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FORM 10-QSB QuarterlyReport Under Section 13 or 15(d) of the Securities Exchange Act of 1934UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-QSB

x Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of l934.

For the period ended June 30, 2002.

o Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.

For the transition period from __________________________ to ___________________________.

Commission File Number0-28462.

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

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

1899 WYNKOOP, SUITE 600, DENVER, CO 80202 (Address of principal executive
offices)                 (Zipcode)

(303) 308-3180  (Registrants telephone number,
including area code)

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Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

x YES     o NO

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August
8, 2002, Registrant had 21,255,667 shares of common stock outstanding.

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WEBB INTERACTIVE SERVICES, INC.Index

|           |                                                                                                           | Page 
|---------- | --------------------------------------------------------------------------------------------------------- | -----
|PartI.     | Financial Information                                                                                     |      
|           | Item 1.     
Unaudited Financial Statements                                                               |      
|           | Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                           | 3    
|           | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001 | 4    
|           | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001           | 5    
|           | Notes to Condensed Consolidated Financial Statements                                                      | 7-19 
|           | Item 2.     
Managements Discussion and Analysis of Financial Condition and Results of Operations        | 20-36
|PartII.    | Other Information                                                                                         |      
|           | Items 1 - 5.
Not Applicable                                                                               | 37   
|           | Item 6.     
Exhibits and Reports on Form 8-K                                                             | 37-38
|Signatures | 39                                                                                                       

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This report contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and is subject to the safe harbors created by those sections. These forward-looking statements are subject to
significant risks and uncertainties, including those identified in the section of this Form 10-QSB entitled Managements Discussion and Analysis of Financial Condition and Results of Operations  Factors That May Affect Future
Operating Results, which may cause actual results to differ materially from those discussed in such forward-looking statements. The forward-looking statements within this Form 10-QSB are identified by words such as believes,
anticipates, expects, intends, may, will and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements which
refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements
which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the Securities and Exchange Commission (SEC). Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Companys other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect the Companys business.

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PART I
FINANCIAL INFORMATIONITEM 1.
FINANCIAL STATEMENTS

WEBB INTERACTIVE SERVICES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)

|                                                                           |  | June 30,2002 |               | December 31,2001
|-------------------------------------------------------------------------- |  | ------------ | ------------- | ----------------
|ASSETS                                                                     |  |             
|Current assets:                                                            |  |              |               |                 
|Cash and cash equivalents                                                  |  | $            | 3,591,529     |                 
|Accounts receivable, net of allowance for doubtful accounts of $34,105 and |  |              |               |                 
|$27,005, respectively                                                      |  |              | 227,087       |                 
|Accounts receivable from a related party                                   |  |              | 75,864        |                 
|Prepaid expenses                                                           |  |              | 141,253       |                 
|Note receivable from Company officer                                       |  |              | 154,149       |                 
|Short-term deposits and other current assets                               |  |              | 18,566        |                 
|Total current assets                                                       |  |              | 4,208,448     |                 
|Property and equipment, net of accumulated depreciation of $1,054,304 and  |  |              |               |                 
|$924,856, respectively                                                     |  |              | 1,223,189     |                 
|Intangible assets, net of accumulated amortization of none and $2,370,495, |  |              |               |                 
|respectively                                                               |  |              |              |                 
|Deferred financing assets                                                  |  |              |              |                 
|Total assets                                                               |  | $            | 5,431,637     |                 
|                                                                           |  |              |               |                 
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                             |  |              |               |                 
|Current liabilities:                                                       |  |              |               |                 
|Accounts payable and accrued liabilities                                   |  | $            | 415,554       |                 
|Accrued salaries and payroll taxes payable                                 |  |              | 571,133       |                 
|10% convertible note payable, net of discount of none and $84,776,         |  |              |               |                 
|respectively                                                               |  |              |              |                 
|Convertible note and accrued interest payable                              |  |              |              |                 
|Capital leases payable                                                     |  |              |              |                 
|Short-term note payable                                                    |  |              |              |                 
|Accrued interest payable                                                   |  |              |              |                 
|Deferred revenue and customer deposits                                     |  |              | 142,763       |                 
|Net current liabilities of discontinued operations                         |  |              | 22,694        |                 
|                                                                           |  |              |               |                 
|Total current liabilities                                                  |  |              | 1,152,144     |                 
|Commitments and contingencies                                              |  |              |               |                 
|Minority interest in subsidiary                                            |  |              | 120,132       |                 
|Stockholders' equity (deficit):                                            |  |              |               |                 
|Preferred stock, no par value, 5,000,000 shares authorized:                |  |              |               |                 
|Series D junior convertible preferred stock, 2,984 and none shares issued  |  |              |               |                 
|and outstanding, respectively                                              |  |              | 2,058,497     |                 
|Series C-1 convertible preferred stock, none and 2,500 shares issued and   |  |              |               |                 
|outstanding, respectively                                                  |  |              |              |                 
|Common stock, no par value, 60,000,000 shares authorized, 21,255,667 and   |  |              |               |                 
|11,331,522 shares issued and outstanding, respectively                     |  |              | 102,969,757   |                 
|Warrants and options                                                       |  |              | 20,029,040    |                 
|Accumulated other comprehensive loss                                       |  |              | (9,911)       |                 
|Accumulated deficit                                                        |  |              | (120,888,022) |                 
|                                                                           |  |              |               |                 
|Total stockholders' equity (deficit)                                       |  |              | 4,159,361     |                 
|                                                                           |  |              |               |                 
|Total liabilities and stockholders' equity (deficit)                       |  | $            | 5,431,637     |                 
|                                                                           |  |              |               |                 

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

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WEBB INTERACTIVE SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

|                                                 | Three Months EndedJune 30, |             | Six Months EndedJune 30,
|------------------------------------------------ | -------------------------- | ----------- | ------------------------
|                                                 |                            |             |                         
|                                                 | 2002                       |             | 2001                    
|                                                 |                            |             |                         
|Net revenues                                     | $                          | 242,831     |                         
|Net revenues from a related party                |                            | 119,547     |                         
|                                                 |                            |             |                         
|Total net revenues                               |                            | 362,378     |                         
|                                                 |                            |             |                         
|Operating expenses:                              |                            |             |                         
|Cost of revenues                                 |                            | 154,556     |                         
|Cost of revenues from a related party            |                            | 41,569      |                         
|Sales and marketing expenses                     |                            | 506,986     |                         
|Product development expenses                     |                            | 639,072     |                         
|General and administrative expenses              |                            | 910,162     |                         
|Depreciation and amortization                    |                            | 434,499     |                         
|                                                 |                            |             |                         
|                                                 |                            | 2,686,844   |                         
|                                                 |                            |             |                         
|Loss from operations                             |                            | (2,324,466) |                         
|                                                 |                            |             |                         
|Interest income                                  |                            | 11,721      |                         
|Other income, net                                |                            | 4,660       |                         
|Loss on extinguishment of 10% note payable       |                            |            |                         
|Interest expense                                 |                            | (208)       |                         
|                                                 |                            |             |                         
|Net loss from continuing operations              |                            | (2,308,293) |                         
|Net loss from discontinued operations            |                            |            |                         
|                                                 |                            |             |                         
|Net loss before minority interest                |                            | (2,308,293) |                         
|Minority interest in losses of subsidiary        |                            | 1,929,784   |                         
|                                                 |                            |             |                         
|Net loss before extraordinary income             |                            | (378,509)   |                         
|Extraordinary income                             |                            | 1,182       |                         
|                                                 |                            |             |                         
|Net loss                                         |                            | (377,327)   |                         
|                                                 |                            |             |                         
|Preferred stock dividends                        |                            | (28,411)    |                         
|Accretion of preferred stock to redemption value |                            | (8,234)     |                         
|                                                 |                            |             |                         
|Net loss applicable to common stockholders       | $                          | (413,972)   |                         
|                                                 |                            |             |                         
|Net loss applicable to common stockholders from  |                            |             |                         
|continuing operations per share, basic and       |                            |             |                         
|diluted                                          | $                          | (0.02)      |                         
|                                                 |                            |             |                         
|Net loss applicable to common stockholders per   |                            |             |                         
|share from discontinued operations, basic and    |                            |             |                         
|diluted                                          |                            |            |                         
|                                                 |                            |             |                         
|                                                 |                            |             |                         
|Net loss per share, basic and diluted            | $                          | (0.02)      |                         
|                                                 |                            |             |                         
|Weighted average shares outstanding, basic and   |                            |             |                         
|diluted                                          |                            | 20,583,815  |                         
|                                                 |                            |             |                         

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

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WEBB INTERACTIVE SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

|                                                                                               | Six Months Ended June 30,
|---------------------------------------------------------------------------------------------- | -------------------------
|                                                                                               |                          
|                                                                                               | 2002                     
|                                                                                               |                          
|Cash flows from operating activities:                                                          |                          
|Net loss                                                                                       | $                        
|Adjustments to reconcile net loss to net cash used in operating activities:                    |                          
|Depreciation expense                                                                           |                          
|Amortization expense                                                                           |                          
|Loss from extinguishment of 10% note payable                                                   |                          
|Extraordinary income from creditor concessions                                                 |                          
|Minority interest in losses of subsidiary                                                      |                          
|Stock and stock options issued for services                                                    |                          
|(Gain) loss on sale and disposal of property and equipment                                     |                          
|Bad debt expense                                                                               |                          
|Accrued interest payable on convertible note payable                                           |                          
|Accrued interest income on notes receivable                                                    |                          
|Interest expense on 10% convertible note from beneficial conversion 
               feature    |                          
|Interest expense for reset of second 10% note payable warrant                                  |                          
|Interest expense for reset of warrant issued with Jona short-term note 
               payable |                          
|Notes payable issued for interest on 10% convertible note payable                              |                          
|Amortization of 10% convertible note payable discount                                          |                          
|Amortization of short-term note payable discount                                               |                          
|Amortization of 10% convertible note payable financing costs                                   |                          
|Changes in operating assets and liabilities:                                                   |                          
|Decrease in restricted cash                                                                    |                          
|Decrease (increase) in accounts receivable                                                     |                          
|Decrease (increase) in accounts receivable from a related party                                |                          
|Increase in prepaid expenses                                                                   |                          
|Decrease in short-term deposits and other assets                                               |                          
|Decrease in accounts payable and accrued liabilities,                                          |                          
|Increase (decrease) in accrued salaries and payroll taxes payable                              |                          
|Decrease in accrued interest payable                                                           |                          
|Decrease in customer deposits and deferred revenue                                             |                          
|                                                                                               |                          
|Net cash used in operating activities                                                          |                          
|                                                                                               |                          
|Cash flows from investing activities:                                                          |                          
|Proceeds from the sale of property and equipment                                               |                          
|Purchase of property and equipment                                                             |                          
|Collection of notes receivable from Company officers                                           |                          
|                                                                                               |                          
|Net cash used in investing activities                                                          |                          
|                                                                                               |                          
|Cash flows from financing activities:                                                          |                          
|Payments on capital leases                                                                     |                          
|Payment of short-term notes payable                                                            |                          
|Payment on 10% note payable                                                                    |                          
|Proceeds from issuance of short-term notes payable                                             |                          
|Proceeds from issuance of common stock and warrants                                            |                          
|Proceeds from exercise of stock options and warrants                                           |                          
|Proceeds from issuance of convertible note payable                                             |                          
|Proceeds from issuance of series C-1 preferred stock and warrant                               |                          
|Preferred stock cash offering costs                                                            |                          
|                                                                                               |                          
|Net cash provided by financing activities                                                      |                          
|                                                                                               |                          
|Net increase (decrease) in cash and cash equivalents                                           |                          
|Effect of foreign currency exchange rate changes on cash                                       |                          
|Cash and cash equivalents, beginning of period                                                 |                          
|Cash in discontinued operations                                                                |                          
|                                                                                               |                          
|Cash and cash equivalents, end of period                                                       | $                        
|                                                                                               |                          

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

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WEBB INTERACTIVE SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(UNAUDITED)

|                                                                        | Six Months EndedJune 30,
|----------------------------------------------------------------------- | ------------------------
|                                                                        |                         
|                                                                        | 2002                    
|                                                                        |                         
|Supplemental disclosure of cash flow information:                       |                         
|Cash paid for interest                                                  | $                       
|                                                                        |                         
|Supplemental schedule of non-cash investing and financing activities:   |                         
|Accretion of preferred stock to stated value and other deemed dividends | $                       
|Preferred stock dividends on Jabber preferred stock                     | $                       
|Preferred stock converted to common stock                               | $                       
|10% note payable exchanged for series D preferred stock                 | $                       
|10% note payable converted to common stock                              | $                       

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

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WEBB INTERACTIVE SERVICES, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED)

