Note 22). If the conversion price is further
reduced, we may be required to record additional charges against income and such
charges may be significant.

        On February 18, 2000, the holder converted $2,500,000 of the $5,000,000
outstanding 10% note payable into 248,262 shares of our common stock at a
conversion price of $10.07 per share.

        We may prepay the 10% note payable at any time after August 25, 2000, if
the closing bid price for our 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 10% note payable, plus accrued and unpaid
interest.

                                     F-16
<PAGE>

        The 10% note payable bears interest at the rate of 10% per annum. During
the years ended December 31, 2000 and 1999, we recorded interest expense
totalling $1,006,943 and $2,311,252, respectively, as summarized in the
following table:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                         --------------------------------

                                                             2000               1999
                                                         --------------     -------------
<S>                                                      <C>                <C>
                                                          (As Restated -
                                                          See Note 23)

Interest paid with principal-in-kind notes                  $  154,110       $   -
Amortization of discount                                       198,744           124,615
Amortization of financing costs                                591,075            45,142
Beneficial conversion feature                                  -               1,967,522
                                                         --------------     -------------

     Total non cash interest expense                           943,929         2,137,279

Interest expense payable in cash                                63,014           173,973
                                                         --------------     -------------

     Total 10% note payable interest expense                $1,006,943       $ 2,311,252
                                                         ==============     =============
</TABLE>

        Due to the conversion feature associated with the 10% note payable, we
accounted for a beneficial conversion feature as additional interest expense.
Based on accounting principles generally accepted in the United States, the
computed value of the beneficial conversion feature totalling $1,967,522 was
initially recorded as a reduction of the 10% note payable and an increase to
additional paid-in capital on the date of issuance, even though the 10% note
payable was not then convertible and was subject to redemption prior to the date
that it first became convertible. The beneficial conversion feature reduction to
the 10% note payable 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.

        The holder of the 10% note payable was initially granted a five-year
warrant for 136,519 shares exercisable at $11.44 per share (the "10% note
payable warrant"). In connection with the amendment in December 1999, the holder
was granted an additional warrant for 136,519 shares exercisable initially at
$18.51 per share (the "series B preferred stock warrant") as follows:

        10% Note Payable Warrant-

        We valued the warrant utilizing the Black-Scholes option pricing model
using the following assumptions:

Recorded value                                              $1,072,325
Exercise price                                                  $11.44
Fair market value of common stock on grant date                 $10.13
Option life                                                    5 years
Volatility rate                                                   104%
Risk free rate of return                                            6%
Dividend rate                                                       0%

        The fair value of the 10% note payable warrant was recorded as a
discount to the 10% note payable and is being amortized as additional interest
expense over the term of the 10% note payable. We recorded additional interest
expense related to this warrant totalling $198,744 and $124,615 for the years
ended December 31, 2000 and 1999, respectively. Upon conversion of half of the
outstanding 10% note payable balance, the remaining unamortized discount was
correspondingly reduced.

        On February 18, 2000, the holder exercised the note payable warrant to
purchase 136,519 shares of our common stock for which we received net proceeds
totalling $1,468,070.

                                     F-17
<PAGE>

        Series B Preferred Stock Warrant-

        In connection with the amendement to the 10% note payable, in December
1999, we issued the note holder a five-year warrant to purchase 136,519 shares
of our common stock at an initial exercise price of $18.506 per share in
consideration for the note holder's agreement to exchange the note for an
amended note with terms more favorable to us. We recorded the fair value of this
warrant totalling $2,311,475 as additional consideration to the note holder.
Accordingly, we recorded a deferred financing asset, which is being amortized to
interest expense from the date of issuance to the maturity date of the 10% note
payable. We recorded additional non-cash interest expense for the amortization
of these deferred financing costs totalling $518,373 for the year ended December
31, 2000. In addition, as a result of the conversion of one-half of the 10% note
payable in February 2000, we correspondingly recorded a reduction to deferred
financing costs in the amount of $1,082,694 of.

        We initially valued the warrant utilizing the Black-Scholes option
pricing model using the following assumptions:

Recorded value                                                    $ 2,311,475
Exercise price                                                    $    18.506
Fair market value of common stock on valuation date
                                                                  $     21.06
Option life                                                           5 years
Volatility rate                                                          104%
Risk free rate of return                                                   6%
Dividend rate                                                              0%

        In accordance with the original terms of the Series B preferred stock
warrant, the exercise price was reset on September 29, 2000, to $10.264 per
share, the average closing bid price of our common stock for the 20 trading days
ended on September 29, 2000. As a result of the reset of the exercise price, we
recorded additional expense totalling $110,302 for the year ended December 31,
2000.

        We valued the warrant utilizing the Black-Scholes option pricing model
using the following assumptions:

<TABLE>
<CAPTION>
                                                            Valuation Date
                                              -------------------------------------------
                                              September 29, 2000      December 18, 1999
                                              -------------------     -------------------
<S>                                           <C>                     <C>
Exercise price                                         $10.26425                  $18.51
Fair market value of common stock on
    valuation date                                        $8.625                  $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 original value of the warrant was recorded as a deferred private
placement cost related to the sale of our series B preferred stock (See Note 8).

        The number of common shares issuable upon exercise and the exercise
price are subject to anti-dilution protection in the event we issue common stock
at prices less than the current exercise price for the warrant or the then
current price for our common stock and for stock splits, stock dividends and
other similar transactions. As a result of the private placement we completed in
February 2001, the exercise price was reset to $9.33431 per share and the number
of common shares issuable upon exercise of the warrant was reset to 150,116.
Based on the anti-dilution provision of the warrant, we will record non-cash
expense totalling $31,932 in the first quarter of 2001 (See Note 22). If the
conversion price is further reduced, we may be required to record additional
charges against income and such charges may be significant.

                                     F-18
<PAGE>

(8)      PREFERRED STOCK

                  Preferred stock consists of the following-

<TABLE>
<CAPTION>
                            Series B-2 Preferred Stock            Series B Preferred Stock           10% Preferred Stock
                           -----------------------------       -----------------------------       ---------------------
                                 Shares      Amount                 Shares        Amount             Shares       Amount
                           -----------------------------       -----------------------------       ----------------------
<S>                        <C>           <C>                   <C>            <C>                  <C>          <C>
Balances, December
   31, 1998                     -        $         -                  -       $          -           245,000    $ 2,691,172
Stock issued in
   private placement            -                  -                  -                  -                 -              -
Offering costs                  -                  -                  -                  -                 -              -
Beneficial conversion
   feature of
   preferred stock              -                  -                  -                  -                 -              -
Preferred stock
   dividends                    -                  -                  -                  -                 -         94,216
Preferred stock and
   dividends
   converted to
   common stock                 -                  -                  -                  -          (160,000)    (1,765,093)
Accretion of
   preferred stock to
   stated value                 -                  -                  -                  -                 -              -
Accretion of
   preferred stock
   for beneficial
   conversion feature
   in excess of
   stated value                 -                  -                  -                  -                 -              -
                         ---------        ----------        ------------       -----------         ----------     -----------
Balances, December
   31, 1999                     -                  -                  -                  -            85,000      1,020,295
Stock issued in
   private placement            -                  -             12,500         12,500,000                 -              -
Cash offering costs             -                  -                  -           (840,000)                -              -
Value of warrants issued
   for common stock             -                  -                  -         (8,622,986)                -              -
Beneficial conversion
   feature of
   preferred stock              -                  -                  -         (3,037,014)                -              -
Preferred stock
   dividends                    -                  -                  -                  -                 -          2,733
Exchange of series B
   preferred stock
   for series B-2
   preferred stock         12,500         11,660,000            (12,500)       (11,660,000)                -              -
Preferred stock and
   dividends
   converted to
   common stock           (11,522)       (10,747,714)                 -                  -           (85,000)    (1,023,028)
Accretion of
   preferred stock to
   stated value                 -                  -                  -         11,660,000                 -              -
                        ---------        -----------       ------------       ------------        ----------     ----------
Balances, December
   31, 2000                   978        $   912,286                  -       $          -                 -    $         -
                        =========        ===========       ============       ============        ==========    ===========


<CAPTION>
                             Series C Preferred Stock            Series A Preferred Stock            Total Preferred Stock
                        -----------------------------           ----------------------------        --------------------------
                             Shares       Amount                  Shares        Amount                Shares        Amount
                        -----------------------------           ----------------------------        --------------------------
<S>                     <C>              <C>                    <C>            <C>                  <C>         <C>
Balances, December
   31, 1998                     -         $        -              1,400        $ 1,410,164           246,400    $ 4,101,336
Stock issued in
   private placement        5,000          5,000,000                  -                  -             5,000      5,000,000
Offering costs                  -           (384,500)                 -                  -                 -       (384,500)
Beneficial conversion
   feature of
   preferred stock              -         (3,931,754)                 -                  -                 -     (3,931,754)
Preferred stock
   dividends                    -             29,121                  -              2,301                 -        125,638
Preferred stock and
   dividends
   converted to
   common stock            (5,000)        (5,029,121)            (1,400)        (1,412,465)         (166,400)    (8,206,679)
Accretion of
   preferred stock to
   stated value                 -          3,157,691                  -                  -                 -      3,157,691
Accretion of
   preferred stock
   for beneficial
   conversion feature
   in excess of
   stated value                 -          1,158,563                  -                  -                 -      1,158,563
                        ---------        -----------       ------------       ------------        ----------     -----------
Balances, December
   31, 1999                     -                  -                  -                  -            85,000      1,020,295
Stock issued in
   private placement            -                  -                  -                  -            12,500     12,500,000
Cash offering costs             -                  -                  -                  -                 -       (840,000)
Value of warrants
   issued for
   common stock                 -                  -                  -                  -                 -     (8,622,986)
Beneficial conversion
   feature of
   preferred stock              -                  -                  -                  -                 -     (3,037,014)
Preferred stock
   dividends                    -                  -                  -                  -                 -          2,733
Exchange of series B
   preferred stock
   for series B-2
   preferred stock              -                  -                  -                  -                 -              -
Preferred stock and
   dividends
   converted to
   common stock                 -                  -                  -                  -           (96,522)   (11,770,742)
Accretion of
   preferred stock to
   stated value                 -                  -                  -                  -                 -     11,660,000
                       ----------       ------------      -------------      -------------       -----------   ------------
Balances, December
   31, 2000 (As
   Restated - See
   Note 23)                     -       $          -                  -      $           -               978   $    912,286
                       ==========       ============      =============      =============       ===========   ============
</TABLE>

                                      F-19
<PAGE>

        During 2000 and 1999, we entered into several private placements in
which we sold shares of our convertible preferred stock, including common stock
purchase warrants, to a limited number of investors. We recorded the value of
the warrants upon each issuance, using the Black-Scholes option pricing model,
as a reduction of the preferred stock offering.

