<PAGE>

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

FORM 10-QSB

[X]    Quarterly Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934.

For the period ended September 30, 1999.
                     ------------------

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

For the transition period from ___________________ to _______________________.

Commission File Number    0-28462.
                      -----------

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.)

1800 GLENARM PLACE, SUITE 700, DENVER, CO                     80202
--------------------------------------------------------------------
(Address of principal executive offices)                    (Zipcode)

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

Not Applicable
--------------
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        [_]  NO

APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of October 26, 1999, Registrant had 7,741,308 shares of common stock
outstanding.


________________________


<PAGE>

               WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
               (FORMALLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)

                                      Index
                                      -----

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                    -------
<S>                                                                                                                 <C>
Part I.   Financial Information

          Item 1.  Unaudited Financial Statements

          Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998                          3

          Consolidated Statements of Operations for the three and nine months ended September 30, 1999
             and 1998 (Unaudited)                                                                                         4

          Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (Unaudited)       5-6

          Notes to Consolidated Financial Statements                                                                   7-18

          Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations              19-34

Part II.  Other Information

          Item 1, 3 and 5.  Not Applicable                                                                               35

          Item 2.  Changes in Securities and Use of Proceeds                                                             35

          Item 4.  Submission of Matters to a Vote of Security Holders                                                   35

          Item 6.  Exhibits and Reports on Form 8-K                                                                   35-37

Signatures                                                                                                               38
</TABLE>

                       ________________________________

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.

                                       2
<PAGE>

                         PART I FINANCIAL INFORMATION

                          ITEM 1 FINANCIAL STATEMENTS

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

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            September 30,     December 31,
                                                                                                 1999             1998
                                                                                           ---------------   --------------
<S>                                                                                        <C>               <C>
                                                                                             (Unaudited)

                                           ASSETS
Current assets:
  Cash and cash equivalents                                                                  $  6,445,206     $    698,339
  Accounts receivable, net of allowance for doubtful accounts of $27,507 and
    $18,000, respectively                                                                          89,942          124,912
  Accounts receivable from related party                                                           15,807           22,925
  Note and accrued interest receivable                                                                  -          896,787
  Inventory, net                                                                                        -           55,126
  Prepaid expenses                                                                                238,728           74,179
  Deferred financing costs                                                                        127,728                -
  Deferred acquisition costs                                                                            -          229,404
  Short-term deposits                                                                               2,448          101,441
                                                                                             ------------     ------------
    Total current assets                                                                        6,919,859        2,203,113
Property and equipment, net of accumulated depreciation
    of $1,221,963 and $741,552, respectively                                                    2,250,726        1,178,628
Intangible assets, net of accumulated amortization of $1,298,396 and $0, respectively          13,728,002                -

Deferred financing costs and other assets                                                         251,492            3,535
                                                                                             ------------     ------------
    Total assets                                                                             $ 23,150,079     $  3,385,276
                                                                                             ============     ============
                                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Convertible notes payable                                                                  $    390,382     $          -
  Current portion of notes and capital leases payable                                              32,518           21,766
  Accounts payable and accrued liabilities                                                      1,397,352          873,901
  Accrued salaries and payroll taxes payable                                                      348,997          329,755
  Customer deposits and deferred revenue                                                          271,016          100,600
                                                                                             ------------     ------------
    Total current liabilities                                                                   2,440,265        1,326,022

Capital leases payable                                                                             39,557           39,915
10% convertible note payable and accrued interest, net of unamortized discount of
  $1,037,070 and unamortized beneficial conversion of $1,377,266                                2,635,045                -
Stockholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized:
     10% redeemable, convertible preferred stock, 10% cumulative return; 85,000 and
      245,000 shares issued and outstanding, respectively,
      including dividends payable of $127,447 and $241,172, respectively                          998,871        2,691,172

     Series A redeemable, convertible preferred stock, 5% cumulative
      return; none and 1,400 issued and outstanding, respectively,
      including dividends payable of $0 and $10,164, respectively                                       -        1,410,164