NOTE 1  BASIS OF PRESENTATION
       The accompanying unaudited interim condensed consolidated financial statements include the accounts of Webb Interactive Services, Inc. and its subsidiaries (collectively Webb or the
Company). All significant intercompany balances and transactions have been eliminated in consolidation. Webb is the founder and the majority stockholder of Jabber, Inc. (Jabber), a company in the early stages of developing
extensible instant messaging (IM) software products and services. Continuing operations of Webb refer to the Jabber business segment and Webb's corporate activities. Minority interest share of the net loss of our Jabber subsidiary is
recorded based upon the minority interest share in the net assets of Jabber. These condensed consolidated financial statements have been prepared without audit pursuant to rules and regulations of the SEC and reflect, in the opinion of management,
all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities
at the date of the accompanying financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year. The interim financial statements should be read in connection with the financial statements included in our Annual Report on Form 10-KSB for the year ended December 31, 2001, filed with the
SEC.        We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses.
Because of the new and evolving nature of instant messaging technologies and Jabber's early stage of development, we cannot be sure that 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. In January and March 2002, we raised $7.5 million in cash through the sale of Webb's common stock and common stock purchase warrants (See Note 5). At June
30, 2002, we had $3,591,529 in cash and cash equivalents.        We have expended significant funds to develop Jabber's current product offerings and we anticipate continuing losses in 2002 and at least the
fist six months of 2003 as we further develop and market Jabber's products in advance of market acceptance in sufficient quantities to achieve positive cash flow from operations. Webb does not currently have a source of revenue which is independent
from its Jabber subsidiary, and is therefore dependent on the success of its Jabber subsidiary. As a result of the France Telecom Technologies Investissements (FTTI) investment in Jabber, Jabber is being funded separately. Webb expects
to make additional investments in Jabber in the future. Our continued long-term viability depends, in part, on Jabber's ability to obtain additional profitable customer contracts.         We believe that
the funds available at June 30, 2002, provide us with sufficient capital to operate Webb through at least June 2003 and Jabber only through January 2003. We have begun discussions with several investors for an additional $4 to $7 million of
financing for Jabber through the sale of Jabber securities. However, we have no commitment for the additional sale of Jabber's securities. Therefore, there can be no guarantee that this financing will be completed, or if completed, that the terms of
any such financing will be acceptable. If we are not successful in obtaining funding in appropriate amounts or on appropriate terms, we would consider additional reductions in our operating activities.        Certain reclassifications to prior period financial statements have been made to conform to the current period presentation.

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NOTE 2  REVENUE RECOGNITION        Revenues are generated from the license of our software products and
from professional service arrangements. Software license revenue is recognized in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 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 AICPA.        We recognize revenue on software
arrangements only when persuasive evidence of an agreement exists, delivery has occurred, the 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 or in accordance with contract accounting.
       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 payments 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 maintenance and support agreement.         For software arrangements with multiple elements, we apply the residual method prescribed by SOP 98-9, Modification of SOP 97-2 'Software
Revenue Recognition' with Respect to Certain Transactions. Revenue applicable to undelivered elements, principally software maintenance, training, and limited implementation services, is determined 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 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 AICPA, 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.

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Net revenues from continuing operations are comprised of the following:

|                                                     | Three Months Ended |         | Six Months Ended | 
|---------------------------------------------------- | ------------------ | ------- | ---------------- | 
|                                                     | June 30,           |         | June 30,         | 
|                                                     |                    |         |                  | 
|                                                     | 2002               |         | 2001             | 
|                                                     |                    |         |                  | 
|Net revenues                                         |                    |         |                 
|Licenses                                             | $                  | 122,956 |                  | 
|Licenses to France Telecom, a related party          |                    |        |                  | 
|                                                     |                    |         |                  | 
|                                                     |                    | 122,956 |                  | 
|                                                     |                    |         |                  | 
|                                                     |                    |         |                  | 
|Services                                             |                    | 119,875 |                  | 
|Services provided to France Telecom, a related party |                    | 119,547 |                  | 
|                                                     |                    |         |                  | 
|Total service revenue                                |                    | 239,422 |                  | 
|                                                     |                    |         |                  | 
|Total net revenues                                   | $                  | 362,378 |                  | 
|                                                     |                    |         |                  | 

Included in net service revenues for the three and six months ended June 30, 2002, is
$113,796 and $151,728, respectively, in professional service revenue and $5,751 and $11,502, respectively, in support and maintenance revenue from France Telecom (collectively France Telecom and its subsidiaries or affiliates, FT), an
investor in Jabber. In February 2002, Jabber and FT entered into a fixed price professional services agreement, valued at $455,000, whereby Jabber is providing professional consulting services for general IM technology as well as IM technology
integration with FT proprietary product offerings. Jabber expects to recognize $227,408 in revenue from this contract during the remainder of 2002 and $75,864 during the first quarter of 2003. Support and maintenance revenue recognized in the first
quarter relates to the one-year support and maintenance agreement FT entered into on October 1, 2001, in connection with the license of Jabber's commercial server to FT. Jabber expects to recognize $5,751 in revenue from this contract during the
remainder of 2002. NOTE 3  INTANGIBLE ASSETS        On January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 requires us to 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 estimated cost to sell the asset. At June 30, 2002, the intangible assets, which consisted of technology utilized by Jabber acquired by Webb in a 1999 acquisition, were fully amortized.
       We recorded amortization expense totaling $310,357 and $864,646 (including $498,984 from discontinued operation in 2001) for the three months ended June 30, 2002 and 2001, respectively. We recorded
amortization expense totaling $691,748 and $1,719,791 (including $992,486 from discontinued operation in 2001) for the six months ended June 30, 2002 and 2001, respectively. Amortization expense was reduced in the 2002 three-and-six-month periods by
$35,553 as a result of the step-down adjustment allocated to intangible assets resulting from Webb's purchase of Jabber minority interest in April 2002 (See Note 7).

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NOTE 4  NET LOSS PER 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, subject
to certain adjustments, 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, there are no differences between basic and diluted per share amounts for all periods presented.

|                             | June 30,  
|---------------------------- | ----------
|                             |           
|                             | 2002      
|Stock options                | 4,414,419 
|Warrants                     | 12,715,315
|Series D preferred stock     | 2,984,000 
|10% convertible note payable |          
|Series B-2 preferred stock   |          
|Series C-1 preferred stock   |          
|                             |           
|Total                        | 20,113,734
|                             |           

The number of potential shares excluded from the earnings per share calculation because they
are anti-dilutive, using the treasury stock method, were 50,116 and 251,342 for the three and six months ended June 30, 2002, respectively, and 117,069 and 576,693 for the three and six months ended June 30, 2001, respectively.

NOTE 5  INVESTMENT BY JONA, INC.

On January 17, 2002, we sold 1,100,000 units of our securities
to Jona Inc. (Jona) for $1,100,000 (the January 2002 Jona transaction). Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at an exercise price of $1.00 per share.
The warrants may be exercised at any time by the holder from the date of issuance for a period of 5 years. On March 11, 2002, Webb's shareholders approved the sale to Jona of an additional 3,900,000 units for $3,900,000, which was purchased by Jona
on March 12, 2002.

In connection with the January 2002, Jona transaction, we also granted Jona an option to purchase 2,500,000 units for
$2,500,000 on or before August 31, 2002. The issuance of this option was approved by Webb's shareholders on March 11, 2002. On March 28, 2002, Jona exercised this option and purchased 2,500,000 units for which we received $2,500,000 in proceeds (the
March 28, 2002 Jona transaction). In consideration for Jona exercising the option more than five months before the option expired and prior to the conclusion of the first quarter of the current fiscal year, we granted Jona an additional
warrant representing the right to acquire 2,500,000 shares of our common stock at $1.00 per share. The value of this warrant, totaling $1,769,369, was recorded as an offering cost of the Jona transactions.

We valued the warrants using the Black-Scholes option pricing model and allocated the relative fair value to the common stock and the warrants as follows:

|                                 | 2002 Closings
|-------------------------------- | -------------
|                                 |              
|Security                         | January 17   
|                                 |              
|Common stock                     | $            
|Warrant to purchase common stock |              
|                                 |              
|Total                            | $            
|                                 |              

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We used the following assumptions to value the warrants:

|                                                      | 2002 Closings
|----------------------------------------------------- | -------------
|                                                      |              
|                                                      | January 17   
|                                                      |              
|                                                      |              
|                                                      | Unit Warrant 
|Number of                                             |              
|Warrants                                              |              
|Exercise price                                        |              
|Fair market value of common stock on date of issuance |              
|Option life                                           |              
|Volatility rate                                       |              
|Risk-free rate of return                              |              
|Dividend rate                                         |              
|Calculated value                                      |              

In connection with the January 2002 and March 28, 2002 Jona
transactions, we issued two five-year warrants to purchase 450,000 and 125,000 shares, respectively, of our common stock to a financial advisor and a five year warrant to purchase 100,000 shares of our common stock to a private business owner and
stockholder for payment of fees associated with the transactions. The warrants may be exercised at any time from the date of issuance by the holder at an exercise price of $1.00 per share. We recorded the value of the warrants, totaling $549,447 as
offering costs and valued the warrants using the Black-Scholes option pricing model utilizing the following assumptions:

|                                                      | January 17, |         | March 28,
|----------------------------------------------------- | ----------- | ------- | ---------
|                                                      | 2002        |         | 2002     
|                                                      |             |         |          
|Number of shares underlying warrants                  |             | 550,000 |          
|Exercise price                                        | $           | 1.00    |          
|Fair market value of common stock on date of issuance | $           | 0.97    |          
|Option life                                           |             | 5 years |          
|Volatility rate                                       |             | 127%    |          
|Risk-free rate of return                              |             | 6%      |          
|Dividend rate                                         |             | 0%      |          
|Calculated value                                      | $           | 460,979 |          

We allocated the warrant offering costs based on the relative fair value of the units as follows:

|                                  | CommonStock |   | Warrants  |  | Total
|--------------------------------- | ----------- | - | --------- |  | -----
|                                  |             |   |           |  |      
|Relative fair value of securities |             | $ | 3,555,307 |  |      
|                                  |             |   |           |  |      
|2,500,000 warrant offering costs  |             | $ | 838,753   |  |      
|550,000 warrant value             |             |   | 218,523   |  |      
|125,000 warrant value             |             |   | 41,937    |  |      
|                                  |             |   |           |  |      
|Total                             |             | $ | 1,099,213 |  |      
|                                  |             |   |           |  |      

The warrants issued in connection with the units, as well as the warrants
issued as offering costs provide for anti-dilution provisions in the event we issue common stock at prices less than the current conversion or exercise price for the securities or the then current price for our common stock and for stock splits,
stock dividends and other similar transactions. If the exercise price is reduced, we may be required to record additional charges against income and such charges may be significant.

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At the time Jona agreed to purchase the units, it loaned us $900,000 at an interest rate of 10% per year. On January
8, 2002, Jona had also loaned us $300,000 at an interest rate of 10%. On March 12, 2002, we repaid the $1.2 million of principal and accrued interest totaling $18,164. We also issued Jona a three-year warrant to purchase 60,000 shares of our common
stock at an initial exercise price of $2.50 per share as part of the $300,000 loan. The exercise price was reduced to $1.00 in connection with the January 2002 Jona transaction, for which we recorded non-cash interest expense totaling $14,365 in the
first quarter of 2002. The value of the warrant, totaling $29,976, was recorded as a discount to the $300,000 note and amortized to interest expense during the first quarter of 2002.

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

|                                                                     | InitialValuation           | January 17,2002Valuation
|-------------------------------------------------------------------- | -------------------------- | ------------------------
|                                                                     |                            |                         
|Exercise price                                                       | $                     2.50 | $                 1.00  
|Fair market value of common stock on date of issuance or revaluation | $                     0.82 | $                 0.97  
|Option life                                                          | 3 years                    | 3 years                 
|Volatility rate                                                      | 131%                       | 127%                    
|Risk-free rate of return                                             | 6%                         | 6%                      
|Dividend rate                                                        | 0%                         | 0%                      
|Warrant value                                                        | $                 29,976   | $             44,341    
|Expense recorded                                                     | N/A                        | $             14,365    

In connection with the January 2002 Jona transaction, and in accordance with the original terms of the securities, the conversion prices for our 10% convertible note payable
and series C-1 preferred stock as well as the exercise prices for the second 10% note payable warrant and the series C-1 preferred stock warrant were all reset to $1.00 per share (See Note 7 for the calculations of the resets). As a result, we
recorded non-cash expenses in the first quarter of 2002 as follows:

|Security Reset                                                                                       |  | Non-CashExpense
|---------------------------------------------------------------------------------------------------- |  | ---------------
|                                                                                                     |  |                
|10% note payable (additional interest expense due to anti-dilution protection on conversion feature) |  | $              
|Series C-1 preferred stock (additional preferred stock accretion)                                    |  |                
|Second 10% note payable warrant (non-cash interest expense)                                          |  |                
|Series C-1 preferred stock warrant (additional preferred stock accretion)                            |  |                
|                                                                                                     |  |                
|Total                                                                                                |  | $              
|                                                                                                     |  |                

NOTE 6  PREFERRED STOCK AND 10% NOTE PAYABLE

At the same time we agreed to sell the units to Jona, Castle Creek Technology Partners LLC (Castle Creek) agreed to exchange up to 2,500 shares of series C-1 preferred stock and
$1,212,192 of principal of our 10% note payable for up to 4,484 shares of our series D junior convertible preferred stock (the series D preferred stock) and a warrant to purchase 750,000 shares of our common stock at an exercise price of
$1.00 per share. As part of the agreement, we reduced the exercise price of existing warrants to purchase 650,116 shares of our common stock held by Castle Creek. The exercise price for these warrants is now $1.00. We recorded non-cash interest and
accretion expense for the reset of these warrants in the first quarter of 2002 totaling $222,345 (See Note 7). The 4,484 shares of series D preferred stock are convertible into 4,484,000 shares of our common stock. If we had not reached the
agreement to exchange the series C-1 convertible preferred stock and the 10% convertible promissory notes, these securities would have been convertible into 3,712,192 shares of our common stock and Castle Creek would have been entitled to an
additional warrant for 2,500,000 shares at an exercise price of $1.00 per share.