        In general, the terms of the preferred stock grant the holders the right
to convert the preferred stock into shares of our common stock at specified
conversion prices. In each issuance of preferred stock, the conversion price has
included a beneficial conversion feature because the value of the common stock
resulting from a theoretical conversion of the preferred stock on the issuance
date is greater than the allocated value of the preferred stock, which is
referred to as a "beneficial conversion feature" in the accompanying
consolidated financial statements.

        Accounting principles generally accepted in the United States require us
to record the beneficial conversion feature, the value of warrants and, in most
instances, the cash offering costs as additional preferred stock dividends. This
non-cash charge to net loss applicable to common stockholders is labeled
"Accretion of preferred stock to stated value" in the accompanying financial
statements. In some instances, the beneficial conversion is greater than the
total proceeds we received from the sale of the preferred stock. In those
instances, the amount in excess of the value of the preferred stock has been
recorded as additional preferred stock dividends as well. This non-cash expense
is labeled "Accretion of preferred stock for beneficial conversion feature in
excess of stated value" in the accompanying financial statements.

        The table presented below summarizes our preferred stock transactions
during 2000 and 1999, with details of each transaction summarized under the
preferred stock captions which follow.

<TABLE>
<CAPTION>
                       Preferred                              Conversion     Beneficial       Total
                         Stock      Shares        Gross        Price Per     Conversion     Accretion
 Date of Issuance       Series      Issued       Proceeds       Share          Feature       Expense
-------------------    ---------   ---------    -----------   -----------    ----------    ----------
<S>                    <C>         <C>          <C>           <C>            <C>           <C>
February 18, 2000      Series B      12,500     $12,500,000      $ 20.00     $3,037,014    $11,660,000
September 27, 2000     Series B-2    12,500           None      10.20408         -             -
January 11, 1999       Series C       3,000      3,000,000    8.59 to         3,914,063      4,158,563
                                                                   11.13
June 18, 1999          Series C       2,000      2,000,000    8.59 to            17,691        157,691
                                                                   11.13
</TABLE>

        As of December 31, 2000, 978 shares of our series B-2 preferred stock
remained outstanding.

        Series B Preferred Stock-

        On February 18, 2000, we completed a private placement that resulted in
gross proceeds of $12,500,000. The placement was made pursuant to a securities
purchase agreement entered into on December 31, 1999. We sold 12,500 shares of
our series B convertible preferred stock (the "series B preferred stock"),
including warrants to purchase 343,750 shares of our common stock. We received
net proceeds totalling approximately $11,660,000 after deducting approximately
$840,000 in offering costs.

        The series B preferred stock was convertible into shares of our common
stock, initially at $20.00. The conversion rate for the series B preferred stock
was subject to a potential reset on November 12, 2000, based on the then market
value for our common stock.

                                     F-20
<PAGE>

        We also issued five-year warrants to purchase 343,750 shares of our
common stock with the series B preferred stock, valued at $8,622,986, determined
based on the relative fair value of the warrants using the Black-Scholes option
pricing model, and the net proceeds we received. The warrants entitle the holder
to purchase one share of our common stock for a purchase price initially set at
$20.20, which was 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 our common stock every 90 days commencing May 17, 2000, until
January 20, 2003. If the current exercise price is higher than the current
market price (the lower of the average closing bid prices for the 10-day period
ending on such date or the closing bid price on such date), the exercise price
will be reset to the market price. As detailed below, the exercise price has
been reset at each such date and, as a result, we recorded additional
compensation expense totalling $379,436 for the year ended December 31, 2000.

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

<TABLE>
<CAPTION>

                                                     2000 Valuation Date
                            ---------------------------------------------------------------------
                             February 18          May 17            August 18        November 14
                            -------------      -------------      -------------     --------------
<S>                         <C>                <C>                <C>               <C>
Exercise price                    $20.20             $13.00             $8.875             $3.875
Fair market value of
    common stock on
    grant or
    redetermination date          $66.88             $13.00             $8.875             $3.875
Option life                      5 years            5 years            5 years            5 years
Volatility rate                     120%               120%               120%               120%
Risk free rate of return            6.7%               6.7%               6.7%               6.7%
Dividend rate                         0%                 0%                 0%                 0%
</TABLE>

        The exercise price is subject to anti-dilution protection in the event
we issue common stock at prices less than the current exercise price for the
warrants or the then current price for our common stock and for stock splits,
stock dividends and other similar transactions. As a result of the private
placement we completed in February 2001, the exercise price was reset to
$3.75374 per share. Based on the anti-dilution provision of the warrant, we will
record non-cash expense totaling $2,264 in the first quarter of 2001 (See Note
22). If the conversion price is further reduced, we may be required to record
additional charges against income and such charges may be significant.

        Due to the conversion feature associated with the series B preferred
stock, we accounted for a beneficial conversion feature as an additional
preferred stock dividend. The computed value of the beneficial conversion
feature of $3,037,014 was limited to the relative fair value of the series B
preferred stock, and was initially recorded as a reduction of the series B
preferred stock and an increase to additional paid-in capital. The beneficial
conversion feature reduction to the series B preferred stock was accreted on the
date of issuance, as additional preferred stock dividends, by recording a charge
to income applicable to common stockholders from the date of issuance to the
earliest date of conversion.

        The difference between the stated value of $1,000 per share totalling
$11,660,000 and the recorded value on February 18, 2000, was accreted as a
charge to income applicable to common stockholders on the date of issuance (the
date on which the series B preferred stock was first convertible) and was
comprised of the following (as restated):

Beneficial conversion feature                               $3,037,014
Relative fair value of common stock warrants                 8,622,986

                                     F-21
<PAGE>

                                                           -----------
Total accretion recorded                                   $11,660,000
                                                           ===========

        Series B-2 Preferred Stock-

        On September 27, 2000, we executed exchange agreements with the holders
of our series B preferred stock whereby we redeemed all of the outstanding
series B convertible preferred stock in exchange for 12,500 shares of our series
B-2 convertible preferred stock (the "series B-2 preferred stock") that has a
stated value of $1,000 per share.

        The series B-2 preferred stock was convertible into shares of our common
stock at $10.20408 per share (1,225,000 shares in the aggregate) by the holders
at any time, so long as the conversion would not result in the holder being a
beneficial owner of more than 4.99% of our common stock. On December 31, 2000,
the series B preferred stock was subject to an automatic conversion feature,
subject to the 4.99% limitation, pursuant to which 10,522 shares were converted
into 1,031,136 shares of our common stock. The remaining 978 outstanding shares
will be automatically converted into shares of our common stock at the end of
each subsequent 30-day period, subject to the 4.99% limitation.

        The conversion price is subject to anti-dilution protection in the event
we issue common stock at prices less than the conversion price for the series B-
2 preferred stock or the then current price for our common stock and for stock
splits, stock dividends and other similar transactions. As a result of the
private placement we completed in February 2001, the conversion price was reset
to $2.50 per share. Based on the anti-dilution provision of the warrant, we will
record non-cash expense totalling $886,068 in the first quarter of 2001 (See
Note 22). If the conversion price is further reduced, we may be required to
record additional charges against income and such charges may be significant.

        During 2000, investors converted 11,522 shares of the series B-2
preferred stock into 1,129,136 shares of our common stock at a conversion price
of $10.20408 as summarized in the following table:

<TABLE>
<CAPTION>
                                                                  Number of Shares
                                                         --------------------------------
                                                           Series B-2
                                                           Preferred        Common Stock
                  Conversion Date                            Stock
----------------------------------------------------     --------------     -------------
<S>                                                       <C>               <C>
December 12, 2000                                                1,000            98,000
December 31, 2000                                               10,522         1,031,136
                                                         --------------     -------------
Total                                                           11,522         1,129,136
                                                         ==============     =============
</TABLE>

        The series B-2 preferred stock has preference if we were to liquidate,
dissolve or wind-up our business, whether voluntary or otherwise. In these
events, after we paid our debts and other liabilities, the holders of the series
B-2 preferred stock would be entitled to receive $1,000 per share from our
remaining net assets, before any distribution to the holders of our common
stock. The series B-2 preferred stock is also redeemable in certain
circumstances, including a change in control of Webb. Without some failure on
our part, the holders of the series B-2 preferred stock can not unilaterally
require redemption.