  Common stock, no par value, 20,000,000 shares authorized,
     7,630,616 and 4,642,888 shares issued and outstanding, respectively                       46,129,934       16,410,300
  Warrants and options                                                                          6,722,905        2,281,832
  Accumulated deficit                                                                         (35,816,498)     (20,774,129)
                                                                                             ------------     ------------
    Total stockholders' equity                                                                 18,035,212        2,019,339
                                                                                             ------------     ------------
    Total liabilities and stockholders' equity                                               $ 23,150,079     $  3,385,276
                                                                                             ============     ============
</TABLE>

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

                                       3
<PAGE>

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

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Three Months Ended                       Nine months Ended
                                                                 September 30,                           September 30,
                                                      ---------------------------------     -----------------------------------
                                                         1999                  1998             1999                  1998
                                                      -----------          ------------     -------------          ------------
<S>                                                   <C>                  <C>              <C>                    <C>
Net revenues                                          $   639,693          $    191,663     $   1,010,788          $  1,071,310
Net revenues from related party                             6,000                16,180           116,120               164,580
                                                      -----------          ------------     -------------          ------------
                                                          645,693               207,843         1,126,908             1,235,890
                                                      -----------          ------------     -------------          ------------
Cost of revenues                                          599,619               166,153         1,070,429               891,953
Cost of revenues from related party                         2,460                11,422            72,968               113,995
                                                      -----------          ------------     -------------          ------------
                                                          602,079               177,575         1,143,397             1,005,948
                                                      -----------          ------------     -------------          ------------
 Gross margin                                              43,614                30,268           (16,489)              229,942
                                                      -----------          ------------     -------------          ------------
Operating expenses:
 Sales and marketing expenses                             370,660               665,616         1,205,313             1,796,134
 Product development expenses                             771,345               484,017         2,025,443               837,587
 General and administrative expenses                    1,149,771               903,710         4,091,104             2,607,544
 Customer acquisition costs                               868,316                     -           941,684                     -
 Depreciation and amortization                          1,419,394               111,478         1,666,792               312,825
                                                      -----------          ------------     -------------          ------------
                                                        4,579,486             2,164,821         9,930,336             5,554,090
                                                      -----------          ------------     -------------          ------------
 Loss from operations                                  (4,535,872)           (2,134,553)       (9,946,825)           (5,324,148)
Interest expense                                         (713,493)               (2,107)         (721,324)               (5,361)
Equity in loss of  subsidiary                                   -                     -          (127,083)                    -
Interest income                                            82,583                45,449           173,331               111,117
                                                      -----------          ------------     -------------          ------------
Net loss                                               (5,166,782)           (2,091,211)      (10,621,901)           (5,218,392)
Preferred stock dividends                                 (29,173)             (100,635)         (104,214)             (243,619)
Accretion of preferred stock to redemption value                -              (472,800)       (3,157,691)           (2,710,060)
Accretion of preferred stock for guaranteed
 return in excess of redemption value                           -                     -        (1,158,563)                    -
                                                      -----------          ------------     -------------          ------------
Net loss available to common stockholders             $(5,195,955)         $ (2,664,646)    $ (15,042,369)         $ (8,172,071)
                                                      ===========          ============     =============          ============

Loss per share, basic and diluted                     $     (0.70)         $      (0.75)    $       (2.41)         $      (2.38)
                                                      ===========          ============     =============          ============
Weighted average shares outstanding                     7,449,505             3,566,951         6,228,731             3,436,922
                                                      ===========          ============     =============          ============
</TABLE>