On January 31 and February 21, 2002, Castle Creek exchanged
1,500 and 550 shares, respectively, of series C-1 preferred stock for 1,500 and 550 shares, respectively, of our series D preferred stock.

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On March 12, 2002, we repaid $720,000 of principal of the 10% convertible note and accrued interest of $37,585. On
March 13, 2002, we exchanged the remaining principal balance of $1,212,192 for 1,984 shares of our series D preferred stock. As a result of this exchange, in the first quarter of 2002 we recorded a non-cash loss on debt extinguishment totaling
$625,164 computed as follows:

|Balance of 10% note payable exchanged for series D preferred stock                                     |  | $ | 1,212,192
|------------------------------------------------------------------------------------------------------ |  | - | ---------
|                                                                                                       |  |  
|Number of common shares 10% note payable would have converted       into immediately prior to exchange |  |   | 1,212,192
|Number of common shares convertible into series D preferred stock       immediately after exchange     |  |   | 1,984,000
|                                                                                                       |  |  
|Increase in number of common shares                                                                    |  |   | 771,808  
|Fair market value of common stock on March 13, 2002                                                    |  |   | $0.81    
|Loss on debt extinguishment                                                                            |  | $ | 625,164  
|                                                                                                       |  |  

On January 17, 2002, we issued Castle Creek a five-year warrant to purchase 750,000
shares of our common stock as part of the exchange of our 10% note payable owned by Castle Creek for our series D junior preferred convertible stock. The exercise price for the warrant is currently $1.00 per share. The exercise price for the warrant
is also subject to anti-dilution protection if we issue our common stock at prices less than the exercise price for the warrant and for stock splits, stock dividends and other similar transactions. If the warrant price is reset, we may record
additional charges to income. The warrant is subject to early expiration for one-third of the shares if our common stock trades at $2.00 or more for five consecutive days and for an additional one-third of the shares if our common stock trades at
$3.00 or more for five consecutive days.

We recorded a loss on debt extinguishment for the value of the warrant totaling $537,770 in the first
quarter of 2002. We valued the warrant using the Black-Scholes option pricing model utilizing the following assumptions:

|Exercise price                                        | $1.00  
|----------------------------------------------------- | -------
|Fair market value of common stock on date of issuance | $0.84  
|Option life                                           | 5 years
|Volatility rate                                       | 127%   
|Risk-free rate of return                              | 6%     
|Dividend rate                                         | 0%     

Series D Junior Convertible Preferred
Stock-

As a result of the transactions described above, we issued 4,034 shares of series D preferred stock and 2,984 shares were
outstanding at June 30, 2002. The series D preferred stock does not bear dividends and does not entitle the holders to any voting rights except as required by Colorado law. Each share of series D preferred stock is convertible into 1,000 shares of
our common stock. The series D preferred stock is convertible into common stock unless the conversion would result in the holder being a beneficial owner of more than 4.99% of our common stock. The current conversion price is $1.00 per share. The
conversion price is also subject to anti-dilution protection if we issue our common stock at prices less than the 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 a charge to income.

The series D preferred stock has
Liquidation Preferences. If we liquidate, dissolve or wind-up our business, whether voluntarily or involuntarily, after we pay our debts and other liabilities, the holder of the preferred stock will be entitled to receive from our remaining net
assets, before any distribution to the holders of our common stock, the amount of $1,000 per share.

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During the six months ended June 30, 2002, the holder of our series D preferred stock converted 1,050 shares into
1,050,000 shares of our common stock at conversion prices per share of $1.00 as follows:

|                |  | Number of Shares        
|--------------- |  | ------------------------
|                |  |                         
|Conversion Date |  | Series C-1PreferredStock
|                |  |                         
|March 15, 2002  |  | 250                     
|April 3, 2002   |  | 200                     
|April 25,2002   |  | 100                     
|May 7, 2002     |  | 150                     
|May 8, 2002     |  | 50                      
|June 13, 2002   |  | 50                      
|June 18, 2002   |  | 50                      
|June 25, 2002   |  | 200                     
|                |  |                         
|                |  | 1,050                   
|                |  |                         

Conversion of Series C-1 Preferred Stock-

During January and February 2002, the holder of our series C-1 preferred stock converted 450 shares into 450,000 shares of our common stock at conversion prices per share of
$1.00 as follows:

|                  |  | Number of Shares        
|----------------- |  | ------------------------
|                  |  |                         
|Conversion Date   |  | Series C-1PreferredStock
|                  |  |                         
|January 22, 2002  |  | 175                     
|January 28, 2002  |  | 175                     
|February 12, 2002 |  | 100                     
|                  |  |                         
|                  |  | 450                     
|                  |  |                         

NOTE 7  CONVERSION OF JABBER SECURITIES INTO JABBER COMMON STOCK AND PURCHASE OF JABBER MINORITY INTEREST BY WEBB
       On April 8, 2002, we entered into an agreement with Jabber and FTTI, pursuant to which Webb and FTTI agreed to convert substantially all of their respective shares of Jabbers preferred stock
into shares of Jabbers common stock as of the FTTI Effective Date. The FTTI Effective Date was April 29, 2002. As part of the agreement, the pledge by Webb to FTTI of 1,400,000 shares of Webbs Jabber preferred stock was
terminated, Webb exchanged the principal and interest of a $1,100,000 note payable from Jabber for shares of Jabbers common stock at $1.00 per share and FTTI converted the principal and interest on a Jabber convertible note for $100,000 into
shares of Jabbers common stock, also at $1.00 per share.         As a result of the transaction with FTTI, Webb recorded a non-cash adjustment to minority interest in Jabber of $1,611,869, which
represents the difference between the Jabber losses allocated to FTTI prior to the FTTI Effective Date and the amount of Jabber losses that that would have been allocated to FTTI had the transaction occurred from inception of the FTTI investment in
Jabber. Additionally, Webb recorded $3,043,038 as an increase to additional paid-in capital in accordance with Staff Accounting Bulletin No. 51. Accounting for Sales of Stock By a Subsidiary (SAB 51). The amount was computed as the
difference between FTTIs minority interest balance after the transaction and allocation of the $1,611,869 FTTI minority interest adjustment and multiplying Jabbers net worth at April 29, 2002, by FTTIs ownership percentage after
the transaction.         In a separate transaction, Webb acquired all of the shares of Jabbers common stock and preferred stock owned by DiamondCluster International, Inc.
(DiamondCluster), valued at $759,503, in consideration for which Webb issued to DiamondCluster 911,645 shares of Webbs common stock at $0.67 per share. The resulting difference between the value of the Webb shares issued and the
value of the Jabber securities acquired was

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$122,451, resulting in a reduction in the cost basis for Jabbers property and equipment and intangible assets, of $86,898 and $35,553, respectively.
During the three months ended June 30, 2002, we recorded $6,295 less in depreciation expense and $35,553 less in amortization expense as a result of this transaction.

Jabber common stock equivalents at April 29, 2002, before the April 2002 stock transactions were as follows:

|Securities                                     |  | Webb       |  | FTTI      |  | DiamondCluster |  | Others  |  | Total     
|---------------------------------------------- |  | ---------- |  | --------- |  | -------------- |  | ------- |  | ----------
|                                               |  |            |  |           |  |                |  |         |  |           
|Series A preferred stock                       |  | 8,050,000  |  | 750,000   |  |               |  |        |  | 8,800,000 
|Series B preferred stock and accrued dividends |  |           |  | 4,428,710 |  | 733,253        |  |        |  | 5,161,963 
|Series C preferred stock and accrued dividends |  | 8,464,038  |  |          |  |               |  | 26,397  |  | 8,490,435 
|Common stock                                   |  |           |  |          |  | 37,500         |  | 875,000 |  | 912,500   
|                                               |  |            |  |           |  |                |  |         |  |           
|Total                                          |  | 16,514,038 |  | 5,178,710 |  | 770,753        |  | 901,397 |  | 23,364,898
|                                               |  |            |  |           |  |                |  |         |  |           
|Ownership percentage                           |  | 70.7%      |  | 22.2%     |  | 3.3%           |  | 3.8%    |  | 100.0%    

Jabber common stock equivalents at
April 29, 2002, after the April 2002 stock transactions are as follows:

|Securities               |  | Webb       |  | FTTI      |  | DiamondCluster |  | Others  |  | Total     
|------------------------ |  | ---------- |  | --------- |  | -------------- |  | ------- |  | ----------
|                         |  |            |  |           |  |                |  |         |  |           
|Series A preferred stock |  |           |  |          |  |               |  |        |  |          
|Series B preferred stock |  |           |  | 100,000   |  |               |  |        |  | 100,000   
|Series C preferred stock |  | 100,000    |  |          |  |               |  | 25,000  |  | 125,000   
|Common stock             |  | 18,290,232 |  | 5,185,712 |  |               |  | 876,397 |  | 24,352,341
|                         |  |            |  |           |  |                |  |         |  |           
|Total                    |  | 18,390,232 |  | 5,285,712 |  |               |  | 901,397 |  | 24,577,341
|                         |  |            |  |           |  |                |  |         |  |           
|Ownership percentage     |  | 74.8%      |  | 21.5%     |  |               |  | 3.7%    |  | 100.0%    

NOTE 8  RESET OF CONVERSION AND EXERCISE PRICES OF SECURITIES
       The original terms of our 10% convertible note payable, preferred stock and the warrants issued in connection with those securities provide for anti-dilution provisions in the event we issue common
stock at prices less than the current conversion or exercise price for the securities or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. On January 17, 2002, we issued common stock at
$1.00 per share (See Note 5). Accordingly, in accordance with terms of the original agreements, the conversion prices for the 10% note payable and our series C-1 preferred stock as well as the exercise prices for the second 10% note payable warrant
and series C-1 preferred stock warrant were reset as indicated in the tables that follow.

|                                   |  | Conversionor ExercisePriceImmediatelyPrecedingReset |         | Conversionor ExercisePriceImmediatelyAfter Reset
|---------------------------------- |  | --------------------------------------------------- | ------- | ------------------------------------------------
|                                   |  |                                                     |         |                                                 
|10% convertible note payable       |  | $                                                   | 2.50    |                                                 
|Series C-1 preferred stock         |  | $                                                   | 2.50    |                                                 
|Series C-1 preferred stock warrant |  | $                                                   | 2.50    |                                                 
|Series B preferred stock warrants  |  | $                                                   | 0.766   |                                                 
|Second 10% note payable warrant    |  | $                                                   | 9.33431 |                                                 

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The non-cash expense resulting from the rest was recorded as additional interest expense for the 10% convertible note
payable and as an additional deemed preferred stock dividend for the series C-1 preferred stock. The non-cash expense was calculated based on the incremental common shares issuable upon conversion and our appropriate common stock value. The
additional beneficial conversion feature non-cash expense in 2002 was limited to the net proceeds from the sale of the securities less the amount of beneficial conversion feature expense recorded in previous periods. The calculations of the non-cash
expense are presented in the tables that follow.

|                                                               |  | Series C-1PreferredStock |           | 10%ConvertibleNote Payable
|-------------------------------------------------------------- |  | ------------------------ | --------- | --------------------------
|                                                               |  |                          |           |                           
|Value of security                                              |  | $                        | 2,500,000 |                           
|Conversion price before reset                                  |  | $                        | 2.50      |                           
|Number of common shares issuable upon conversion before reset  |  |                          | 1,000,000 |                           
|Conversion price after reset                                   |  | $                        | 1.00      |                           
|Number of common shares issuable upon conversion after reset   |  |                          | 2,500,000 |                           
|Fair market value of common stock on commitment date           |  | $                        | 3.00      |                           
|Calculated beneficial conversion feature                       |  | $                        | 3,000,000 |                           
|                                                               |  |                          |           |                           
|Net proceeds from sale of securities                           |  | $                        | 1,714,721 |                           
|Accretion or interest expense recorded in previous periods     |  | $                        | 1,235,279 |                           
|Additional interest expense due to anti-dilution protection on |  |                          |           |                           
|conversion feature                                             |  |                          |           |                           
|Additional beneficial conversion feature recognized as deemed  |  |                          |           |                           
|preferred stock dividend                                       |  | $                        | 479,442   |                           