        Series C Preferred Stock-

        On January 11, 1999, we completed a private placement of preferred stock
that resulted in gross proceeds of $3,000,000. We sold 3,000 shares of our 4%
series C cumulative, convertible, redeemable preferred stock (the "series C
preferred stock"). We received net proceeds totalling $2,755,500 after deducting
$244,500 in offering costs.

        In addition, we also issued a warrant that entitled the holder to
purchase, at a price of $1,000 per share, up to 2,000 shares of our series C
preferred stock. This warrant also granted us the right to require the holder to
exercise such warrant. On June 18, 1999, we 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.

                                     F-22
<PAGE>

        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 our
common stock equal to $1,000 divided by the lesser of (i) 140% of the closing
bid price of our 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 our 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 our 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, we accounted for the beneficial conversion feature as an additional
preferred stock dividend. The computed value of the beneficial conversion
feature 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 beneficial
conversion feature reduction to the series C preferred stock was accreted, as
additional preferred stock dividends, by recording a charge to income applicable
to common stockholders from the date of issuance to the earliest date of
conversion. We also recorded annual dividends of $40 per share as a reduction of
income applicable to common stockholders totaling $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) totalling $4,316,254 (which
includes $1,158,563 of accretion of preferred stock for the beneficial
conversion feature in excess of the stated value) was accreted as a charge to
income applicable to common stockholders on the date that the series C preferred
stock 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>
Beneficial conversion feature                           $  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 our common stock at conversion prices per share ranging from
approximately $8.59 to $11.13 as summarized in the following table:


<TABLE>
<CAPTION>
                                             Number of Shares                  Common
                                     ---------------------------------          Stock
                                        Series C                              Conversion
                                        Preferred           Common            Price per
         Conversion Date                  Stock              Stock              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-

        In December 1997 and March 1998, we sold a total of 267,500 shares of
our 10% cumulative, convertible, redeemable preferred stock (the "10% preferred
stock") in a private placement. Each share of 10% preferred stock

                                     F-23
<PAGE>

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

        During 2000, holders of our 10% preferred stock converted 85,000 shares,
including accrued dividends payable of $173,028, into 102,302 shares of our
common stock with conversion prices per share of $10.00. During 1999, holders of
our 10% preferred stock converted 160,000 shares, including accrued dividends
payable of $165,093, into 177,106 shares of our common stock with conversion
prices ranging from approximately $9.46 to $10.00.

<TABLE>
<CAPTION>
                                           Number of Shares                    Common
                                   ---------------------------------            Stock
                                              10%                            Conversion
                                           Preferred            Common        Price per
          Conversion Date                    Stock               Stock          Share
----------------------------------      --------------       -------------  -------------
<S>                                     <C>                  <C>            <C>
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
January 11, 2000                             80,000             96,240             10.00
February 14, 2000                             5,000              6,062             10.00
                                      -------------      -------------
Total                                       245,000            279,408
                                      =============      =============
</TABLE>

(9)     STOCK OPTION PLANS

        We have stock option plans for directors, officers, employees and other
third parties, which provide for nonqualified and incentive stock options. In
addition to the 1995 Stock Option Plan, which provides for the issuance of
options for up to 4,500,000 shares of common stock, during 2000, we adopted a
second plan, the 2000 Stock Option Plan, which provides for the issuance of
options for up to 1,000,000 shares of common stock (collectively the "plans").
The options vest over various terms with a maximum vesting period of 42 months
and expire after a maximum of ten years from the date of grant. At December 31,
2000, there were options for 4,128,070 shares of common stock outstanding and
options for 1,027,839 shares of common stock were vested, with 155,435 options
available for future grants under the plans.

        A summary of the status of the plans as of December 31, 2000 and 1999
and changes during the years then ended is presented in the tables and narrative
below:

<TABLE>
<CAPTION>
                                2000                                   1999
                  --------------------------------       --------------------------------
                                      Weighted                               Weighted
                                       Average                               Average
                                      Exercise                               Exercise
                       Shares           Price               Shares            Price
                  ---------------   -------------      ----------------   --------------
<S>               <C>               <C>                <C>                <C>
Outstanding at
    beginning of
    year               2,770,055        $10.31            1,758,665           $5.93
Granted                2,259,332         15.48            2,101,897           12.03
Exercised               (251,842)         7.13             (452,773)           2.71
Forfeited and
    canceled            (649,475)        14.68             (637,734)           9.24
                  ---------------                      ----------------
</TABLE>

                                     F-24
<PAGE>

<TABLE>
<S>               <C>               <C>                <C>                <C>
Outstanding at
    end of year        4,128,070        $12.65            2,770,055           $10.32
                  ==============    ==========         ============       ==========
Exercisable at
    end of year        1,027,839        $10.47              468,861           $ 7.62
                  ==============    ==========         ============       ==========
Weighted average
    fair value of
    options
    granted
    during year   $        11.38                       $       8.83
                  ==============                       ============
</TABLE>

        The status of total stock options outstanding and exercisable under the
plans as of December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                      Stock Options Outstanding                Stock Options Exercisable
                 ------------------------------------   ---------------------------------------
                                             Weighted
                                             Average                                Weighted
                                Weighted    Remaining                  Weighted     Average
    Range of                    Average    Contractual                 Average     Remaining
    Exercise      Number of     Exercise       Life      Number of     Exercise   Contractual
     Prices         Shares       Price       (Years)      Shares        Price     Life (Years)
---------------- ------------ ------------ ----------- ------------  ----------- -------------
<S>              <C>          <C>          <C>         <C>           <C>          <C>
$ 1.63 -   4.08      616,739     2.10         6.9            61,500    2.96           5.4
  4.09 -  10.23    1,552,426     8.45         6.1           592,262    8.26           4.7
  10.24 - 25.60    1,517,505    13.59         5.8           347,410    13.83          5.0
  25.61 - 58.25      441,400    39.09         6.1            26,667    33.18          6.1
                ------------                           ------------
                   4,128,070    $12.65        6.2         1,027,839   $10.47          5.3
                ============  ========     ======      ============  =======      =======
</TABLE>

        During 2000, Webb's subsidiary, Jabber.com, adopted the 2000 Jabber
Stock Option Plan (the "Jabber plan") for directors, officers, and employees
that provide for the issuance of up to 3,000,000 nonqualified and incentive
stock options for Jabber.com common stock. The options vest over various terms
with a maximum vesting period of 36 months and expire after a maximum of ten
years from the date of grant. At December 31, 2000, there were options for
1,258,773 shares of common stock outstanding and options for 70,140 of common
stock were vested with options for 1,741,227 shares of common stock available
for future grants under the Jabber plan.

        A summary of the status of the Jabber plan as of December 31, 2000, and
changes during the year then ended is presented in the tables and narrative
below:

<TABLE>
<CAPTION>

                                                                      2000
                                                        --------------------------------
                                                                             Weighted
                                                                              Average
                                                                             Exercise
                                                                               Price
                                                            Shares
                                                       ---------------    ---------------
<S>                                                    <C>                <C>
Outstanding at beginning of year                                     -            -
Granted                                                      1,336,949        $1.50
Exercised                                                            -            -
Forfeited and canceled                                         (78,176)        1.50
                                                       ---------------
Outstanding at end of year                                   1,258,773         1.50
                                                       ===============    =========
Exercisable at end of year                                      70,140        $1.50
                                                       ===============    =========
Weighted average fair value of options granted during
year                                                             $0.18
                                                       ===============
</TABLE>

        During January 2001, Jabber.com granted options for an additional
1,100,000 shares of Jabber.com common stock under the Jabber plan at an exercise
price of $0.75 per share.

        Pro Forma Fair Value Disclosures

                                     F-25
<PAGE>

     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 2000 and 1999, respectively: risk-free interest
rate of 6.05 and 5.68 percent; no expected dividend yields; expected lives of 3
years; and expected volatility of 122 and 118 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 applicable
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, our net loss applicable to common stockholders and net loss applicable
to common stockholders per common and common equivalent share would have been
increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                       2000                                                 1999
                   ----------------------------------------------       ----------------------------------------------
                        As Reported                 Pro Forma                As Reported                 Pro Forma
                   -------------------        -------------------       -------------------        -------------------
<S>                  <C>                        <C>                       <C>                        <C>
Net loss
 applicable to
 common
 stockholders             $(48,853,667)              $(58,784,188)             $(21,866,012)              $(24,897,608)
                   ===================        ===================       ===================        ===================
Net loss
 applicable to
 common
 stockholders per
 share-basic and
 diluted                  $      (5.39)              $      (6.49)             $      (3.31)              $      (3.77)
                   ===================        ===================       ===================        ===================
</TABLE>

(10) WARRANTS AND OPTIONS FOR COMMON STOCK ISSUED OUTSIDE THE STOCK OPTION PLANS

     We have issued common stock purchase warrants and options outside our stock
option plans ("warrants") in connection with the sale of securities, business
acquisitions and services rendered to the Company.  The following table sets
forth outstanding warrants as of December 31, 2000 and 1999, as well as common
stock issued as a result of exercises for the years then ended.