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

                                       4
<PAGE>

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

                     CONSOLIDATED STATEMENT OF CASH FLOWS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                 Nine months Ended
                                                                                                   September 30,
                                                                                       --------------------------------------
                                                                                             1999                  1998
                                                                                       ----------------       ----------------
<S>                                                                                    <C>                    <C>
Cash flows from operating activities:
  Cash received from customers                                                         $    1,328,087         $     1,428,873
  Cash paid to suppliers and employees                                                     (7,356,606)             (5,716,940)
  Interest collected                                                                           95,796                  77,278
  Interest paid                                                                               (10,875)                 (4,662)
                                                                                       --------------         ---------------
    Net cash used in operating activities                                                  (5,943,598)             (4,215,451)
                                                                                       --------------         ---------------
Cash flows from investing activities:
  Cash acquired in business combinations                                                       32,484                       -
  Proceeds from the sale of property and equipment                                            132,241                       -
  Purchase of property and equipment                                                       (1,533,947)               (294,506)
  Capitalized software development costs                                                            -                (281,775)
  Cash advances to DCI                                                                       (593,649)             (1,064,184)
  Payment of acquisition costs                                                                (27,470)               (187,158)
  Investment in subsidiary                                                                   (240,564)                      -
                                                                                       --------------         ---------------
    Net cash used in investing activities                                                  (2,230,905)             (1,827,623)
                                                                                       --------------         ---------------
Cash flows from financing activities:
  Payments on capital leases                                                                  (33,760)                (21,583)
  Payment on convertible notes payable                                                        (35,000)                      -
  Proceeds from issuance of 10% convertible note payable                                    5,000,000                       -
  Proceeds from issuance of common stock and warrants                                       3,074,256                  65,442
  Proceeds from exercise of stock options and warrants                                      1,700,945                 212,783
  Proceeds from issuance of 10% Preferred Stock                                                     -                 159,558
  Proceeds from issuance of 5% Preferred Stock                                                      -               3,000,000
  Proceeds from issuance of Series C Preferred Stock                                        5,000,000                       -
  10% convertible note payable financing costs                                               (383,184)                      -
  Stock offering costs                                                                       (401,887)               (348,014)
                                                                                       --------------         ---------------
    Net cash provided by financing activities                                              13,921,370               3,068,186
                                                                                       --------------         ---------------
Net increase (decrease) in cash and cash equivalents                                        5,746,867              (2,974,888)

Cash and cash equivalents, beginning of period                                                698,339               3,680,282
                                                                                       --------------         ---------------
Cash and cash equivalents, end of period                                               $    6,445,206         $       705,394
                                                                                       ==============         ===============
</TABLE>

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

                                       5
<PAGE>

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

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                   Nine months Ended
                                                                                                     September 30,
                                                                                    ----------------------------------------------
                                                                                            1999                       1998
                                                                                    -------------------       --------------------
<S>                                                                                 <C>                       <C>
Supplemental schedule of non-cash investing and financing activities:
   Common stock and warrants issued in business combinations                             $   12,382,595              $           -
   Accretion of preferred stock to redemption value                                           3,157,691                    993,980
   Accretion of preferred stock for guaranteed return in excess of
         redemption value                                                                     1,158,563                          -
   Preferred stock dividends paid or to be paid in common stock                                 104,214                    142,984
   Preferred stock and dividends converted to common stock                                    5,686,707                          -
   Beneficial conversion of 10% convertible note payable                                      1,967,522                          -
   Discount of 10% convertible note payable                                                   1,072,325                          -
   Convertible notes payable converted to common stock                                          593,045                          -
   Capital leases for equipment                                                                  35,000                     18,750


Reconciliation of net income to cash used in operating activities:

Cash flows from operating activities:
    Net loss                                                                            $   (10,621,901)             $  (5,218,392)
    Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization                                                         1,779,127                    312,825
        Write-off of NetIgnite intangible asset                                                 242,811                          -
        Gain on sale of property and equipment                                                   (2,225)
        Loss from investment in subsidiary                                                      127,083                          -
        Accrued interest income on advances to DCI                                              (46,379)                   (31,387)
        Reduction in note receivable for services received from DCI                             368,643                    290,251
        Stock and stock options issued for services and to customers                          1,299,912                     33,541
        Accrued interest payable on 10% convertible note payable                                 49,383                          -
        Amortization of 10% convertible note payable discount                                    35,255                          -
        Amortization of deferred placement costs                                                 12,948                          -
        Amortization of 10% convertible note payable beneficial conversion                      590,254                          -
    Changes in operating assets and liabilities:
        Decrease in accounts receivable                                                          35,723                    328,363
        Increase in accounts receivable from related party                                        7,118                      2,000
        Decrease in accrued revenue receivables                                                       -                    143,543
        Decrease in inventory                                                                    55,126                    170,647
        Decrease (increase) in prepaid expenses                                                (141,594)                    21,828
        Decrease in short-term deposits and other assets                                         93,824                     71,595
        Increase (decrease) in accounts payable and accrued liabilities                          38,079                   (356,578)
        Increase (decrease) in accrued salaries and payroll taxes payable                       (19,509)                    25,634
        Increase (decrease) in customer deposits and deferred revenue                           152,724                     (9,321)
                                                                                        ---------------              -------------
            Net cash used in operating activities                                       $    (5,943,598)             $  (4,215,451)
                                                                                        ===============              =============
</TABLE>