The non-cash expense resulting from the reset was recorded as non-cash
interest expense for the second 10% note payable warrant and preferred stock accretion expense for the series C-1 preferred stock warrant, 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:

|                            |   | Second 10% Note PayableWarrant |           | Series C-1 Preferred StockWarrant
|--------------------------- | - | ------------------------------ | --------- | ---------------------------------
|                            |   |                                |           |                                  
|                            |   | Immediately PrecedingReset     |           | Immediately After  Reset         
|                            |   |                                |           |                                  
|Common stock issuable upon  |   |                                |           |                                  
|exercise of warrant         |   | 150,116                        |           |                                  
|Exercise price              |   | $                              | 9.33431   |                                  
|Fair market value of common |   |                                |           |                                  
|stock on valuation date     | $ | 0.97                           |           | $                                
|Option life                 |   |                                | 2.9 years |                                  
|Volatility rate             |   |                                | 104%      |                                  
|Risk-free rate of return    |   |                                | 6.0%      |                                  
|Dividend rate               |   |                                | 0%        |                                  
|Calculated value            |   | $                              | 33,377    |                                  
|Expense recorded            |   |                                | N/A       |                                  

The exercise price for the series
B preferred stock warrants is subject to being reset every 90 days until January 20, 2003, based upon future market prices for our common stock. 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. The exercise price was reset to $0.71 per share on February 7, 2002, and then to $0.52 on May 8, 2002.
As a result, we recorded preferred stock accretion expense totaling $2,338 and $8,234 in the first and second quarters of 2002, respectively, calculated using the Black-Scholes option pricing model utilizing the following assumptions:

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|                                                           |  | February 7, 2002 |         | May 8, 2002
|---------------------------------------------------------- |  | ---------------- | ------- | -----------
|                                                           |  |                  |         |            
|                                                           |  | Immediately      |         |            
|                                                           |  | Preceding        |         | Immediately
|                                                           |  | Reset            |         | After Reset
|                                                           |  |                  |         |            
|Warrant value                                              |  | $                | 178,592 |            
|Exercise price                                             |  |                  | $0.766  |            
|Fair market value of common stock on re-determination date |  | $0.70            |         |            
|Option life                                                |  |                  | 3 years |            
|Volatility rate                                            |  |                  | 126%    |            
|Risk free rate of return                                   |  |                  | 6.71%   |            
|Dividend rate                                              |  |                  | 0%      |            
|Expense recorded                                           |  |                  | NA      |            

NOTE 9  STOCK BASED COMPENSATION EXPENSE
       During 2000, Jabber issued 912,500 shares of its common stock to employees of Jabber, an officer of Webb and members of the Jabber advisory boards. The shares vest over periods ranging from grant
date to two years. We recorded the value of these shares as deferred compensation, totaling $523,700, and recognize the related non-cash expense in the period the shares vest. During the six months ended June 30, 2002, we recognized $27,436 of
deferred compensation as non-cash compensation expense. At June 30, 2002, the remaining deferred compensation related to the issuance of these shares totaled $7,500.        On March 12, 2002, we entered
into a six-month consulting agreement with an investor relations firm to provide Webb with services to strengthen our shareholder base and enhance company awareness among investors and brokers. Compensation to the firm includes a cash retainer fee
of $7,000 per month and 12,500 restricted shares of our common stock, which we issued on June 5, 2002. We valued the shares of common stock at the fair market value on the grant date and recorded compensation expense on the grant date totaling
$6,500. NOTE 10  DISCONTINUED OPERATIONS        During October 2001, we terminated our AccelX local commerce business. In connection with the termination of this business, we
granted a perpetual license for software used in this business to Nextron Communications, Inc. (Nextron) for a license fee of $1 million. The terms of this perpetual license transferred substantially all of our rights and their related
value for this technology. In addition, we sold assets used in this business to Nextron for an initial purchase price of $500,000. Pursuant to an amendment to the asset purchase agreement dated May 22, 2002, in the event that Nextron completes a
qualifying financing transaction by December 31, 2002, Nextron will pay Webb an additional $65,000 for the assets. The receipt of any additional proceeds as indicated above will be recorded as a gain. If the financing transaction is not completed by
December 31, 2002, Webb will not receive any additional consideration for the assets.        The termination of this segment is reflected as a sale of a discontinued operation in the accompanying condensed
consolidated financial statements. Accordingly, the assets, liabilities; and revenues, costs and expenses of this discontinued operation has been excluded from the respective captions in the Condensed Consolidated Balance Sheets and Condensed
Consolidated Statement of Operations and have been reported as Net current liabilities from discontinued operations and Loss from discontinued operations for all periods presented.

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Loss from discontinued operations consist of the following:

|                                    | Three Months Ended |   | Six Months Ended
|----------------------------------- | ------------------ | - | ----------------
|                                    | June 30,           |   | June 30,        
|                                    |                    |   |                 
|                                    | 2002               |   | 2001            
|                                    |                    |   |                 
|Net revenues                        | $                  |  |                 
|                                    |                    |   |                 
|Costs and expenses:                 |                   
|Cost of revenues                    |                    |  |                 
|Sales and marketing expenses        |                    |  |                 
|Product development expenses        |                    |  |                 
|General and administrative expenses |                    |  |                 
|Depreciation and amortization       |                    |  |                 
|                                    |                    |   |                 
|Total costs and expenses            |                    |  |                 
|                                    |                    |   |                 
|Operating loss                      |                    |  |                 
|Other income (expenses), net        |                    |  |                 
|                                    |                    |   |                 
|Loss from discontinued operations   | $                  |  |                 
|                                    |                    |   |                 

Net current liabilities of discontinued operations consists of the
following:

|                                                     | June 30, |        | December 31,
|---------------------------------------------------- | -------- | ------ | ------------
|                                                     | 2002     |        | 2001        
|                                                     |          |        |             
|Net current liabilities of discontinued operations:  |         
|Current assets of discontinued operations:           |         
|Cash                                                 | $        | 1,832  |             
|Accounts receivable, net                             |          |       |             
|Prepaid expenses and other current assets            |          |       |             
|                                                     |          |        |             
|Total current assets of discontinued operations      |          | 1,832  |             
|                                                     |          |        |             
|                                                    
|Accounts payable and accrued liabilities             |          | 24,526 |             
|Accrued salaries and payroll taxes payable           |          |       |             
|                                                     |          |        |             
|Total current liabilities of discontinued operations |          | 22,694 |             
|                                                     |          |        |             
|Net current liabilities of discontinued operations   | $        | 22,694 |             
|                                                     |          |        |             

NOTE 11  EXTRAORDINARY INCOME

As a result of settlements negotiated with our creditors during 2002 for liabilities incurred generally in 2001, we recorded an extraordinary gain totaling $1,182 and $225,993 during the three and
six months ended June 30, 2002.

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NOTE 12  BUSINESS SEGMENT INFORMATION

We have two reportable business segments: Jabber and Webb. Jabber is a commercial developer of real-time communications software and IM solutions and is building upon the growing demand and adoption
of the Jabber.org open-source project by offering proprietary, scalable extensible IM solutions for carriers and service providers, for OEM and ISV partners, and for large enterprises. Webb consists of corporate activities such as accounting,
administration, public reporting and financing activities. All revenue from continuing operations for all periods presented is from our Jabber segment.

|             | June 30,2002 |           | December 31,2001
|------------ | ------------ | --------- | ----------------
|             |              |           |                 
|Assets       |              |           |                 
|             |              |           |                 
|Webb         | $            | 613,711   |                 
|Jabber       |              | 1,263,754 |                 
|Eliminations |              | 3,554,172 |                 
|             |              |           |                 
|Total assets | $            | 5,431,637 |                 
|             |              |           |                 

|Property and equipment, net |   |           |  |   |          
|--------------------------- | - | --------- |  | - | ---------
|                            |   |           |  |   |          
|Webb                        | $ | 783,730   |  | $ | 1,287,486
|Jabber                      |   | 520,061   |  |   | 253,559  
|Eliminations                |   | (80,602)  |  |   |         
|                            |   |           | 
|Total                       | $ | 1,223,189 |  | $ | 1,541,045
|                            |   |           | 

|                                                | Three Months EndedJune 30, |             | Six Months EndedJune 30,
|----------------------------------------------- | -------------------------- | ----------- | ------------------------
|                                                |                            |             |                         
|                                                | 2002                       |             | 2001                    
|                                                |                            |             |                         
|Net Loss from Continuing Operations             |                           
|                                                |                           
|Webb                                            | $                          | (2,057,010) |                         
|Jabber                                          |                            | (1,911,674) |                         
|Eliminations                                    |                            | 1,660,391   |                         
|                                                |                            |             |                         
|Net loss from       continuing       operations | $                          | (2,308,293) |                         
|                                                |                            |             |                         
|Depreciation and Amortization                   |                           
|                                                |                           
|Webb                                            | $                          | 73,651      |                         
|Jabber                                          |                            | 402,697     |                         
|Eliminations                                    |                            | (41,849)    |                         
|                                                |                            |             |                         
|Total depreciation       and       amortization | $                          | 434,499     |                         
|                                                |                            |             |                         
|                                                |                           
|Property and equipment additions               
|                                                |                           
|Webb                                            | $                          | 10,000      |                         
|Jabber                                          |                            | 47,862      |                         
|Discontinued operations                         |                            |            |                         
|                                                |                            |             |                         
|Total                                           | $                          | 57,862      |                         
|                                                |                            |             |                         

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Item 2.    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Webb is the founder and the majority
stockholder of Jabber. Continuing operations of Webb refer to the Jabber business segment and Webbs corporate activities. We formed Jabber in February 2000, to commercialize the Jabber.org instant messaging system begun in 1998 by Jeremie
Miller, the founder of this open-source movement. We became the commercial sponsor of the Jabber.org open-source movement in September 1999. Jabbers business involves the development and marketing of extensible instant messaging software for
telecommunications carriers, service providers, and enterprises that require real-time, XML-based, communication and collaboration solutions. Jabbers business development efforts are focused on four areas:

| | Development of proprietary server technologies emphasizing scalability, reliability, customization and integration;                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Expansion of direct and indirect sales channels;                                                                                                                                                                                                                                       
| | Development of strategic relationships in order to expand distribution opportunities and to promote widespread adoption of Jabber-supported standards; and                                                                                                                             
| | Financial and administrative support of the Jabber.org development community and the Jabber Foundation to support the widespread adoption of the open source extensible messaging and
presence protocol, or XMPP, as the preferred standard for XML-based message routing and delivery.

On March 1, 2001, Jabber
released its first proprietary server software, the Jabber Commercial Server 2.0, a highly scaleable Jabber server that provides the foundation for Jabbers current and future server products. The Jabber Commercial Server provides enterprises
and service providers with enhanced performance, scalability, reliability and security compared to the Jabber open-source software.

Prior to
October 2001, we operated our AccelX business segment which was focused primary on selling software and services to distributors of local commerce. We terminated that business in October 2001. The income and expense from this business segment
is reflected as a discontinued operation for all periods presented.

We have incurred losses from operations since inception. At June 30, 2002,
we had an accumulated deficit of approximately $121 million, which included approximately $67 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;
|- | --------------------------------------------------------------------------------------------------------------------------
| | Loss on extinguishment of debt;                                                                                           
| | Reset of warrant exercise prices;                                                                                         
| | 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; and                                                           
| | Write-off of securities received for our e-banking business.                                                              

We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses.
Because of the new and evolving nature of instant messaging technologies and Jabbers early stage of development, we cannot be sure that 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 have expended significant funds to develop Jabbers current product offerings and we anticipate continuing losses in 2002 and at least the first
six months of 2003 as we further develop and market Jabbers products in advance of market acceptance in sufficient quantities to achieve positive cash flow from operations. Webb does not currently have a source of revenue which is independent
from its Jabber subsidiary, and is therefore dependent on the success of its Jabber subsidiary. As a result of the FTTI investment in Jabber, Jabber and Webb are being funded separately.

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Webb expects to make additional investments in Jabber in the future. Our continued long-term viability depends, in part, on Jabbers ability to obtain
additional profitable customer contracts.

Jabber projects revenues to increase significantly during 2002 compared to 2001 and to achieve
positive cash flow from operations during the third quarter of 2003. Because of our limited operating history, we do not have significant historical financial data upon which to base our revenue or expense forecasts and there can be no assurance
that we will be able to meet our projections for 2002 and subsequent years. Jabbers revenues in the first and second quarters of 2002 were derived primarily from software license sales, software support and maintenance fees and professional
service fees.

RESULTS OF OPERATIONS

Continuing operations of Webb
refer to the Jabber business segment and Webbs corporate activities. Jabber commenced operations in May 2000, and was a development-stage enterprise through March 2001.