<TABLE>
<CAPTION>
                                                                        December 31, 2000                  December 31, 1999
                                                               ---------------------------------     -------------------------------
 Warrants and Options                             Exercise                          Common Stock                        Common Stock
 Issued in Connection                            Price Per         Warrants         Issued From        Warrants          Issued From
         With                Expiration Date       Share         Outstanding         Exercises       Outstanding          Exercises
----------------------    ------------------    ------------   ----------------  ----------------    -------------- ----------------
<S>                        <C>                  <C>            <C>                 <C>             <C>                <C>
Series B preferred
 stock (See Notes 8
 and 22)                   February 2004             $ 3.875            343,750                 -                 -                -

10% convertible note
 payable (See Notes 7
 and 22)                   December 2005              10.264            136,519           136,519           273,038                -

Customers (See Note 16)    June and December
                           2002                 8.77 to 9.19            220,162            11,667           231,829                -

DCI merger (See Note       January 2001 to           6.61 to
 13)                       June 2003                   10.16             21,523           113,856           157,951           44,740
</TABLE>

                                      F-26
<PAGE>

<TABLE>
<S>                            <C>                     <C>           <C>           <C>                <C>               <C>
Placement firm (See Note 11)   March 2005              38.44           5,834              -                 -                 -

VA Linux (See Note 11)         October 2005              TBD          50,000              -                 -                 -

Underwriter in IPO             May 2001                 8.10           1,530        102,361           106,700             3,300

Common stock private
 placement                     January 2000             2.25               -              -               900            13,500

10% preferred stock
 (See Note 8)                  December 2000           15.00               -         35,000            53,500                 -

5% preferred stock             May 2001                16.33               -        100,000           100,000                 -

Series A preferred
 stock placement agent         November 2003            5.71               -              -                 -            20,000

IPO                            May 1999                 9.00               -              -                 -           473,192

Series A preferred
 stock                         November 2003            5.71               -              -                 -           140,000
                                                                  ----------      ---------         ---------         ---------
Total                                                                779,318        499,403           923,918           694,732
                                                                  ==========      =========         =========         =========
</TABLE>


     During 2000, holders of warrants exercised their right to purchase 503,874
shares of our common stock in which we received net proceeds totalling
$5,443,315, after deducting $93,707 in commissions, 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                        35,000                    $15.00                    35,000               $   525,000
IPO representative
 warrants                             105,170                      8.10                   102,361                   736,047
Warrants issued in
 connection with
 the DCI merger                       115,518             6.61 to 10.16                   113,856                   966,558
Warrant issued in
 connection with
 5% preferred stock                   100,000                     16.33                   100,000                 1,633,000
Warrant issued to
 customer                              11,667              9.75 to 9.94                    11,667                   114,640
Warrant issued to
 10% convertible
 note holder                          136,519                     11.44                   136,519                 1,468,070
                          -------------------                                 -------------------       -------------------
                                      503,874                                             499,403               $ 5,443,315
                          ===================                                 ===================       ===================
</TABLE>

     During 1999, holders of warrants exercised their right to purchase 691,432
shares of our common stock in which we received net proceeds totalling
$4,102,084, after deducting $17,387 in issuance costs, as summarized in the
following table:

                                      F-27
<PAGE>

<TABLE>
<CAPTION>
                             Common
                             Stock              Exercise            Common         Proceeds
     Warrant                Warrant              Price              Stock           To the
    Exercised              Exercised           Per Share            Issued         Company
    ---------              ---------           ---------           -------      -----------
<S>                        <C>             <C>                     <C>          <C>
IPO warrants               1,339,811               $9.00           473,192      $ 3,056,871
IPO representative
   warrants                    3,300                8.10             3,300           26,730
 Warrant issued
   in connection
   with series A
   preferred stock           140,000                5.71           140,000          779,400
 Common stock
   warrants
   issued to
   placement                  20,000                5.71            20,000          114,200
   agent in
   series A
   preferred stock
 Warrants issued
   in connection
   with the DCI
   merger                     78,577       8.94 to 10.16            44,740          121,238
Warrant issued in
   connection
   with private
   placement of
   common stock               13,500                2.25            13,500           30,375
                       -------------                          ------------    -------------

                           1,595,188                               694,732      $ 4,128,814
                       =============                         =============     ============
</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 131,588 and 32,807 shares, respectively, issued to the holders as
a result of utilizing the cashless exercise provision of the agreements for the
exercise of 656,343 and 66,644 warrants, respectively.

(11)    STOCK BASED COMPENSATION EXPENSE

        During 2000 and 1999, we issued common stock, common stock purchase
warrants and options in transactions described below and recorded expense as set
forth in the following table.

<TABLE>
<CAPTION>
                                          Number of
                                          Shares or                               Deferred
                                           Warrants                              Compensation
                                            Issued             Expense             Expense
----------------------------                -------            -------             -------
<S>                                      <C>                 <C>                 <C>
2000 Transactions-
Issuance of common stock for
    financial services (A)                   15,000           $ 246,891           $       -
Grants of Jabber.com common stock (B)       912,500             276,337                   -
Warrant issued to placement firm (D)          5,834             176,443                   -
Option issued to advisory board                                       .
    member (E)                                2,500                 729                 395
Reset of exercise price for
    series B warrants (See
    Notes 8 and 22)                               -              379,597                  -
Reset of exercise price for 10%
    note payable warrant (See
    Notes 7 and 22)                               -             110,302                   -
Warrant issued to VA Linux (F)               50,000              30,000                   -
</TABLE>

                                      F-28
<PAGE>

<TABLE>
<S>                                          <C>                <C>                 <C>
Amortization of previous years
    deferred compensation                                -             257,933             154,379
                                             --------------     --------------     ---------------

2000 Totals                                        985,834          $1,478,232           $ 154,774
                                             ==============     ==============     ===============

1999 Transactions-
Issuance of common stock for
    financial services (A)                          30,000           $ 444,390                   -
Issuance of common stock for
    consulting services (C)                          6,497              90,000                   -
Options issued to consultants (G)                   58,168             461,661                   -
Options issued to DCI employees (H)                      -             205,861             304,180
Warrants issued to customers (See Note 10)         161,667             941,684                   -
    Amortization of previous
    years deferred compensation                          -             612,770             108,527
                                             --------------     --------------     ---------------

1999 Totals                                        256,332          $2,756,366           $ 412,707
                                             ==============     ==============     ===============
</TABLE>
        We issued common stock in the following transactions-

    (A) On March 16, 2000, and November 5, 1999, we executed two-month and four-
month consulting agreements, respectively, with a financial consulting firm to
enhance our activities in corporate finance, mergers and acquisitions and
investor relations. In connection with the agreements, we issued restricted
shares of our common stock for services provided with respect to the 2000 grant
and for a commencement bonus with respect to the 1999 grant, as follows:

<TABLE>
<CAPTION>
                                                 March 16, 2000        November 5, 1999
                                               -------------------     ----------------
<S>                                            <C>                     <C>
Common shares issued                                        15,000               30,000
Date services provided or date of issuance     March to April 2000     December 2, 1999
Fair market value on date services provided
    or on date of issuance                      $9.625 to $  41.50             $  14.81
Value of common stock                                     $246,891             $444,390
</TABLE>

        We recorded expenses totalling $246,891 on the date the services were
provided with respect to the 2000 grant and, expenses totalling $444,390 with
respect to the 1999 grant, 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 us.

    (B) During July and September 2000, we issued 912,500 shares of common stock
of our subsidiary, Jabber.com, to employees of the subsidiary, an officer of the
Company and members of the Jabber.com advisory boards. The shares vest over
periods ranging from grant date to two years. We recorded deferred compensation
totalling $523,700 and compensation expense totalling $276,337 during the year
ended December 31, 2000, calculated based on the appraised value of the
Jabber.com common stock.

    (C) In February 1999, we entered into a third consecutive six-month
agreement with an individual to provide consulting services in his capacity as
Webb'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 our common stock determined by dividing
$15,000 by the fair market value of the our common stock on the last trading day
of the month. During the year ended December 31, 1999, we issued 6,497 shares of
our common stock under this agreement valued in the aggregate at $90,000.

        We issued common stock purchase warrants/options in the following
transactions-

    (D) In March 2000, we issued a five-year common stock purchase warrant to
purchase 5,834 shares of our common stock at an exercise price of $38.44 per
share to an employment agency in connection with a placement

                                      F-29
<PAGE>

fee. The warrant vests one year from grant date. We valued the warrant at
$176,443 utilizing the Black-Scholes option pricing model using the following
assumptions:

Exercise price                                                  $38.44
Fair market value of common stock on date of issuance           $38.44
Option life                                                    5 years
Volatility rate                                                    119%
Risk-free rate of return                                          6.06%
Dividend rate                                                        0%

    (E) In April 2000, we granted an option to purchase 2,500 shares of our
stock at $15.88 per share to an advisory board member. The option vests over
three years from grant date. We applied variable plan accounting pursuant to
SFAS 123 and related interpretation EITF 96-18, and valued the option at $1,124
utilizing the Black-Scholes option pricing model using the following
assumptions:

Exercise price                                                  $15.88
Fair market value of common stock on date of valuation          $1.688
Option life                                                    7 years
Volatility rate                                                    119%
Risk-free rate of return                                          6.06%
Dividend rate                                                        0%

    (F) In October 2000, we became obligated to issue a five-year common stock
purchase warrant for 50,000 shares of Jabber.com common stock to VA Linux for
the integration on Jabber.com's products with those of VA Linux. The exercise
price is to be determined at the earlier of third party financing of Jabber.com
or the fair market fair determined by Jabber.com. Based on the appraised value
of the warrant, we recorded expense totalling $30,000 for the year ended
December 31, 2000.

    (G) During 1999, we granted stock options under the plan to several
consultants in connection with agreements to provide Webb 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. We issued in the aggregate options to purchase a total of 52,168
shares of our common sock at exercise prices ranging from $4.00 to $8.50. We
applied variable plan accounting pursuant to SFAS 123 and related interpretation
EITF 96-18, and valued these options at $461,661 utilizing the Black-Scholes
option pricing model on the vesting dates using the following assumptions:

Exercise price                                          $4.00 to $8.50
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

    (H) On June 30, 1999, as a result of the consummation of the merger with
DCI, we recorded the intrinsic value of options granted to DCI employees whereby
the difference between the fair market value of our 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. We recorded expense for
these options totalling $205,861 for the year ended December 31, 1999.