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

                                       6
<PAGE>

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

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   SEPTEMBER 30, 1999 AND DECEMBER 31, 1998

                                 (UNAUDITIED)

NOTE 1 - BASIS OF PRESENTATION

     The accompanying unaudited interim consolidated financial statements
include the accounts of Webb Interactive Services, Inc. and its wholly owned
Subsidiaries (collectively "Webb" or the "Company" formerly known as OnLine
System Services, Inc).  All significant intercompany balances and transactions
have been eliminated in consolidation.  The consolidated financial statements
have been prepared without audit pursuant to rules and regulations of the
Securities and Exchange Commission 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
generally accepted accounting principles 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 the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998 filed with the Securities and Exchange
Commission.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  Among other
factors, the Company has incurred significant and recurring losses from
operations, and such losses are expected to continue in the near future which
raises substantial doubt about the ability of the Company to continue as a going
concern.  Management's plans in regard to these matters are described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.  The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

     The continued viability of the Company depends upon, in part, its ability
to obtain additional profitable customer contracts and to obtain additional
capital through debt or equity financing. The Company believes that its cash and
cash equivalents and working capital as of September 30, 1999 will be adequate
to sustain operations through February 2000. The Company estimates that it will
need to raise approximately $8 million through equity, debt or other external
financing to sustain operations for 2000. The Company's plan to fund its
operations is to obtain equity financing through additional private placements
of its securities, and possibly in 2000 a secondary public offering of its
common stock. The Company believes that it would be possible to continue to
raise additional working capital through the sale of securities similar to the
transaction described in Note 10 and has initiated discussions with potential
investors which could result in additional debt or equity investments. However,
the Company has no commitments for any such funding and there can be no
assurances that these discussions will be successful, or if successful, that the
terms of any such fundings will be acceptable to the Company. If the Company is
not successful in obtaining funding in appropriate amounts or on appropriate
terms, management would consider significant reductions in activity and
operations.

                                       7
<PAGE>

NOTE 2 - REVENUE RECOGNITION

     Transaction fee revenues include e-banking service bureau fees, online
subscription fees, and Internet access and e-commerce royalties. The Company
recognizes revenues in the period the services are provided or earned by the
Company. Service revenue includes fees for software, hosting and support.
Revenue from such fees are typically received at the initiation of the
arrangement and are recognized over the term of the arrangement. Net revenues
are comprised of the following:

<TABLE>
<CAPTION>
                                                     Three Months Ended                         Nine months Ended
                                                        September 30,                             September 30,
                                          ---------------------------------------  -----------------------------------------
                                                 1999                  1998                1999                   1998
                                          -----------------     -----------------  -------------------     -----------------
<S>                                       <C>                   <C>                <C>                     <C>
Net revenues:
     Transaction fees                       $   112,800            $   86,030         $    361,226          $    157,442
     Services                                   532,893                34,379              648,173               161,358
     Hardware and software                            -                87,434              117,509               917,090
                                            -----------            ----------         ------------          ------------
     Total net revenues                     $   645,693            $  207,843         $  1,126,908          $  1,235,890
                                            ===========            ==========         ============          ============
</TABLE>

     During July 1999, the Company sold two customer contracts to an unrelated
third party, including computer hardware, for approximately $270,000. The
Company provided services and equipment under the terms of the original
contracts enabling the customers to provide Internet access to their end users.
The Company recorded $138,504 of service revenue for the three months ended
September 30, 1999 related to providing services to the purchaser of these two
contracts. Revenue recognized by the Company from these contracts totaled
approximately $6,000 for the nine months ended September 30, 1999.