Revenues:

Jabbers total revenue for the 2002 three-month period ended June 30, 2002, increased 2.3 times to $362,378
compared to $157,654 for the similar 2001 period. The revenue mix between license fees and services was 34% and 66%, respectively, for the 2002 three-month period. Jabbers total revenue for the 2002 six-month period ended June 30, 2002,
increased 4.8 times to $1,223,431 compared to $257,479 for the similar 2001 period. The revenue mix between license fees and services was 58% and 42%, respectively, for the 2002 six-month period. The significant increase in revenues in the 2002
six-month period is primarily due to revenues earned from licensing Jabbers proprietary IM software products, which were initially released in March 2001. Prior to March 2001, Jabber earned revenue primarily from professional service contracts
for the customization of the open-source IM software.

Components of net revenues from continuing operations and cost of revenues, which
excludes any allocation of depreciation or amortization expense, are as follows:

|                                | Three Months Ended | Six Months Ended
|------------------------------- | ------------------ | ----------------
|                                | June 30,           | June 30,        
|                                |                    |                 
|                                | 2002               |                 
|                                |                    |                 
|Net revenues                    |                    |                 
|Licenses                        |                    | $               
|Professional services fees      |                    |                 
|Support and maintenance fees    |                    |                 
|                                |                    |                 
|Total net revenues:             |                    |                 
|                                |                    |                 
|Cost of revenues:               |                   
|Cost of licenses                |                    |                 
|Cost of professional services   |                    |                 
|Cost of support and maintenance |                    |                 
|                                |                    |                 
|Total cost of revenues          |                    |                 
|                                |                    |                 
|Gross margin                    |                    | $               
|                                |                    |                 

License revenues represent fees earned for granting customers licenses to use
Jabber software products. During the third quarter of 2001, Jabber began licensing products based on a perpetual license, registered user pricing model. For the three and six months ended June 30, 2002, Jabber recognized $122,956 and $711,855 in
license revenue, respectively. For the 2002 six-month period license revenue was comprised primarily of $385,000 of software license revenue from AT&T and $180,000 from licenses to BellSouth. Software revenue recognized in

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the similar 2001 period was primarily from license revenue from France Telecom, a related party, of $73,746 and $50,000 from go.com, a Walt Disney company. We
are forecasting revenues from license fees to be $1 to $1.3 million for the remainder of 2002 and to increase to $6.8 to $8.5 million in 2003 and to $19.2 to $22.5 million in 2004.

Professional service revenue represents fees earned for custom programming, installation and integration services of Jabber software products, generally with larger enterprise organizations and
consulting services. Professional service revenues were $169,370 for the three months ended June 30, 2002, which represents a 699% increase when compared with $21,200 for the similar 2001 period. Professional service revenues were $379,603 for the
six months ended June 30, 2002, which represents a 289% increase when compared with $97,625 for the similar 2001 period. Revenue recognized from professional services for the 2002 three-month period was primarily from a consulting contract with
France Telecom, a related party, of $113,796. Revenue recognized from professional services for the 2002 six-month period was primarily from AT&T in which we recognized $194,800 in fees for the integration and customization of our software
products and $151,728 from France Telecom, a related party, for consulting services. We are forecasting revenues from professional service contracts to be $0.6 to $0.8 million for the remainder of 2002 and increase to $1.6 to $2 million in 2003 and
to $2.6 to $3.1 million in 2004.

Support and maintenance fee revenues are derived from annual support and maintenance contracts associated
with the sale of Jabbers software products and customized month-to-month support agreements with customers generally billed on a time and material basis. Annual fees for support and maintenance are generally 15% to 20% of the license fee
revenue and the related revenue is recognized over the term of the contract. Customers may purchase support and/or maintenance contracts for which they receive telephone support and product updates and upgrades during the term of the agreement.
Customers are not obligated to purchase support and maintenance. Support and maintenance fees were $70,052 for the three months ended June 30, 2002, which represents a 451% increase when compared with $12,708 for the similar 2001 period. Support and
maintenance fees were $131,973 for the six months ended June 30, 2002, which represents a 405% increase when compared with $26,108 for the similar 2001 period. Support and maintenance fee revenues in 2002 were derived from annual support and
maintenance agreements sold in connection with the licensing of Jabbers software, while revenues in 2001 were primarily from custom support contracts which were billed at a fixed price or on a time and material basis and were for a fixed
number of hours or a fixed period of time, generally less than two months. We are forecasting revenues from support and maintenance agreements to be $146,000 to $186,000 for the remainder of 2002 and increase to $0.7 to $0.9 million in 2003 and to
$3.9 to $4.6 million in 2004.

Included in net service revenues for the three and six months ended June 30, 2002, is $113,796 and $151,728,
respectively, in professional service revenue and $5,751 and $11,502, respectively, in support and maintenance revenue from FT, an investor in Jabber. In February 2002, Jabber and FT entered into a fixed price professional services agreement, valued
at $455,000, whereby Jabber is providing professional consulting services for general IM technology as well as IM technology integration with FT proprietary product offerings. Jabber expects to recognize $227,592 in revenue from this contract during
the remainder of 2002 and $75,864 during the first quarter of 2003. Support and maintenance revenue recognized in the first quarter relates to the one-year support and maintenance agreement FT entered into on October 1, 2001, in connection with the
license of Jabbers commercial server to FT. Jabber expects to recognize $5,751 in revenue from this contract during the remainder of 2002.

Cost of Revenues:

Cost of license revenues for the 2002 three-and-six month periods were $76 and $253, respectively, and consists of shipping costs to deliver software
products net of amounts billed to customers. We expect cost of license revenues to increase as we incorporate third-party software into our product offerings.

Cost of professional service revenues consists of compensation costs and consulting fees associated with performing custom programming, installation and integration services for Jabbers
customers. Cost of professional service revenues was $153,724 for the three months ended June 30, 2002, or 91% of net professional service revenues, compared to $136,976, or 646% of net professional service revenues for the similar 2001 period. Cost
of

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professional service revenues was $241,412 for the six months ended June 30, 2002, or 64% of net professional service revenues, compared to $277,837, or 285%
of net professional service revenues for the similar 2001 period. During the 2002 three-and-six month periods, we reduced our fixed costs by approximately $58,000 and $115,000, respectively, compared to the same 2001 periods as a result of
restructuring the professional services organization in the third quarter of 2001 through the consolidation of responsibilities and the reduction in the number of employees in this organization from ten to four in order to better meet our current
customer service levels. Fixed costs are expected to be approximately $28,000 per month for the remainder of 2002 before allocation of costs to sales or product development activities. Direct project expenses for the 2002 three-month period were
$89,363 on revenues of $169,370 representing a gross margin of 47%, compared to $14,100 on revenues of $21,200 representing a gross margin of 33% for the similar 2001 period. Direct project expenses for the 2002 six-month period were $177,051 on
revenues of $379,603 representing a gross margin of 53%, compared to $39,346 on revenues of $97,625 representing a gross margin of 60% for the similar 2001 period. The increase in gross margin in the 2002 three-month period is due to higher
effective billing rates on two higher volume contracts. The decrease in gross margin in the 2002 six-month period is a result of lower effective billing rates in 2002 for two fixed price customer contracts compared with two time and material
contracts in the similar 2001 period. We expect cost of professional service revenue to be 52% of net professional service revenues for the remainder of 2002 and 50% in 2003 and 2004.

Cost of support and maintenance revenue was $42,325 for the three months ended June 30, 2002, or 60% of net support and maintenance revenues, compared to $92,223, or 726% of net support and
maintenance fees for the similar 2001 period. Cost of support and maintenance revenue was $65,405 for the six months ended June 30, 2002, or 50% of net support and maintenance revenues, compared to $204,642, or 784% of net support and maintenance
fees for the similar 2001 period. The decrease in absolute dollars in the 2002 periods was a result of cost saving measures we implemented in the third quarter of 2001 to reduce our fixed costs in this organization through the reduction in headcount
by the consolidation of responsibilities. For the 2002 six-month period, we had an average of 2 fewer employees in 2002 as compared to the similar 2001 period. We expect cost of support and maintenance revenues to be 75% of support and maintenance
revenues for the remainder of 2002, 47% in 2003 and 25% in 2004. Projected increases in costs associated with delivering these services are expected to result only to the extent required to support new customer contracts.

Operating Expenses:

Sales and marketing expenses consist primarily of employee
compensation, cost of travel, advertising and public relations costs, trade show expenses, user conferences, and costs of marketing materials. Sales and marketing expenses were $506,986 for the three-months ended June 30, 2002, or 140% of net
revenues, compared to $249,463, or 158% of net revenues for the similar 2001 period. Sales and marketing expenses were $864,316 for the six months ended June 30, 2002, or 71% of net revenues, compared to $461,564, or 179% of net revenues for the
similar 2001 period. During the second quarter of 2002, Jabber opened a sales and marketing office in Europe in order to facilitate our emerging European market and incurred $58,298 in costs, primarily employee compensation, associated with these
operations in the 2002 three-month period. We also incurred $101,779 in additional cost in the 2002 three-month period in connection with our European Jabber users conference. In addition, the increase in absolute dollars for the 2002
three-and-six-month periods were also attributable to (i) incurring $104,419 and $132,943 more, respectively, in commission expense; and (ii) an increase in contract labor of $15,801 and $21,479, respectively, associated with telemarketing sales and
business development activities. The increase in the 2002 six-month period was also due to an increase in employee compensation costs and bonuses of $51,110 as a result of increasing headcount by 3 employees in 2002. We expect Jabbers sales
and marketing expenses to increase on an absolute dollar basis in future periods as Jabber continues to market its products and services, develop business relationships and execute its sales plan. We estimate sales and marketing expenses to be
approximately $1.1 million for the remainder of 2002.

Product development expenses consist primarily of employee compensation and programming
fees relating to the development and enhancement of the features and functionality of Jabbers software products. During 2002 and 2001, all product development costs were expensed as incurred. Product development expenses were $639,072 for the
three months ended June 30, 2002, or 176% of net revenues, compared to $711,257 or 451% of net revenues for the similar 2001 period. Product development expenses were $1,291,941 for the six months ended June 30, 2002, or 106% of net revenues,
compared to $1,366,236 or 531% of net revenues for the similar 2001 period. The

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absolute dollar decreases for the 2002 three-and-six month periods were primarily due to (i) a decrease in wage expense of $28,918 and $99,516, respectively,
as a result of consolidating several management positions and replacing them with less expensive developers coupled with a reduction in headcount of 2 employees for the first four months of 2002 compared with the same 2001 period; and (ii) a
decrease in contract labor expense of $34,900 and $63,541, respectively. Product development expenses were further reduced in the 2002 three-month period by a decrease in employee relocation expense of $12,000. Product development expenses were
further reduced in the 2002 six-month period by a decrease in travel expense of $21,181. These decreases were partially offset by an increase in bonus expense of $22,652 and $91,519 for the 2002 three-and-six month periods, respectively. We believe
that significant investments in product development are critical to attaining Jabbers strategic objectives and, as a result, we expect Jabbers product development expenses to continue to increase in future periods. We estimate product
development expenses to be approximately $1.4 million for the remainder of 2002.

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 $910,162 for the three-months ended June 30, 2002, or 251%
of net revenues, compared with $1,550,068, or 983% of net revenues for the similar 2001 period. General and administrative expenses were $2,405,548 for the six months ended June 30, 2002, or 197% of net revenues, compared with $3,091,106, or 1201%
of net revenues for the similar 2001 period. General and administrative expenses specifically related or allocated to Jabber were $526,766 for the three months ended June 30, 2002, compared to $627,668 for the similar 2001 period. General and
administrative expenses specifically related or allocated to Jabber were $1,253,358 for the six months ended June 30, 2002, compared to $1,240,581 for the similar 2001 period. During the 2002 three-and-six month periods, Jabber incurred $56,230 and
$119,608, respectively, for its share of Webbs corporate expenses, which is comprised primarily of employee compensation and related expenses. This represents a decrease in the 2002 three-and-six month periods of $234,246 and $395,957,
respectively, compared with the similar 2001 periods. The decreases in the 2002 three-and-six-month periods were primarily due to (i) a decrease in legal fees of $43,280 and $28,914, respectively; and (ii) a reduction in non-cash compensation
expense of $35,468 and $119,133, respectively, related to grants of Jabbers common stock in 2000. General and administrative expenses were further reduced in the 2002 three-month period as a result of incurring $18,260 less in travel costs due
to fewer trips to Europe. These decreases were partially offset in the 2002 three-and-six month periods by (i) an increase in compensation costs of $102,769 and $236,878, respectively, as a result of adding four employees, including an executive
officer; and (ii) an increase of $32,071 and $69,145, respectively, in office rent for the lease of a larger space in connection with Jabber being the prime lessee for the space occupied by Jabber and Webb. We expect Jabbers general and
administrative expenses to increase in future periods as Jabber continues to build the administrative infrastructure needed to support its business. We estimate Jabbers general and administrative expenses to be at least $1.2 million for the
remainder of 2002.