(12)    NET REVENUES

        Net revenues from continuing operations consist of software license
fees; service fees for professional services for software integration,
configuration, custom programming, hosting and software support and

                                      F-30
<PAGE>

maintenance; and computer hardware sales. Net revenues from continuing
operations are comprised of the following:

<TABLE>
<CAPTION>
                                                                   Year Ended
                                                                  December 31,
                                                         -------------------------------
                                                             2000               1999
                                                         -------------      ------------
<S>                                                      <C>                <C>
Net revenues:
   License                                                 $ 2,155,990       $   392,810
   Services                                                  1,858,403           682,877
   Hardware and third-party software                                 -           117,509
                                                         -------------      ------------

   Total net revenues                                      $ 4,014,393       $ 1,193,196
                                                         =============      ============
</TABLE>

        During July 1999, we sold two customer contracts to an unrelated third
party, including computer hardware, for approximately $270,000. We provided
services and equipment under the terms of the original contracts enabling the
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 and also recorded a gain on the
sale of the equipment totalling $2,225.

(13)    ACQUISITIONS

        Update Systems, Inc.

        Effective January 7, 2000, we acquired the assets of Update Systems,
Inc. ("Update"), a developer and provider of e-communication Internet business
solutions, by issuing 278,411 shares of Webb common stock. In addition,
outstanding Update options to purchase common stock were exchanged for 49,704
options to purchase Webb 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
totalling $10,014,485 recorded as intangible assets.

Total consideration for the merger was 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
                                                       =============

        The transaction with Update resulted in intangible assets totalling
$10,014,485 and was comprised of the following:

Goodwill                                                 $ 5,560,417
Developed technologies and workforce                       4,500,000
                                                        ------------
Total assets acquired                                    $10,060,417
                                                        ============

        These intangible assets are being amortized over their estimated
economic lives of three years.

(a) 49,704 options issued, which were 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-31
<PAGE>

     At December 31, 2000, we determined, per an analysis of the estimated
undiscounted cash flows related to the purchased intangibles during their
remaining useful life, that the net book value of the assets exceeded the
estimated undiscounted net cash flows, and therefore, in accordance with our
policy, such assets were considered to be impaired. Accordingly, we recorded an
impairment loss in accordance with SFAS 121, totalling $3,435,807, all of which
was allocated to goodwill. The impairment charge was determined using estimated
fair values, determined by the use of discounted estimated net cash flows. As of
December 31, 2000, the remaining book value of the intangible assets totalled
$3,240,516. We will continue to evaluate the carrying value of the remaining
intangible assets for possible impairment. Such a review may indicate further
impairment that would require us to record additional losses in future periods
and those losses could be substantial (see Note 14).

     Durand Communications, Inc.

     On June 30, 1999, Durand Acquisition Corporation ("DAC"), a wholly owned
subsidiary of Webb, completed a merger with DCI, a developer and marketer of
Internet "community" building tools, by exchanging 947,626 shares of Webb common
stock for all of the common stock of DCI at an exchange ratio of 2.46 shares of
Webb 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 Webb 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 totalling
$14,132,445 recorded as intangible assets. We have 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 was as follows:

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

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

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

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

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%

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

                                      F-32
<PAGE>

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

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%

     The transaction with DCI resulted in intangible assets totalling
$14,132,445 (primarily developed technologies, workforce and goodwill). These
intangible assets are being amortized over their estimated economic lives of
three years.

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

     At December 31, 2000, we determined, per an analysis of the estimated
undiscounted cash flows related to the purchased intangibles during their
remaining useful life, that the net book value of the assets exceeded the
estimated undiscounted net cash flows, and therefore, in accordance with our
policy, such assets were considered to be impaired. Accordingly, we recorded an
impairment loss in accordance with SFAS 121, totalling $4,733,097. The
impairment charge was determined using estimated fair values, determined by the
use of discounted estimated net cash flows. As of December 31, 2000, the
remaining book value of the intangible assets totalled $2,313,766. We will
continue to evaluate the carrying value of the remaining intangible assets for
possible impairment. Such a review may indicate further impairment that would
require us to record additional losses in future periods and those losses could
be substantial (see Note 14).

     NetIgnite, Inc.

     On March 10, 1999, we acquired a controlling interest in a newly formed
company, NetIgnite 2, LLC ("NetIgnite"). NetIgnite was a development stage
company that we 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. Webb 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.

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

     On June 2, 1999, we acquired the assets and liabilities of NI in exchange
for 71,429 shares of Webb 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 totalling
$893,953 recorded as an intangible asset, primarily developed technologies
and goodwill. These intangible assets are being amortized over their estimated
economic lives of three years.

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

     Pro Forma Results (Unaudited)

     The following unaudited tabulations present the pro forma effect of the
business combinations on our results of operations for the year ended December
31, 1999, as if the transactions occurred on January 1 of the year in which each
acquisition occurred, except that pro forma results include the results of
Update Systems since its formation (February 24, 1999) and NetIgnite since its
formation (March 10, 1999).

Net revenues                                    $  1,932,491
Net loss applicable to common stockholders      $(31,469,032)
Loss applicable to common stockholders per
 share, basic and diluted                       $      (4.26)


(14) IMPAIRMENT LOSS

     During the year ended December 31, 2000, we recorded an impairment loss in
our AccelX business segment totalling $8,168,904 from the impairment of assets
we purchased in connection with our acquisitions of

                                     F-33
<PAGE>

DCI and Update. The impaired assets consisted of developed technology and
goodwill as summarized in the following table:
<TABLE>
<CAPTION>
                                           DCI               Update             Total
                                      --------------     --------------     -------------
<S>                                   <C>                <C>                <C>
Developed technology                    $ 3,261,751        $         -       $ 3,261,751
Goodwill                                  1,471,346          3,435,807         4,907,153
                                      --------------     --------------     -------------

   Total impairment loss                $ 4,733,097        $ 3,435,807       $ 8,168,904
                                      ==============     ==============     =============
</TABLE>

     In connection with the DCI and Update acquisitions, we purchased technology
that has been incorporated into our current product offerings as well as our
Jabber.com instant messaging technology. Based on a review of the acquired
technology in combination with our evolving business plan, we determined that
only a portion of such acquired technology is utilized in our current products.
Further, substantially less revenue had been recorded from products
incorporating the acquired technology than was originally expected and our
current estimated revenues projected to be earned from the purchased technology
is also less than previously believed. Because of these factors, which became
apparent during the fourth quarter of 2000 in the context of an overall economic
slowdown and its impact on our customers, coupled with substantial volatility in
the capital and business environment and delays in purchasing decisions by most
large aggregators of small business due in part to a reluctance to make
significant investments in new Internet-related products and services, we
determined that the carrying amount of the acquired intangibles should be
assessed for impairment. As a result, we assessed impairment by comparing the
estimated undiscounted net cash flows expected to be generated from our current
product offerings which use the purchased technologies to their remaining net
book values of the assets. Our analysis showed that such assets were in fact
impaired. Accordingly, the impairment charge was recorded based upon the
difference between the carrying amount and their estimated fair value of the
assets, determined using the net present value of the estimated future cash
flows.

(15) DISCONTINUED OPERATIONS

     On September 12, 2000, our e-banking segment was sold to a privately held
company for consideration valued at $487,873, which was approximately the same
as the net book value of the net assets of this segment. We received $39,700 in
cash and 181,176 shares of the purchaser's common stock recorded at an estimated
value of approximately $2.47 per share. We estimated the fair value of the stock
based on our assessment of the buyers business prospects and the value of the
assets we sold to them. At the time of the sale, which closed in September 2000,
the purchaser had in place temporary financing and was in the process of raising
permanent financing. We believed, as did the purchaser, that due to an
investment earlier in the year by a venture capital firm, that additional
funding would occur which would support our estimated value. During the interim
from September 2000, through December 31, 2000, the values for technology
companies overall, and values for internet-based companies specifically, fell
substantially. As a result, at December 31, 2000, we determined that the value
of this stock was likely permanently impaired, and we began the process of
determining what value, if any, should be carried at in our December 31, 2000,
balance sheet. In January 2001, BNKR informed us that they were unable to close
on the commitment for additional funding, and in February 2001, BNKR ceased
operations. These post year-end events confirmed our belief at December 31,
2000, that these securities were permanently impaired, and we determined that
they should be completely written off.

     The sale of this segment is reflected as a sale of discontinued operation
in the accompanying consolidated financial statements. Accordingly, the assets
and liabilities; and revenues, costs and expenses of this discontinued
operation have been excluded from the respective captions in the Consolidated
Balance Sheet and Consolidated Statement of Operations and have been reported as
"Net current assets of discontinued operations," "Net assets of discontinued
operations," "Net current liabilities of discontinued Operations," and as "Loss
from discontinued operations, net of taxes," for all years presented.