NOTE 3 - ACQUISITION OF DURAND COMMUNICATIONS, INC.

     On June 30, 1999, Durand Acquisition Corporation ("DAC"), a wholly owned
subsidiary of the Company, completed a merger with DCI, a developer and marketer
of Internet "community" building tools, by exchanging 947,626 of the Company's
common stock for all of the common stock of DCI at an exchange ratio of 2.46
shares of the Company's common stock for each share of DCI's common stock.  In
addition, outstanding DCI options and warrants to purchase common stock were
converted at the same exchange ratio into 242,293 options and warrants to
purchase the Company's common stock.  The acquisition of the assets and
liabilities was recorded using the purchase method of accounting whereby the
consideration paid of $14,216,876 was allocated based on the relative fair
values of the assets and liabilities acquired with the excess consideration over
the fair market value of tangible assets of $14,068,184 recorded as intangible
assets.  The Company has determined that substantially all of the intangible
assets acquired are represented by the value of the developed technology and
workforce acquired with DCI.

Total consideration for the merger is as follows:

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

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

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

                                      8
<PAGE>

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

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

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

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

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

     The transaction with DCI resulted in approximately $14,132,000 of
intangible assets (primarily developed technologies, workforce and goodwill).
These intangible assets will be amortized over three years corresponding to the
estimated life of the technology.  The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the assets and
liabilities assumed, which could take as long as one year from June 30, 1999.
Because the DCI business, now operated by the Company, has never been
profitable, and due to the other risks and uncertainties discussed herein, it is
reasonably possible that an analysis of these long-lived assets in future
periods could result in a conclusion that they are impaired, and the amount of
the impairment could be substantial.

NOTE 4 - INVESTMENT IN NETIGNITE

     On March 10, 1999, the Company acquired a controlling interest in a newly
formed company, NetIgnite 2, LLC ("NetIgnite").  NetIgnite was a development
stage company which the Company formed with a predecessor company by the name of
NetIgnite, Inc. ("NI"), the sole shareholder and founder of which was Perry
Evans, the founder and past President of MapQuest.com.  The Company was, as a
result of this transaction, entitled to 99.5% of NetIgnite's operating income
and approximately 60% of any proceeds upon the sale of NetIgnite.  NI was
entitled to .5% of NetIgnite's operating income and approximately 40% of any
proceeds upon the sale of NetIgnite.  Mr. Evans entered into an Employment
Agreement with the Company which has an initial term of two years, provides for
a minimum annual salary of $190,000 and the granting of stock options to
purchase 80,000 shares of common stock at an exercise price of $12.25, one-third
of such option shares to vest annually during the next three years subject to
Mr. Evans' continuous employment by the Company.

     Prior to June 2, 1999, the Company utilized the equity method of accounting
for this subsidiary and recorded a loss from this investment totaling $127,083
for the nine months ended September 30, 1999.

     On June 2, 1999, the Company acquired the assets and liabilities of NI in
exchange for 71,429 shares of common stock valued at $984,399.  The acquisition
of these assets and liabilities was recorded using the purchase method of
accounting whereby the consideration paid was allocated based on the relative
fair values of the assets and liabilities acquired with the excess consideration
of $893,952 being recorded as an intangible asset.

                                       9
<PAGE>

     The transaction with NetIgnite resulted in approximately $894,000 of
intangible assets (primarily developed technologies and goodwill).  These
intangible assets will be amortized over three years corresponding to the
estimated life of the technology.  The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the assets and
liabilities assumed, which could take as long as one year from June 2, 1999.