General and administrative expenses specifically related or allocated to Webb, primarily for general corporate activities,
were $383,396 for the three months ended June 30, 2002, compared with $922,400 for the similar 2001 period. General and administrative expenses specifically related or allocated to Webb were $1,152,190 for the six months ended June 30, 2002,
compared with $1,850,525 for the similar 2001 period. General and administrative expenses were reduced primarily as a result of cost saving measures implemented in the fourth quarter of 2001 and a general reduction in costs associated with
supporting a smaller organization since the termination our AccelX business in October 2001. We reduced headcount from 18 to 5 employees between the first quarter of 2001 and the second quarter of 2002, which resulted in a reduction of $231,791 and
$516,544, in the 2002 three-and-six month periods, respectively, in compensation and other employee related and travel expenses. General and administrative expenses were further reduced in the 2002 three-and-six month periods as a result of (i) a
decrease of non-cash expense associated with stock and warrants issued for services of $227,470 and $280,683, respectively; (ii) a decrease of $117,226 and $225,922, respectively, in office rent due to the assignment of the lease to Jabber and a
sublease of space from Jabber at a reduced monthly cost; (iii) a reduction of $113,805 and $175,418, respectively, in consulting fees incurred for investor relations; (iv) a reduction in of $51,778 and $117,644, respectively, for computer hardware
and software expenses including support agreements and outsourced hosting services and; (v) a reduction of $16,240 and $53,338, respectively, in contract labor associated with outsourced human resource and recruiting services. These reductions were
partially offset by decreases in the 2002 three-and-six month periods of $205,737 and $ 425,957, respectively, in expenses allocated to Jabber. In future periods, we expect corporate

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general and administrative expenses to decrease as a percentage of revenues as revenues increase. We estimate Webbs general and administrative expenses
to be approximately $0.6 million for the remainder of 2002.

Depreciation and amortization was $434,499 and $980,568 for the three and six
months ended June 30, 2002, respectively, compared to $554,428 and $1,099,204, respectively, for the similar 2001 periods. During the three and six months ended June 30, 2002, Jabber recorded amortization expense totaling $310,357 and $691,748,
respectively, related to intangible assets compared to $365,662 and $727,305, respectively, for the same 2001 periods. As of June 30, 2002, Jabbers intangible assets are fully amortized.

Other Income and Expenses:

Interest income was $11,721 and $25,538 for the three and six months ended June 30, 2002,
respectively, compared to $18,272 and $107,543, respectively, for the 2001 periods. We earn interest by investing surplus cash in highly liquid investment funds or AAA or similarly rated commercial paper.

Interest expense was $208 and $616,162 for the three and six months ended June 30, 2002, respectively, compared to $248,668 and $2,894,147, respectively, for the similar 2001
periods. The decrease in interest expense in the 2002 three-month period is a result of the repayment of a portion of our 10% convertible note payable and exchange of the balance into convertible preferred stock in March 2002; the repayment of
short-term notes payable during the first quarter of 2002; and the conversion of the Jabber convertible note payable to Jabbers common stock in April 2002. As of June 30, 2002, we do not have any remaining outstanding debt obligations and we
do not expect to incur interest expense during the remainder of 2002. Interest expense is summarized in the following table:

|                            | Three Months Ended |          | Six Months Ended
|--------------------------- | ------------------ | -------- | ----------------
|June 30,                    |                    | June 30,
|                            |                    |         
|2002                        |                    | 2001     |                 
|                            |                    |          |                 
|Interest expense on 10%    
|note payable                | $                  | -        |                 
|Interest expense on short- 
|term notes payable          |                    | -        |                 
|Interest expense on Jabber 
|convertible note           
|payable                     |                    | 208      |                 
|Interest expense on capital
|leases payable              |                    | -        |                 
|                            |                    |          |                 
|Total interest expense      |                    | 208      |                 
|Non- cash interest expense  |                    | 208      |                 
|                            |                    |          |                 
|Net cash interest expense   | $                  | -        |                 
|                            |                    |          |                 

Non-cash interest expense is recorded for the following items:

| | Amortization of financing costs associated with the issuance of the 10% note payable;                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization of discounts on the notes from the allocation of a portion of the cash proceeds to the value of the warrants issued in connection with the notes;
| | Interest paid through the issuance of similar notes;                                                                                                          
| | Resets of the conversion price for the 10% note payable;                                                                                                      
| | Resets of the exercise price resets for the warrants issued in connection with the 10% note payable and one of the convertible notes payable; and             
| | Warrant issued in connection with exchange of the 10% note payable balance for preferred stock.                                                               

(See Item 1 - Financial Statements Notes 5, 6 and 8 to Notes to Condensed Consolidated Financial Statements for information regarding the non-cash interest expense recorded for these transactions).
A summary of non-cash interest expense is as follows:

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|                            | Three Months Ended |     | Six Months Ended
|--------------------------- | ------------------ | --- | ----------------
|                            | June 30,           |     | June 30,        
|                            |                    |     |                 
|                            | 2002               |     | 2001            
|                            |                    |     |                 
|10% note payable-          
|Amortization of financing  
|costs                       | $                  | -   |                 
|Amortization of discount    |                    |    |                 
|Principal-in-kind notes     |                    |    |                 
|Additional interest expense
|due to anti-dilution       
|protection on              
|conversion feature          |                    |    |                 
|Additional interest expense
|due to reset of second     
|10% note payable           
|warrant                     |                    |    |                 
|                            |                    |     |                 
|Total non-cash interest    
|expense on 10% note        
|payable                     |                    |    |                 
|                            |                    |     |                 
|Convertible note payable-  
|Amortization of discount    |                    |    |                 
|Additional interest expense
|due to reset of            
|warrant                     |                    |    |                 
|                            |                    |     |                 
|Total non-cash interest    
|expense on                 
|convertible note           
|payable                     |                    |    |                 
|                            |                    |     |                 
|Interest paid with issuance
|on notes payable on        
|Jabber convertible         
|note payable                |                    | 208 |                 
|                            |                    |     |                 
|Total non-cash interest    
|expense                     | $                  | 208 |                 
|                            |                    |     |                 

Loss on debt extinguishment was $1,162,934 for the six months ended June 30, 2002. The
loss on debt extinguishment was comprised of $625,164 resulting from consummating a transaction in March 2002, with the holder of our 10% convertible note in which $1,212,192 of the outstanding principal was exchanged for 1,984 shares for our series
D preferred stock. The loss was calculated by multiplying the increase in the number of common shares issuable upon conversion by the fair market value of our common stock on the date the transaction closed. We recorded an additional loss on debt
extinguishment of $537,770 for the value of the warrant in connection with exchange for series D preferred stock. The value of the warrant was computed using the Black-Scholes option pricing model. Refer to Item 1  Financial Statements Note 6
to Notes to Condensed Consolidated Financial Statements for a description of this transaction.

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Other income was $4,660 and $11,368 for the three and six months ended June 30, 2002, respectively. Other income was $1,300 and
$13,368 for the three and six months ended June 30, 2001, respectively. Other income in the 2002 and 2001 periods was primarily from collections of accounts receivable, which were previously written off as a bad debt expense in previous
periods.

Discontinued Operations:

In October 2001, we terminated our AccelX local
commerce business.

The termination of this segment is reflected as a sale of a discontinued operation in the accompanying condensed consolidated financial
statements. Accordingly, the revenues, costs and expenses of this discontinued operation has been excluded from the respective captions in the Condensed Consolidated Statement of Operations and has been reported as Loss from discontinued
operations for all periods presented.

Loss from discontinued operations consist of the following:

|                                  | Three Months Ended |   | Six Months Ended
|--------------------------------- | ------------------ | - | ----------------
|                                  | June 30,           |   | June 30,        
|                                  |                    |   |                 
|                                  | 2002               |   | 2001            
|                                  |                    |   |                 
|Net revenues                      | $                  | - |                 
|                                  |                    |   |                 
|Costs and expenses:              
|Cost of revenues                  |                    |  |                 
|Sales and marketing expenses      |                    |  |                 
|Product development expenses      |                    |  |                 
|General and administrative       
|expenses                          |                    |  |                 
|Depreciation and amortization     |                    |  |                 
|                                  |                    |   |                 
|Total costs and expenses          |                    |  |                 
|                                  |                    |   |                 
|Operating loss                    |                    |  |                 
|Other income (expenses), net      |                    |  |                 
|                                  |                    |   |                 
|Loss from discontinued operations | $                  |  |                 
|                                  |                    |   |                 

Minority Interest:

Minority
interest arises from the allocation of losses in Jabber to its minority stockholders. Minority stockholders of Jabber include holders of Jabber's common stock, holders of Jabber's series B preferred stock, and the holder of 25 shares of Jabber's
series C preferred stock. We allocate a portion of Jabber's net losses to the minority shareholders to the extent of their share in the net assets of Jabber. For the three and six months ended June 30, 2002, we allocated $1,929,784 and $2,039,962,
respectively, of Jabber's losses to its minority stockholders, compared to $65,175 and $178,540 for the three and six months ended June 30, 2001, respectively. As a result of the transaction entered into with FTTI as discussed below, losses
allocated to minority interest for the 2002 three-and-six month periods included $1,611,869 of Jabber's losses allocated to FTTI which represents the difference between the Jabber losses allocated to FTTI prior to the FTTI Effective Date and the
amount of Jabber losses that that would have been allocated to FTTI had the transaction occurred from inception of the FTTI investment in Jabber (the FTTI catch-up).

On April 8, 2002, we entered into an agreement with Jabber and FTTI, pursuant to which Webb and FTTI agreed to convert substantially all of their respective shares of Jabber's preferred stock into
shares of Jabber's common stock as of the FTTI Effective Date. The FTTI Effective Date was April 29, 2002. As part of the agreement, the pledge by Webb to FTTI of 1,400,000 shares of Webb's Jabber preferred stock was terminated, Webb
exchanged the principal and interest of a $1,100,000 note payable from Jabber for shares of Jabber's common stock at $1.00 per share and FTTI converted the principal and interest on a Jabber convertible note for $100,000 into shares of Jabber's
common stock, also at $1.00 per share.

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Additionally, Webb recorded $3,043,038 as an increase to additional paid-in capital in accordance
with SAB 51. The amount was computed as the difference between FTTIs minority interest balance after the transaction and allocation of the FTTI catch-up and multiplying Jabbers net worth at April 29, 2002, by FTTIs ownership
percentage after the transaction.

In a separate transaction, Webb acquired all of the shares of Jabbers common stock
and preferred stock owned by DiamondCluster, valued at $759,503, in consideration for which Webb issued to DiamondCluster 911,645 shares of Webbs common stock at $0.67 per share. The resulting difference between the value of the Webb shares
issued and the value of the Jabber securities acquired was $122,451, resulting in a reduction in the cost basis for Jabbers property and equipment and intangible assets, of $86,898 and $35,553, respectively. During the three months ended June
30, 2002, we recorded $6,295 less in depreciation expense and $35,553 less in amortization expense as a result of this transaction.

As a result of the transactions discussed above, through June 30, 2002, we have allocated Jabbers losses to FTTI to the full extent of their minority interest in Jabber
represented by the value of Jabber common stock owned by FTTI. Consequently, unless FTTI or other potential investors purchase Jabber securities which permit for the allocation of Jabber losses to those investors, the amount of Jabber losses
allocated to minority shareholders in future periods will be near zero.

Jabber common stock equivalents at April 29, 2002,
before the April 2002 stock transactions were as follows:

|Securities |                      | Webb |  | FTTI       |  | DiamondCluster |  | Others    |  | Total
|---------- | -------------------- | ---- |  | ---------- |  | -------------- |  | --------- |  | -----
|           |                      |      |  |            |  |                |  |           |  |      
|           | Series A preferred   |      |  |            |  |                |  |           |  |      
|           | stock                |      |  | 8,050,000  |  |                |  | 750,000   |  |      
|           | Series B preferred   |      |  |            |  |                |  |           |  |      
|           | stock and accrued    |      |  |            |  |                |  |           |  |      
|           | dividends            |      |  |           |  |                |  | 4,428,710 |  |      
|           | Series C preferred   |      |  |            |  |                |  |           |  |      
|           | stock and accrued    |      |  |            |  |                |  |           |  |      
|           | dividends            |      |  | 8,464,038  |  |                |  |          |  |      
|           | Common stock         |      |  |           |  |                |  |          |  |      
|           |                      |      |  |            |  |                |  |           |  |      
|           | Total                |      |  | 16,514,038 |  |                |  | 5,178,710 |  |      
|           |                      |      |  |            |  |                |  |           |  |      
|           | Ownership percentage |      |  | 70.7%      |  |                |  | 22.2%     |  |      

Jabber common stock equivalents at April 29, 2002, after
the April 2002 stock transactions are as follows:

|Securities |                      | Webb |  | FTTI       |  | DiamondCluster |  | Others    |  | Total
|---------- | -------------------- | ---- |  | ---------- |  | -------------- |  | --------- |  | -----
|           |                      |      |  |            |  |                |  |           |  |      
|           | Series A preferred   |      |  |            |  |                |  |           |  |      
|           | stock                |      |  |           |  |                |  |          |  |      
|           | Series B preferred   |      |  |            |  |                |  |           |  |      
|           | stock                |      |  |           |  |                |  | 100,000   |  |      
|           | Series C preferred   |      |  |            |  |                |  |           |  |      
|           | stock                |      |  | 100,000    |  |                |  |          |  |      
|           | Common stock         |      |  | 18,290,232 |  |                |  | 5,185,712 |  |      
|           |                      |      |  |            |  |                |  |           |  |      
|           | Total                |      |  | 18,390,232 |  |                |  | 5,285,712 |  |      
|           |                      |      |  |            |  |                |  |           |  |      
|           | Ownership percentage |      |  | 74.8%      |  |                |  | 21.5%     |  |      

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Preferred Stock Accretion Expense and Dividends:

The terms of our 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 was greater than the allocated value of the preferred stock. In
addition, if the conversion price of the preferred stock is reduced in future periods, accounting principles generally accepted in the United States require us to record a deemed dividend to the preferred shareholder based upon the amount of
additional shares that are issuable as a result of the change in the conversion feature.