Net current assets of discontinued operations consists of the following:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                        -------------
                                                                             1999
                                                                        -------------
<S>                                                                     <C>
Accounts receivable                                                         $   30,326
                                                                        =============

Net long-term assets of discontinued operations consists
of the following:

Property and equipment, net                                                 $  683,890
                                                                        =============

Net current liabilities of discontinued operations consists
of the following:

Accounts payable and accrued liabilities                                       192,512
Deferred revenue and customer deposits                                         183,000
                                                                        -------------

  Total net current liabilities of discontinued operations                  $  375,512
                                                                        =============
</TABLE>

     Summarized financial information for the discontinued operation is as
follows (Note: 2000 amounts include activity through September 12, 2000 only):

                                     F-34
<PAGE>

                                                     Year Ended
                                                     December 31,
                                                ----------------------
                                                  2000         1999
                                                ---------    ---------
Net revenues                                    $  73,092    $ 751,087
Net loss from discontinued operations            (203,372)     (79,776)

(16)  CUSTOMER ACQUISITION COSTS

      During 1999, we granted warrants to three customers to purchase in the
aggregate 161,667 shares of our common stock at exercise prices ranging from
$9.19 to $9.94 per share. The warrants may be exercised at any time during the
one-to-three-year periods from the date of issuance. On June 30, 1999, we issued
a warrant to purchase 150,000 shares of our common stock to Switchboard, Inc.
concurrent with the license agreement we entered into with them on the same
date. The warrant vested on the date of issuance and there was no performance
obligation associated with the issuance of the warrant. In 1998, we commenced a
warrant issuance program, which was terminated in 1999, related to our broadband
cable business in which we issued warrants for an aggregate of 11,667 shares to
two cable operators during 1999. There were no performance obligations
associated with the issuance of these warrants. Because these agreements did not
contain minimum guaranteed revenues or performance obligations, we did not have
any past transactions with these customers, and due to the start-up nature of
these services and other uncertainties regarding these arrangements, we recorded
expense for customer acquisition costs of $941,684 for the year ended December
31, 1999. We valued these options utilizing the Black-Scholes option pricing
model using the following assumptions:

Exercise prices                                             $9.19 to $9.94
Fair market value of common stock on grant date            $8.81 to $15.50
Option lives                                                  1 to 3 Years
Volatility rate                                                       104%
Risk free rate of return                                      5.0% to 6.0%
Dividend rate                                                           0%

(17)  MAJOR CUSTOMERS

      A substantial portion of our revenues is derived from a limited number of
customers. Revenues to customers in excess of 10% of net revenues from
continuing operations for the years ended December 31, 2000 and 1999, are as
follows:

                                                    Year Ended
                                                   December 31,
                                          --------------------------------
                                              2000               1999
                                          --------------     -------------
Customer A                                  $ 1,450,872          $      -
Customer B                                      650,488                 -
Customer C                                      532,585           500,000
Customer D                                      295,578           172,128
Customer E                                       43,940           138,504
Customer F                                            -           122,120

      Accounts receivable balances from customers in excess of 10% of the
accounts receivable balance as of December 31, 2000 and 1999, are as follows:

                                                   December 31,
                                          --------------------------------
                                              2000               1999
                                          --------------     -------------
Customer A                                  $   147,409          $      -
Customer F                                            -             4,000
Customer G                                            -            19,000
Customer H                                            -            35,000
Customer I                                            -            17,056
Customer J                                       48,999                 -
Customer K                                      145,362                 -

(18)  INCOME TAXES

      The provision for income taxes includes the following:

                                      F-35
<PAGE>

                                                        Year Ended
                                                       December 31,
                                               --------------------------
                                                  2000             1999
                                               -----------      -----------
Current:
  Federal                                      $         -      $         -
  State                                                  -                -
                                               -----------      -----------

  Total current provision                                -                -
                                               -----------      -----------

 Deferred:
  Federal                                       (6,796,927)      (5,497,115)
  State                                           (659,702)        (533,543)
  Valuation allowance                            7,456,629        6,030,658
                                               -----------      -----------
  Total deferred provision (benefit)                    -                 -
                                               -----------      -----------
  Total provision                              $         -      $         -
                                               ===========      ===========

        The statutory federal income tax rate was 34% for the years ended
December 31, 2000 and 1999. 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 applicable to common shareholders
before income taxes are as follows:


                                                         Year Ended
                                                        December 31,
                                              -----------------------------
                                                    2000           1999
                                              ------------     ------------
Benefit at statutory rate                     $(16,527,955)    $ (7,434,444)
Increase (decrease) due to:
  State income taxes                            (1,604,184)        (721,578)
  Nondeductible expenses                        10,675,510        2,125,364
  Valuation allowance                            7,456,629        6,030,658
                                              ------------     ------------
  Income tax provision                        $          -     $          -
                                              ============     ============

        Components of net deferred assets (liabilities) as of December 31, 2000
and 1999 are as follows:


                                                         Year Ended
                                                        December 31,
                                                ---------------------------
                                                    2000             1999
                                                ----------       ----------
Current:
  Accrued liabilities and other reserves      $    409,837     $     77,920
  Deferred revenue                                  65,097           85,000

Non-current:
  Depreciation                                      29,247           21,788
  Book amortization in excess of tax                     -           44,035
  Net operating losses                          19,063,673       11,882,482
                                              ------------     ------------
  Total net deferred tax assets                 19,567,854       12,111,225

  Valuation allowance                          (19,567,854)     (12,111,225)
                                              ------------     ------------

  Net deferred tax assets                     $          -     $          -
                                              ============     ============

        For income tax purposes, we have approximately $51,109,000 of net
operating loss carryforwards that expire at various dates through 2020. 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 the expiration dates.

                                      F-36
<PAGE>

        During 2000 and 1999, we increased our valuation allowance by
 $7,456,629 and $6,030,658, respectively, due mainly to uncertainty relating to
 the realizability of the 2000 and 1999 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.

(19)    RELATED PARTY TRANSACTIONS

        Legal Services

        Webb's vice-president of administration and corporate counsel, who began
his employment with the Company in 1999, is also a partner in the law firm we
retain for our legal services. We incurred $90,929 and $268,412 in legal fees to
the law firm during the years ended December 31, 2000 and 1999, respectively. As
of December 31, 2000 and 1999, our accounts payable balances included $10,000
and $8,013, respectively, payable to the law firm.

(20)    COMMITMENTS AND CONTINGENCIES

        Minimum future annual lease payments as of December 31, 2000 are as
follows:

2001                             $   791,391
2002                                 623,077
2003                                 582,977
2004                                 599,148
2005                                 349,503
Thereafter                                 -
                                 -----------

                                 $ 2,946,096
                                 ===========

        The total operating lease expense for the years ended December 31, 2000
and 1999 was $573,394 and $368,168, respectively.

        In November 1999, we entered into a three-year application service
provider agreement whereby we pay approximately $12,000 per month for financial
application software hosting services. The term of the agreement is for three
years and we have the right to terminate the agreement at any time for a
termination fee of 30% of the total remaining monthly payments. Total remaining
payments under this agreement are expected to be approximately $280,000.

        Webb has entered into an employment agreement with Perry Evans and
agreements with certain officers, including William R. Cullen, Lindley S.
Branson, Gwenael Hagan and Andre Durand which take 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 employees for a period of three
years after the change of control. During this three-year period, if we (or a
successor entity) terminates the employee's employment without cause or if the
employee terminates his employment for good reason, then we (or the successor
entity) must pay a lump sum severance to the employees equal to three years
salary (including bonus), accelerate the vesting of all outstanding options held
by the employees and allow the employees 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.

(21)    BUSINESS SEGMENT INFORMATION

        Webb develops and supports products and services for 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, our subsidiary, Jabber.com, is engaged in the early
stages of several projects that are implementing the Jabber.org XML-based
open-source instant messaging platform for portal

                                      F-37
<PAGE>

services, enterprise messaging, financial services applications and enhanced
mobile and telephony integration. We have two reportable business segments:
AccelX and Jabber.com.

     AccelX consists of XML-based online commerce and communication solutions
for small business, with a particular emphasis on local commerce interaction.

     Jabber.com consists of XML-based open-source Internet application products
which incorporates instant messaging as a key application for commerce-oriented
dialogs between businesses and consumers.

                                                          December 31,
                                                  -----------------------------
                                                     2000             1999
                                                  -------------   -------------
                                                    (As Restated See note 23)
Assets
------
AccelX                                            $ 15,460,370    $ 21,910,318
Jabber.com                                           4,016,533               -
Net assets of discontinued operations                        -         714,216
Eliminations                                        (3,056,166)              -
                                                  ------------    ------------
Total assets                                      $ 16,420,737    $ 22,624,534
                                                  ============    ============

Property and equipment, net
---------------------------
AccelX                                            $  2,566,359    $  1,668,599
Jabber.com                                             263,773               -
                                                  ------------    ------------
Total                                             $  2,830,132    $  1,668,599
                                                  ============    ============



                                                          Years Ended
                                                          December 31,
                                                  -----------------------------
                                                     2000             1999
                                                  -------------   -------------
                                                    (As Restated See note 23)
Net revenues from continuing operations
---------------------------------------
AccelX                                            $  3,693,518    $  1,193,196
Jabber.com                                             320,875               -
                                                  -------------   -------------
Total net revenues from continuing operations     $  4,014,393    $  1,193,196
                                                  =============   =============

Net loss from continuing operations
-----------------------------------
AccelX                                            $(36,256,467)   $(17,197,319)
Jabber.com                                          (7,600,756)              -
Eliminations                                         6,963,717               -
                                                  -------------   -------------
Total net loss from continuing operations         $(36,893,506)   $(17,197,319)
                                                  =============   =============

Depreciation and amortization
-----------------------------
AccelX                                            $  9,119,741    $  2,902,523
Jabber.com                                             859,126               -
Eliminations                                          (823,744)              -
                                                  -------------   -------------
Total depreciation and amortization expense       $  9,155,123    $  2,902,523
                                                  =============   =============

Property and equipment additions
--------------------------------
AccelX                                            $  1,487,855    $  1,272,113
Jabber.com                                             299,155               -
Discontinued operations                                      -         420,419
                                                  -------------   -------------
Total                                             $  1,787,010    $  1,692,532
                                                  =============   =============

                                      F-38
<PAGE>

(22)    SUBSEQUENT EVENT

        On February 28, 2001, pursuant to a securities purchase agreement, we
completed a private placement that resulted in gross proceeds of $2,500,000. We
sold 2,500 shares of our series C-1 convertible preferred stock (the "series C-1
preferred stock"), including warrants to purchase 500,000 shares of our common
stock. We received net proceeds totalling approximately $2,450,000 after
deducting approximately $50,000 in offering costs.

        The series C-1 preferred stock is convertible into shares of our common
stock at $2.50 per share. The conversion price is subject to anti-dilution
protection in the event we issue common stock at prices less than the current
conversion price for the preferred stock or the then current price for our
common stock and for stock splits, stock dividends and other similar
transactions. If the conversion price is reduced, we may be required to record
additional charges against income and such charges may be significant.

        In addition, subject to certain conditions, including the Securities and
Exchange Commission declaring the associated Registration Statement effective,
we have the right to sell 2,500 shares of our series C-2 convertible preferred
stock (the "series C-2 preferred sock") to the investor for gross proceeds of
$2,500,000. The initial conversion price of the series C-2 preferred stock will
be equal to the least of 80% of the average closing bid price of our common
stock for three trading days immediately preceding the issuance of the series C-
2 preferred stock, 80% of the closing bid price of our common stock on the
trading day immediately preceding such issuance or $7.50 per share. If we
consummate the sale of our series C-2 preferred stock, we will also issue a
common stock purchase warrant to the investor. The number of shares issuable
upon exercise of the warrant will be determined by the aggregate value of the
series C-2 preferred stock divided by the initial conversion price multiplied by
20%. The exercise price of the warrant will be computed as the greater of 150%
of the initial conversion price of the series C-2 preferred stock and the
closing bid price on the trading day immediately preceding the issuance date.
The issuance of the series C-2 preferred stock may result in significant charges
to be recorded against net losses applicable to common stockholders.

        We also issued a three-year warrant to purchase 500,000 shares of our
common stock in connection with the series C-1 preferred stock. The warrant
entitles the holder to purchase our common stock for a purchase price of $3.75
per share. The exercise price of the warrant is subject to anti-dilution
protection should certain events transpire such as subdivision or combination of
our common stock, distributions to holders of our common stock, or
consolidations or mergers with another corporation. If the exercise price is
reduced, we may be required to record additional charges against income and such
charges may be significant.

        The warrant was valued at $735,279 determined based on the relative fair
value of the warrants utilizing the Black-Scholes option pricing model using the
following assumptions:

Exercise price                                                   $3.75
Fair market value of common stock on measurement date            $3.00
Option life                                                    3 years
Volatility rate                                                   120%
Risk free rate of return                                          6.0%
Dividend rate                                                       0%

        Due to the conversion feature associated with the series C-1 preferred
stock, we will recognize the beneficial conversion feature as an additional
preferred stock dividend. The computed value of the beneficial conversion
feature of $1,235,279 will be initially recorded as a reduction of the series
C-1 preferred stock and an increase to additional paid-in capital. The
beneficial conversion feature reduction to the series C-1 preferred stock will
be accreted on the date of issuance, as additional preferred stock dividends, by
recording a charge to income applicable to common stockholders from the date of
issuance to the earliest date of conversion.

        The difference between the stated value of $1,000 per share totalling
$2,500,000 and the recorded value on February 28, 2001, will be accreted as a
charge to income applicable to common stockholders on the date of issuance (the
date on which the series C-1 preferred stock was first convertible) and is
comprised of the following:

                                      F-39
<PAGE>

Beneficial conversion feature                              $ 1,235,279
Relative fair value of common stock warrants                   735,279
                                                         -------------
Total accretion expense                                    $ 1,970,558
                                                         =============

        As a result of the issuance of the series C-1 preferred stock, in
accordance with terms of the original agreements, the conversion prices for the
10% note payable and our series B-2 preferred stock as well as the exercise
prices for the 10% note payable and series B preferred stock warrants were reset
as indicated below:


                                           Conversion or         Conversion or
                                           Exercise Price       Exercise Price
                                             Immediately       Immediately After
                                          Preceding Series        Series C-1
                                            C-1 Preferred       Preferred Stock
                                           Stock Issuance          Issuance
-------------------------------------------------------------  -----------------
10% convertible note payable                    $   10.07           $   2.50
Series B-2 preferred stock                       10.20408               2.50
Series B common stock purchase warrants             3.875            3.75374
10% note payable common stock purchase
   warrant                                         10.264            9.33431

        As a result of the reset provisions, we will record additional non-cash
expenses in February 2001, totalling $3,314,498 as summarized below:

10% convertible note payable                               $ 2,394,234
Series B-2 preferred stock                                     886,068
Series B common stock purchase warrants                          2,264
10% note payable common stock purchase warrant                  31,932
                                                         -------------

Total expense                                              $ 3,314,498
                                                         =============

        With respect to the 10% convertible note payable and the series B-2
preferred stock, the non-cash expense represents an additional beneficial
conversion feature calculated by multiplying the incremental number of common
shares issuable upon conversion after the reset by the fair market value of our
common stock on the issuance date of the series C-1 preferred stock as follows:

<TABLE>
<CAPTION>
                                                                  10% Convertible             Series B-2
                                                                   Note Payable             Preferred Stock
                                                               -------------------       -------------------
<S>                                                              <C>                       <C>
Value of security                                                       $2,654,110                 $ 978,000
Conversion price before reset                                           $    10.07                 $10.20408
Number of common shares issuable upon conversion before reset              263,566                    95,844
Conversion price after reset                                            $     2.50                 $    2.50
Incremental number of common shares issuable upon conversion
 after reset                                                               798,078                   295,356
Fair market value of common stock on series C-1 preferred
 stock issuance date                                                    $     3.00                 $    3.00
Additional beneficial conversion feature recognized as
 interest expense                                                       $2,394,234
Additional beneficial conversion feature recognized as a
 preferred stock dividend                                                                          $ 886,068
</TABLE>

        With respect to the warrants, the non-cash expense was computed based on
the difference of the warrant value immediately before the reset to the value
immediately after the reset using the Black-Scholes option pricing model as
indicated below:

<TABLE>
<CAPTION>
                          Series B Common Stock Purchase                     10% Note Payable Common Stock Purchase
                                      Warrant                                               Warrant
                   ----------------------------------------------        ----------------------------------------------
                       Immediately                                          Immediately
                        Preceding                 Immediately                Preceding                  Immediately
                          Reset                   After Reset                  Reset                    After Reset
                   -------------------        -------------------        -------------------        -------------------
<S>                  <C>                        <C>                        <C>                        <C>
Common stock
 issuable upon
 exercise of                   343,750                    343,750                    136,519                    150,116
 warrant
Exercise price                $   3.85                   $3.75374                  $10.26425                   $9.33431
Fair market value
 of common stock
 on date of                   $   3.00                   $   3.00                  $    3.00                   $   3.00
 issuance
Option life                    5 years                    5 years                    5 years                    5 years
Volatility rate                    120%                       120%                       104%                       104%
Risk-free rate of                 6.71%                      6.71%                       6.0%                       6.0%
 return
Dividend rate                        0%                         0%                         0%                         0%
Calculated value              $854,110                   $856,374                  $ 256,731                   $288,663
</TABLE>

                                     F-40
<PAGE>

(23)   RESTATEMENT

       In December 1999, we issued a warrant to the holder of our 10% note
payable in connection with amending the terms of our 10% note payable. This
warrant was issued in connection with the sale of our series B preferred stock,
which we completed in February 2000. We originally recorded the warrant, valued
at $2,311,475, as a series B preferred stock offering cost. We have now
determined that it is appropriate to re-characterize this warrant as additional
consideration to the note holder, and have revised our accounting for this
warrant to reflect it as a deferred financing asset related to the 10% note
payable. Accordingly, the results of operations for periods after December 1999,
have been restated to reflect such capitalization and amortization of the
$2,311,475 as additional non-cash interest expense from the date of issuance to
the date of maturity for the 10% convertible note payable, August 25, 2002. This
restatement has no effect on previously reported cash flows from operations,
investing activities, or financing activities.

       As a result of the re-characterization of the warrant as noted above, the
relative fair value of the series B preferred stock and the warrant issued
therewith was also affected, resulting in additional proceeds being allocated to
warrants and an equal reduction in proceeds allocated to additional paid-in
capital, with no net impact on total stockholder's equity.

       During July and September 2000, we issued 912,500 shares of common stock
of our subsidiary, Jabber.com, to Jabber.com employees, an officer of Webb and
members of the Jabber.com advisory boards for services provided to Jabber.com
and to be rendered in future periods. Certain of the shares were vested
immediately, and certain shares vest over a periods ranging from one month to
two years. We recorded the estimated fair value of these shares and the related
deferred compensation totalling $523,700 on the grant date. Through December 31,
2000, we recorded compensation expense totalling $276,337. In our previously
reported results for the year ended December 31, 2000, we recorded minority
interest on our balance sheet equal to the total value of the common stock and
did not allocate any of Jabber.com's losses to the minority shareholders of
Jabber.com. We have revised our accounting for the minority interest to reflect
the minority share of Jabber.com's losses in an amount equal to the minority
interest share of Jabber.com's net assets.