Accounting principles generally accepted in the
United States require us to record the beneficial conversion feature, other deemed dividends, 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 redemption value in the accompanying condensed consolidated statement of operations.

Accretion expense was $8,234 and $638,323, respectively, for the three and six months ended June 30, 2002. We recorded accretion expense of $479,442 as a result of the reset of the conversion price
of our series C-1 preferred stock in January 2002, from $2.50 per share to $1.00 per share. The accretion expense was calculated by multiplying the increase in the number of common shares issuable upon conversion by the fair market value of our
common stock on the commitment date. The accretion expense was limited to the net proceeds from the sale of the series C-1 preferred stock less the total accretion expense recorded in previous periods. We also recorded accretion expense of $148,259
and $10,622 for the 2002 six month period for the resets of the series C-1 preferred stock and series B preferred stock warrants, respectively. The accretion expense was calculated by computing the difference between the warrant value immediately
preceding and after the reset using the Black-Scholes option pricing model. Refer to Item 1  Financial Statements Note 8 to Notes to Condensed Consolidated Financial Statements for the calculation of these charges.

During the 2001 three-and-six-month periods, we recorded accretion expense totaling $27,550 and $2,886,441, respectively, including $1,970,558 related to
the issuance of our series C-1 preferred stock and $886,069 related to the reset of the conversion price of our series B-2 preferred stock on February 28, 2001.

The series D junior preferred stock issued in the first quarter of 2002 is also 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 prices are reduced, we may be required to record additional charges against income
and such charges may be significant.

We may also incur additional preferred stock accretion expense in future periods as a result of the
convertible preferred stock Jabber issued in connection with the investment by FTTI in Jabber. The accretion expense, if any, in future periods as a result of this transaction or the issuance of other securities with similar terms may be
significant.

The terms of Jabber's series B preferred stock provided for an 8% cumulative dividend. For the three and six months ended June
30, 2002, we recorded $28,269 and $124,551, respectively, of preferred stock dividends, all of which are payable to third parties. In addition, Jabber's series C preferred stock also provides for an 8% cumulative dividend. The series C preferred
stock dividends totaled $44,854 and $200,120 for the three and six months ended June 30, 2002, respectively, of which $44,712 and $199,484, respectively, were eliminated in consolidation as the dividends were payable to Webb.

Net Loss Applicable to Common Stockholders:

Net loss applicable to common stockholders was $413,972 and $4,865,757 for the three and six months ended June 30, 2002, respectively, compared with $5,401,535 and $16,250,316, respectively, for the
similar 2001 periods. Jabber's net loss applicable to common stockholders for the three and six months ended June 30, 2002,

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were $1,984,797 and $3,650,152, respectively, including $73,123 and $324,671, respectively, in non-cash preferred stock dividend expense, compared with net
loss applicable to common stockholders of $2,075,350 and $4,094,906, respectively, for the similar 2001 three-and-six month periods, respectively.

The decrease in losses for the three months ended June 30, 2002, are primarily a result of (i) recording a non-cash pick-up from minority interest in the net loss of Jabber of $1,611,869; (ii)
incurring $2,073,303 less in operating losses for our AccelX operations as a result of the termination of this business segment in October 2001; and (iii) incurring $248,460 less in interest expense as the notes payable were either repaid or
exchanged for preferred stock. Losses for the six months ended June 30, 2002 were further reduced by (i) a reduction of Webbs interest expense of $2,277,985; (ii) a decrease of $2,122,931 in preferred stock dividends and preferred stock
accretion expense; (iii) an increase in Jabbers gross margin of $1,140,361, primarily a result of increased revenues and a change in the revenue mix from lower margin professional service fees to higher volume software license fee revenues;
and (iv) a decrease in depreciation and amortization expense of $118,636. These reductions in 2002 were partially offset by non-cash charges of $1,162,934 related to a loss on debt extinguishment. We expect Webbs losses to be approximately
$0.6 million for the remainder of 2002. We expect Jabber to incur approximately $2.3 million in losses for the remainder of 2002 due to the significant time between product development and market introduction as well as the long sales cycle for most
of Jabbers products.

Included in net losses allocable to common stockholders are non-cash expenses for transactions related to
acquisitions, financing, and securities we issued for services as summarized in the following table:

|                           | Three Months Ended |         | Six Months Ended
|-------------------------- | ------------------ | ------- | ----------------
|                           | June 30,           |         | June 30,        
|                           |                    |         |                 
|                           | 2002               |         | 2001            
|                           |                    |         |                 
|Amortization of intangible |                    |         |                 
|assets and goodwill        | $                  | 310,357 |                 
|Stock and warrants issued  |                    |         |                 
|for services               |                    | 36,207  |                 
|Beneficial conversion      |                    |         |                 
|feature, amortization      |                    |         |                 
|of discount and            |                    |         |                 
|financing costs to         |                    |         |                 
|interest expense and       |                    |         |                 
|non-cash interest          |                    |         |                 
|related to the 10%         |                    |         |                 
|convertible note           |                    |         |                 
|payable                    |                    |        |                 
|Amortization of discount   |                    |         |                 
|and non-cash interest      |                    |         |                 
|expense on short-term      |                    |         |                 
|note payable               |                    |        |                 
|Loss on debt               |                    |         |                 
|extinguishment             |                    |        |                 
|Preferred stock dividends  |                    | 28,411  |                 
|Accretion of preferred     |                    |         |                 
|stock                      |                    | 8,234   |                 
|                           |                    |         |                 
|Total                      | $                  | 383,209 |                 
|                           |                    |         |                 

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LIQUIDITY AND CAPITAL RESOURCES

We used
$3,879,376 in cash to fund our operations for the six months ended June 30, 2002, compared to $8,244,311 for the similar 2001 period. We used $49,167 in cash from investing activities for the six months ended June 30, 2002, compared to $100,673 for
the similar 2001 period. We received $6,604,401 in net cash from financing activities for the six months ended June 30, 2002, compared with $4,851,167 for the similar 2001 period.

Following the purchase of Jabber preferred stock by FTTI in July 2001, our Webb and Jabber businesses have been separately funded. Consequently, liquidity and capital resources for each business is
presented below.

As of June 30, 2002, Jabber had cash and cash equivalents of $359,178 and working capital deficit of $635,420. Webb financed
Jabbers operations and capital expenditures and other investing activities during the six months ended June 30, 2002, primarily through a $1.1 million investment in Jabber common stock and a $500,000 convertible secured loan.

Jabber used $2,088,499 in cash to fund its operations for the six months ended June 30, 2002, compared to $3,290,702 for the similar 2001 period. The
decrease in cash used by operations in 2002 was primarily due to an increase of $1.2 million in cash collected from customers.

Jabber used
$47,862 in investing activities for the purchase of property and equipment for the six months ended June 30, 2002, compared with $499,658 for the similar 2001 period, which included cash advances to Webb of $433,475. Jabber plans to purchase
approximately $30,000 of property and equipment for the remainder of 2002.

We believe that the cash on hand and the $1.9 million Webb has
budgeted from its remaining working capital to fund Jabbers operations will be sufficient to fund Jabbers activities only until January 2003. Jabber will need to raise additional working capital of approximately $3 million to fund its
operations until Jabber can achieve cashflow break even, which is currently estimated to be in the third quarter of 2003. Our belief regarding Jabbers cash requirements is based on Jabbers current financial projections which forecasts
Jabber consuming $2.3 million of cash for operations during the last two quarters of 2002 and $1.9 in the first two quarter of 2003 and generating $2 million of positive cash in the second half of 2003 and continuing to generate positive cash from
operations thereafter. The use of cash is predicated on Jabber meeting its revenue projections and managing its expense levels to forecasted amounts. We estimate Jabber revenues for the last two quarters of 2002 to be $1.8 to $2.3 million and
revenues for 2003 to triple over those of 2002 and to double from 2003 to 2004. Software license fees are projected to account for 34% of net revenues for the remainder of 2002, and 75% in 2003 and 2004. We estimate Jabbers expenses to be $4
million for the last two quarters of 2002 and to increase to $9.9 million in 2003 and $14 million in 2003. Jabber has a limited operating history upon which to base its projections, particularly its revenue projections, and there can be no assurance
that Jabber will be able to meet its projections for revenues and expenses. In addition, since many of Jabbers expenses are fixed or must be incurred in advance of revenues, Jabbers working capital requirements could increase
significantly over projected levels if Jabber does not meet its revenue projections. Therefore, Jabber may require more cash for its operations than our current projections indicate. In this circumstance, Jabber would have to seek additional funding
or reduce its operating activities. Webb and Jabber have begun discussions with investors for an additional $4 to $7 million of financing through the sale of Jabber securities. However, we have no commitment for the additional sale of Jabbers
securities and there can be no guarantee that this financing will be completed, or if completed, that the terms of any such future financing will be acceptable. If we are not successful in obtaining funding in appropriate amounts or on appropriate
terms, we would consider additional reductions in Jabbers operating activities.

As of June 30, 2002, Webb had cash and cash equivalents
of $3,232,351 and working capital of $3,691,723. We financed our operations and capital expenditures and other investing activities during 2002 through the sale of securities for which we received $7,500,000 in net proceeds (See Item I - Financial
Statements Note 5 to Notes to Condensed Consolidated Financial Statements for information regarding sales of securities). Of the $7.5 million raised in the first quarter of 2002, approximately $1.1 million has been used to pay outstanding
obligations, $1.6 million has been used to fund Jabbers operations, $822,000 has been used to pay the portion of the principal and accrued interest of our 10% convertible note payable which was not exchanged for shares of our preferred
stock

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and approximately $775,000 has been used to pay Webbs 2002 operating expenses. Of the remaining balance of approximately $3.2 million, $1.3 million is to
be used to fund Webbs operating expenses and $1.9 million is expected to be used to fund Jabbers operating expenses.

We used
$1,790,877 in cash to fund Webbs operations for the six months ended June 30, 2002, compared to $4,498,732 for the similar 2001 period. The decrease in 2002 is primarily a result of $4,525,953 in losses in 2001 from our AccelX business which
we terminated in October 2001, and a net reduction of $698,000 in Webbs corporate expenses in 2002 as a result of reducing the size of Webbs corporate organization. These reductions in the use of cash were partially offset by an increase
in the use of cash of $900,000 as a result of paying 2001 obligations in the first quarter of 2002. Webbs monthly cash operating expenses are estimated to average approximately $105,000 per month for the remainder of 2002.

Webb used $1,601,305 in net investing activities for the six months ended June 30, 2002, compared with receiving $398,985 in net cash for the similar period
of 2001, which included $433,475 of cash advances from Jabber. Webb invested $1.1 million in Jabber in the first quarter of 2002, loaned Jabber an additional $500,000 in the second quarter of 2002 and has budgeted up to an additional $1.9 million to
fund Jabbers operations during the remainder of 2002. Webb does not plan to purchase a significant amount of property and equipment during 2002.

During the six months ended June 30, 2002, Webb received $6,604,401 in net cash from financing activities, compared with $2,339,439 for the similar 2001 period. During 2002, Webb received proceeds
of $1.2 million from the issuance of short-term notes payable and $7.5 million from the sale of common stock and warrants. During 2002, Webb repaid $1.34 million of short-term notes payable, including accrued interest payable, and $35,599 in capital
leases payable.

We had cash on-hand of approximately $3.1 million at August 1, 2002. We believe that these funds will be adequate to sustain
Webbs operations until at least the third quarter of 2003. The $1.9 million budgeted for Jabber is expected to fund Jabbers operations only until January 2003. We will need to raise additional working capital of at least $3 million to
fund the combined operations until Jabber can achieve cashflow break even, which is currently estimated to be in the third quarter of 2003. In order to provide greater flexibility in determining the timing and the level of investments in marketing
and product development initiatives, to provide operating reserves which could be required to fund operations in the event that Jabber does not achieve projected revenues and to establish additional strategic relationships, we are continuing to seek
additional equity investments through either additional sales of Webb or Jabber securities. . We have no commitments or agreements for the sale of any additional securities and there can be no assurance that we will be able to raise any additional
working capital.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

Factors that may affect our future results include, but are not limited to, the following items as well as the information in Item 1  Financial Statements  Notes to the Condensed
Consolidated Financial Statements and Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations.