       This restatement and its impact on previously reported quarterly amounts
are presented below.

Condensed Consolidated Balance Sheet:

<TABLE>
<CAPTION>
                                                                        December 31, 2000
                                                         --------------------------------------------
                                                               As Filed               As Restated
                                                         -------------------      -------------------
<S>                                                      <C>                      <C>
                                ASSETS
Current assets (Note 1)                                    $       6,264,566        $       6,721,948
Other assets (Note 1)                                              9,340,870                8,883,488
Deferred financing costs (Note 2)                                    104,893                  815,301
                                                         -------------------      -------------------
     Total assets                                          $      15,710,329        $      16,420,737
                                                         ===================      ===================
      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities                                                $       6,199,421        $       6,199,421
                                                         -------------------      -------------------
Minority interest in subsidiary (Note 5)                             523,700                        -
                                                         -------------------      -------------------
Stockholders' equity:
  Preferred stock:                                                   912,286                  912,286
  Common stock (Note 3)                                           85,986,641               85,506,004
  Warrants and options (Note 4)                                   13,740,819               15,450,237
  Deferred compensation (Note 5)                                    (402,137)                (154,774)
  Other accumulated comprehensive income                               1,371                    1,371
  Accumulated deficit                                            (91,251,772)             (91,493,808)
                                                         -------------------      -------------------
     Total stockholders' equity                                    8,987,208               10,221,316
                                                         -------------------      -------------------
     Total liabilities and stockholders' equity            $      15,710,329        $      16,420,737
                                                         ===================      ===================
</TABLE>

                                      F-41
<PAGE>

Unaudited Condensed Consolidated Statement of Operations:

<TABLE>
<CAPTION>
                                                                                          Year Ended
                                                                                       December 31, 2000
                                                                        --------------------------------------------
                                                                             As Reported              As Restated
                                                                        -------------------      -------------------
<S>                                                                     <C>                      <C>
Loss from operations                                                     $      (35,578,433)      $      (35,578,433)
Interest income                                                                     731,808                  731,808
Interest expense                                                                   (605,638)              (1,124,011)
Loss on foreign currency transactions                                              (130,357)                (130,357)
Loss on write-off of investment in common stock                                    (448,172)                (448,172)
Loss on disposition of property and equipment                                      (344,341)                (344,341)
                                                                        -------------------      -------------------
Net loss from continuing operations                                             (36,375,133)             (36,893,506)
Net loss from discontinued operations                                              (203,372)                (203,372)
                                                                        -------------------      -------------------
Net loss before minority interest                                               (36,578,505)             (37,096,878)
Minority interest in losses of subsidiary                                                 -                  276,337
                                                                        -------------------      -------------------
Net loss                                                                        (36,578,405)             (36,820,541)
Preferred stock dividends                                                          (373,126)                (373,126)
Accretion of preferred stock to redemption value                                (11,660,000)             (11,660,000)
                                                                        -------------------      -------------------
Net loss applicable to common stockholders                               $      (48,611,631)      $      (48,853,667)
                                                                        ===================      ===================
Net loss per share, basic and diluted                                    $            (5.37)      $            (5.39)
                                                                        ===================      ===================
Weighted average shares outstanding, basic and diluted                            9,060,437                9,060,437
                                                                        ===================      ===================
</TABLE>

Unaudited Condensed Consolidated Statement of Operations:

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                        March 31, 2000
                                                                        --------------------------------------------
                                                                            As Reported              As Restated
                                                                        -------------------      -------------------
<S>                                                                     <C>                      <C>
Loss from operations                                                     $       (5,346,648)      $       (5,346,648)
Interest income                                                                     161,887                  161,887
Interest expense                                                                   (174,990)                (369,380)
                                                                        -------------------      -------------------
Net loss from continuing operations                                              (5,359,751)              (5,554,141)
Net loss from discontinued operations                                               (34,791)                 (34,791)
                                                                        -------------------      -------------------
Net loss                                                                         (5,394,542)              (5,588,932)
Preferred stock dividends                                                          (373,126)                (373,126)
Accretion of preferred stock to redemption value                                (12,500,000)             (12,500,000)
                                                                        -------------------      -------------------
Net loss applicable to common stockholders                               $      (18,267,668)      $      (18,462,058)
                                                                        ===================      ===================
Net loss per share, basic and diluted                                    $            (2.11)      $            (2.13)
                                                                        ===================      ===================
Weighted average shares outstanding, basic and diluted                            8,667,640                8,667,640
                                                                        ===================      ===================
</TABLE>

                                      F-42
<PAGE>

<TABLE>
<CAPTION>
                                               Three Months Ended                                 Six Months Ended
                                                  June 30, 2000                                     June 30,2000
                                 --------------------------------------------      --------------------------------------------
                                      As Reported              As Restated              As Reported              As Restated
                                 -------------------      -------------------      -------------------      -------------------
<S>                              <C>                      <C>                      <C>                      <C>
Loss from operations              $       (7,118,958)      $       (7,118,958)       $     (12,465,584)       $     (12,465,584)
Interest income                              283,486                  283,486                  445,373                  445,373
Interest expense                            (172,961)                (280,170)                (347,951)                (649,550)
                                 -------------------      -------------------      -------------------      -------------------
Net loss from continuing
 operations                               (7,008,433)              (7,115,642)             (12,368,162)             (12,669,761)
Net loss from discontinued
 operations                                  (27,065)                 (27,065)                 (61,857)                 (61,857)
                                 -------------------      -------------------      -------------------      -------------------
Net loss                                  (7,035,498)              (7,142,707)             (12,430,019)             (12,731,618)
Preferred stock dividends                          -                        -                 (373,126)                (373,126)
Accretion of preferred stock to
 redemption value                                  -                        -              (12,500,000)             (12,500,000)
                                 -------------------      -------------------      -------------------      -------------------
Net loss applicable to common
 stockholders                     $       (7,035,498)      $       (7,142,707)      $      (25,303,145)      $      (25,604,744)
                                 ===================      ===================      ===================      ===================
Net loss per share, basic and
 diluted                          $            (0.77)      $            (0.78)      $            (2.85)      $            (2.88)
                                 ===================      ===================      ===================      ===================
Weighted average shares
 outstanding, basic and diluted
                                           9,112,440                9,112,440                8,888,848                8,888,848
                                 ===================      ===================      ===================      ===================
</TABLE>

<TABLE>
<CAPTION>
                                               Three Months Ended                                 Nine Months Ended
                                               September 30, 2000                                 September 30,2000
                                 --------------------------------------------      --------------------------------------------
                                      As Reported              As Restated              As Reported              As Restated
                                 -------------------      -------------------      -------------------      -------------------
<S>                              <C>                      <C>                      <C>                      <C>

Loss from operations              $       (6,749,146)      $       (6,749,146)      $      (19,215,645)      $      (19,215,645)
Interest income                               70,761                   70,761                  508,096                  508,096
Interest expense                            (109,571)                (217,958)                (457,523)                (867,509)
Loss on disposal of property
 new equipment                              (348,081)                (348,081)                (340,043)                (340,043)
                                 -------------------      -------------------      -------------------      -------------------
Net loss from continuing
 operations                               (7,136,037)              (7,244,424)             (19,505,115)             (19,915,101)
Net loss from discontinued
 operations                                 (203,372)                (203,372)                (265,129)                (265,129)
                                 -------------------      -------------------      -------------------      -------------------
Net loss                                  (7,339,409)              (7,447,796)             (19,770,244)             (20,180,230)
Preferred stock dividends                          -                        -                 (373,126)                (373,126)
Accretion of preferred stock to
 redemption value                                  -                        -              (12,500,000)             (12,500,000)
                                 -------------------      -------------------      -------------------      -------------------
Net loss applicable to common
 stockholders                     $       (7,339,409)      $       (7,447,796)      $      (32,643,370)      $      (33,053,356)
                                 ===================      ===================      ===================      ===================
Net loss per share, basic and
 diluted                          $            (0.80)      $            (0.81)      $            (3.63)      $            (3.67)
                                 ===================      ===================      ===================      ===================
Weighted average shares
 outstanding, basic and diluted
                                           9,217,471                9,217,471                8,999,188                8,999,188
                                 ===================      ===================      ===================      ===================
</TABLE>

Note 1: The net change in current assets and other assets represents a
reclassification of $525,000 for restricted cash from short-term deposits and
other assets as well as a reclassification of $67,618 from short-deposits to
other assets.

Note 2: The increase in deferred financing costs represents the value of the
warrant of $2,311,475 less amortization expense from date of issuance through
December 31, 2000, totalling $518,373 and a reduction of $1,082,694 related to
the conversion of one-half of the 10% note payable in February 2000.

                                      F-43
<PAGE>

Note 3: The decrease in common stock represents the $1,082,694 for the portion
of the unamortized deferred financing costs taken against equity for conversion
of one-half of the principal balance of the 10% note payable, offset by the
$602,057 increase attributable to the beneficial conversion feature of the
series B preferred stock after reallocation of the relative fair values of the
securities issued in February 2000.

Note 4: The increase in warrants and options represents the increase in the
warrant to purchase common stock issued with the series B preferred stock of
$1,709,418 after reallocation of the relative fair values of the securities.

Note 5: The reduction in minority interest of $523,700 and deferred compensation
of $247,363 at December 31, 2001, represents the allocation of the losses in
Jabber.com to their minority shareholders equal to the minority interest share
in the net assets of Jabber.com, which totalled $276,337 for the year ended
December 31, 2001.

                                      F-44