Our limited operating history makes it difficult to evaluate our business. We were founded in March 1994 and began sales in February 1995. Subsequently, our business model has changed
periodically to reflect changes in technology and markets. We have a limited operating history for our current business model upon which you may evaluate us. Our business is subject to the risks, exposures and difficulties frequently encountered by
early-stage companies with a limited operating history including:

| | Limited ability to respond to competitive developments;                                          
|- | -------------------------------------------------------------------------------------------------
| | Exaggerated effect of unfavorable changes in general economic and market conditions;             
| | Limited ability to adjust our business plan to address marketplace and technological changes; and
| | Difficulty in obtaining operating capital.                                                       

We expect to incur net losses into
2003. We have incurred net losses since we began our business totaling approximately $121 million through June 30, 2002, including approximately $67 million of non-cash expenses. We expect to incur additional substantial operating and net
losses in 2002, and do not expect to achieve positive cash flow from operations until at least the third quarter of 2003. We expect to incur these additional losses because:

| | We intend to incur capital expenditures and operating expenses in excess of revenues of approximately $2.3 million during the remainder of 2002 to cover the increasing activities of Jabber, Inc.;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We expect to spend approximately $0.6 million during the remainder of 2002 to finance operating expenses besides those for Jabber, Inc.; and                                                       
| | We may incur significant non-cash expenses from current financing transactions and may continue to incur significant non-cash expenses due to financing and other equity-based transactions.       

If we are unable to raise additional working capital, we may not be able to sustain our operations. Our present cash and cash
equivalents and working capital will, based on current estimates, be adequate to sustain operations for Jabber, Inc. until only January of 2003. In the event that Jabbers revenues are less than projected or we desire to increase marketing and
business development expenses over projected levels, we will need to obtain additional capital to fund our business. Operating expenses for Jabber, Inc. currently exceed revenues by approximately $450,000 per month. Operating expenses for our
corporate activities are being funded separately from those for Jabber, Inc., are expected to be approximately $570,000 for the remainder of 2002 and $370,000 for the first six months of 2003. There is no assurance that we will be able to raise
additional funds in amounts required or upon acceptable terms. If we cannot raise additional funds when needed, we may be required to curtail or scale back our operations or sell some of our assets, including our stock in our Jabber
subsidiary.

We may not earn revenues sufficient to remain in business. Our ability to become profitable depends on whether we
can sell our products and services for more than it costs to produce and support them. Our future sales also need to provide sufficient margin to support our ongoing operating activities. The success of our revenue model will depend upon many
factors including:

| | The extent to which consumers and businesses use our products and services; and   
|- | ----------------------------------------------------------------------------------
| | The success of our distribution partners in marketing their products and services.

Because of the new and evolving nature of the Internet, the early stage of our Jabber products and our limited operating history, 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.

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If the Internet does not develop into a significant source of business-related communication, then our business
will not be successful. Our business plan assumes that the Internet will develop into a significant source of business-related communication and communication interactivity. However, the Internet market is new and rapidly evolving and there
is no assurance that the Internet will develop in this manner. If the Internet does not develop in this manner, our business may not be successful.

A limited number of our customers generate a significant portion of our revenues. We had five and three customers representing 78% and 81% of revenues for the three and six months
ended June 30, 2002, respectively. We expect that current customers will account for a significant percentage of our revenues during the remainder of 2002 and 2003. There is no assurance that we will be able to retain major customers or attract
additional major customers. The loss of, or reduction in demand for our products or services from major customers could have a material adverse effect on our operating results and cash flow from operations.

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

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

Even if we are able to identify new opportunities, our working capital constraints limit our ability to pursue them. If we are unable to identify and develop and introduce new products and services
on a timely basis, demand for our products and services will decline.

We must identify and develop markets for our products and
services. A suitable market for our products and services may not develop or, if it does develop, it may take years for the market to become large enough to support significant business opportunities. Even if we are able to successfully
identify, develop, and introduce new products and services there is no assurance that a suitable market for these products and services will materialize. The following factors could affect the success of our products and services and our ability to
address sustainable markets:

| | The failure of our business plan to accurately predict the types of products and services the future Internet marketplace will demand;            
|- | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our limited working capital may not allow us to commit the resources required to adequately support the introduction of new products and services;
| | The failure of our business plan to accurately predict the estimated sales cycle, price and acceptance of our products and services; or           
| | The development by others of products and services that makes our products and services noncompetitive or obsolete.                               

There is a lot of competition in the Internet market which could hurt our revenues or cause our expenses to increase. Our current and prospective competitors
include many companies, including Microsoft Corporation and AOL Time Warner, Inc., whose financial, technical, marketing and other resources are substantially greater than ours. We may not have the financial resources, technical expertise or
marketing, sales and support capabilities to compete successfully. The presence of these competitors in the Internet marketplace could hurt our business by causing us to:

| | Reduce the selling prices for our products and services; or       
|- | ------------------------------------------------------------------
| | Increase our spending on marketing, sales and product development.

We may not be able to offset the effects of price reductions or increases in spending. Further, our financial condition may put us at a competitive disadvantage relative to our
competitors.

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It usually takes a long time before we are able to make a sale of our products and services to a
customer. While our sales cycle varies from customer to customer, it is long, typically ranging from two to six months or more, and unpredictable. Our pursuit of sales leads typically involves an analysis of our prospective customer's needs,
preparation of a written proposal, one or more presentations and contract negotiations. We often provide significant education to prospective customers about the use and benefits of our Internet technologies and services. Our sales cycle may also be
affected by a prospective customer's budgetary constraints and internal acceptance reviews, over which we have little or no control.

Offering proprietary products based on the Jabber.org open-source movement may jeopardize our relationship with open-source communities. An important element of the business model for
our Jabber, Inc. subsidiary is based upon Jabber's ability to offer proprietary products compatible with Jabber.org open-source instant messaging systems. A key element of open-source software development movements is that the software and its code
be offered to other developers and users free, provided that anyone who makes an improvement or modification to the software and who intends to commercialize the improvement or modification, makes them available for free to the community and other
users. If the Jabber.org open-source community or other open-source communities withdraw their support for either Jabber, Inc. or Jabber instant messaging products, demand for Jabber instant messaging products will likely decline.

We may be unable to reduce our expenses if sales do not occur as expected. Because of our limited operating history, we do not have
significant historical financial data upon which to base planned operating expenses or to forecast revenues and there can be no assurance that we will be able to meet our revenue or expense projections. Our expense levels are based in part on our
expectations of future sales and to a large extent are fixed. We typically operate with little backlog and the sales cycles for our products and services may vary significantly. We may be unable to adjust spending in a timely manner to compensate
for any unexpected sales shortfalls. If we were unable to so adjust, any significant shortfall of demand for our products and services in relation to our expectations would result in operating losses or reduced profitability. Further, we intend to
incur significant capital expenditures and operating expenses to fund the operations of our Jabber, Inc. subsidiary. If these expenditures are not subsequently followed by increased sales with substantial margins, then we will need to raise
additional capital to stay in business.

An investment in our common stock is risky because the price of our stock is highly
volatile. Our common stock closed as high as $1.18 per share and as low as $0.23 per share between January 1, 2002 and August 8, 2002. Historically, the over-the-counter markets for securities such as our common stock have experienced
extreme price and volume fluctuations. Some of the factors leading to this volatility include:

| | Price and volume fluctuations in the stock market at large that do not relate to our operating performance;
|- | -----------------------------------------------------------------------------------------------------------
| | Fluctuations in our quarterly revenue and operating results; and                                           
| | Increases in outstanding shares of common stock upon exercise or conversion of derivative securities.      

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

We have issued numerous options, warrants,
and convertible securities to acquire our common stock that could have a dilutive effect on our shareholders. As of August 8, 2002, we had issued warrants and options to acquire approximately 17.1 million shares of our common stock,
exercisable at prices ranging from $0.65 to $38.44 per share, with a weighted average exercise price of approximately $1.81 per share. We had also reserved 2,984,000 shares of common stock for issuance upon conversion of our series D junior
convertible preferred stock. During the terms of these derivative securities, the holders will have the opportunity to profit from an increase in the market price of our common stock with resulting potential dilution to the holders of shares who
purchased shares for a price higher than the applicable exercise or conversion price. The increase in the outstanding shares of our common stock because of the exercise or conversion of these derivative securities could result in a significant
decrease in the percentage ownership of our common stock by current and future holders of our common stock.

The significant number of
shares issuable upon conversion of our convertible securities could make it difficult to obtain additional financing. 2,984,000 shares of our common stock may be issued if our series D junior

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convertible preferred stock is converted. The number of our shares issuable upon conversion or exercise of our derivative securities could increase due to
future financings. Due to this significant potential increase in the number of our outstanding shares of common stock, new investors may either decline to make an investment in Webb due to the potential negative effect this additional dilution could
have on their investment or require that their investment be on terms at least as favorable as the terms of the notes or convertible preferred stock. If we are required to provide similar terms to obtain required financing in the future, the onerous
terms and significant dilution of these financings could be perpetuated and significantly increased. The current price of our common stock may make it difficult to raise capital because of the terms of the notes and the convertible preferred stock.
Issuances of common stock below $1.00 in future financings would result in substantial additional shares being issued to a significant shareholder and to holders of our convertible securities, causing substantial dilution to other shareholders as
well as substantial non-cash charges against our earnings.

Future sales of our common stock in the public market could depress the price
of our common stock. Actual or potential future sales of substantial amounts of common stock in the public market could depress the market price for shares of our common stock and could impair the ability of purchasers of our common stock to
recoup their investment or make a profit. As of August 8, 2002, these shares consist of:

| | Up to 2,984,000 shares issuable upon conversion of our series D junior convertible preferred stock; and
|- | -------------------------------------------------------------------------------------------------------
| | Approximately 17.1 million shares issuable to warrant and option holders.                              

Future sales of our common stock in the public market could limit our ability to raise capital. Actual or potential future sales of substantial amounts of our common stock in the
public by our officers and directors, and upon exercise or conversion of derivative securities could affect our ability to raise capital through the sale of equity securities.

The issuance of convertible securities has resulted in significant non-cash expenses which has increased significantly our net loss applicable to common shareholders. We recorded
approximately $2.1 million of non-cash expenses in the first quarter of 2002 due to the reset of the conversion price for our 10% note payable and series C-1 preferred stock and the reset of exercise price for warrants issued in connection with
those securities and the exchange of our 10% note payable and series C-1 preferred sock for shares of series D junior convertible preferred stock.

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PART IIOTHER INFORMATION

Items 1 - 5.            
Not Applicable

Item 6.  
Exhibits and Reports on Form 8-K

|(a) | Listing of Exhibits:
|--- | --------------------
|   
|    | 3.1                 
|    | 3.2                 
|    | 4.1                 
|    | 4.2                 
|    | 4.3                 
|    | 4.4                 
|    | 4.5                 
|    | 4.6                 
|    | 4.7                 
|    | 4.8                 
|    | 4.9                 
|    | 4.10                
|    | 4.11                
|    | 4.12                
|    | 4.13                
|    | 4.14                
|    | 10.1                
|    | 10.2                
|    | 10.3                
|    | 10.4                
|    | 10.5                
|    | 10.6                
|    | 10.7                
|    | 10.8                
|    | 10.9                
|    | 10.10               

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| | 10.11 | Agreement dated April 8, 2002, among Webb Interactive Services, Inc., Jabber, Inc. and France Telecom Technologies Investissements (13)                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.12 | Exchange Agreement dated as of April 26, 2002 between Webb Interactive Services, Inc. and DiamondCluster International, Inc. (13)                                                        
| | 10.13 | Securities Purchase Agreement dated as of January 17, 2002, between Webb Interactive Services, Inc. and Jona, Inc. Included as an exhibit is a Registration Rights Agreement
(5)         
| | 10.14 | Letter Agreement between Webb Interactive Services, Inc. and Jona, Inc. (12)                                                                                                             
| | 10.15 | Exchange Agreement dated January 17, 2002 between Webb Interactive Services, Inc. and Castle Creek Technology Partners LLC. Included as an exhibit is a Registration Rights Agreement
(5)
| | 10.16 | General Agreement for the Procurement of The License of Software and Services Between Jabber, Inc. and AT&T Corp. dated March 22, 2002 (14)                                              
| | 21    | Subsidiaries of Webb Interactive Services, Inc. (12)                                                                                                                                     
| | 99.1  | Certification pursuant to 18 U.S.C. Section 1350 (*)                                                                                                                                     

|    
|----
|    
|(*) 
|(1) 
|(2) 
|(3) 
|(4) 
|(5) 
|(6) 
|(7) 
|(8) 
|(9) 
|(10)
|(11)
|(12)
|(13)
|(14)
|    

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Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

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

|Date: August 14, 2002 | By                                                | /s/ William R. Cullen
|--------------------- | ------------------------------------------------- | ---------------------
|                      |                                                  
|                      | Chief Executive Officer - Chief Financial Officer
|                     
|                      | /s/ Stuart Lucko                                 
|                      |                                                  
|                      | Controller                                       

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