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

NOTE 5 - GOODWILL

     Goodwill is being amortized on a straight-line basis over three years.
Subsequent to acquisitions which result in goodwill, the Company continually
evaluates whether later events and circumstances have occurred that indicate the
remaining useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable.  When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
undiscounted net income or cash flows, as appropriate, over the remaining life
of the goodwill in measuring whether the goodwill is recoverable.  The Company
recorded $1,274,721 and $1,298,396 of goodwill amortization expense for the
three and nine months ended September 30, 1999, respectively.

NOTE 6 - INCOME TAXES

     As a result of net losses the Company did not to recognize a tax benefit
for the three and nine months ended September 30, 1999 and 1998. The Company has
also determined that there is not enough positive evidence to realize the net
deferred tax assets, and as such has recorded a full valuation allowance against
such assets.

NOTE 7 - NET LOSS PER SHARE

     Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS 128"), and Securities and Exchange Commission Staff Accounting
Bulletin No. 98 ("SAB 98").  Under the provisions of SFAS 128 and SAB 98, basic
net loss per share is computed by dividing net loss available to common
shareholders for the period by the weighted average number of common shares
outstanding for the period.  Diluted net loss per share is computed by dividing
the net loss for the period by the weighted average number of common and
potential common shares outstanding during the period if the effect of the
potential common shares is dilutive.  As a result of the Company's net losses,
all potentially dilutive securities, as indicated in the table below, would be
anti-dilutive and are excluded from the computation of diluted loss per share.

<TABLE>
<CAPTION>
                                                                  September 30,
                                                      ------------------------------------
                                                             1999                1998
                                                      ----------------     ---------------
        <S>                                           <C>                  <C>
        Stock options                                       2,080,550           1,306,816
        Warrants and underwriter options                      865,976             963,150
        Convertible debt                                       38,388                   -
        10% Preferred Stock                                   109,753             691,976
        5% Preferred Stock                                          -             450,355
                                                      ---------------      --------------
Total                                                       3,094,667           3,412,297
                                                      ===============      ==============
</TABLE>

     The number of shares excluded from the earning per share calculation
because they are anti-dilutive, using the treasury stock method, were 2,080,943
and 2,873,487 for the three and nine months ended September 30, 1999,
respectively, and 2,114,796 and 2,387,296 for the three and nine months ended
September 30, 1998, respectively.

                                       10
<PAGE>

NOTE 8 - 10% CONVERTIBLE NOTE PAYABLE

     On August 25, 1999, the Company entered into a Securities Purchase
Agreement and executed a $5,000,000 three-year 10% Convertible Promissory Note
(the "Note Payable").  Net proceeds to the Company were $4,616,816 after
deducting $383,184 in financing costs.  The financing costs were recorded as a
deferred asset and are being amortized as additional interest expense over the
term of the Note Payable.  During the three months ended September 30, 1999, the
Company recorded $12,948 of additional interest expense as a result of
amortizing the deferred financing costs.

     The Note Payable specifies a 10% per annum interest rate.  At the option of
the Company, accrued interest may be paid by issuance of like notes or in shares
of the Company's common stock determined by dividing the dollar amount of
interest due by an amount equal to the average of the closing bid price of the
Company's common stock for ten business days prior to the date interest is to be
paid.  Interest is payable, in arrears, on (i) the last day of March, June,
September, and December, (ii) August 25, 2002 (Maturity date), and (iii) the
date the principal amount of the Note Payable is due and payable.  Accrued and
unpaid interest as of September 30, 1999 totaled $49,383 and is included in the
Note Payable balance on the accompanying balance sheet as the Company will issue
notes to pay this interest.

     The Company may prepay all or any portion of the then outstanding Note
Payable, plus accrued and unpaid interest, but must pay a pre-payment premium.
Scheduled pre-payment premiums are as follows:

<TABLE>
<CAPTION>
                           Time Period                         Optional Payment Amount
               ------------------------------------       -------------------------------
               <S>                                        <C>
               Closing date through
               180 days after closing date                              107.5%

               181 days after closing date through
               364 days after closing date                              125.0%

               365 days after closing date through
               729 days after closing date                              120.0%

               730 days after closing date through
               1094 days after closing date                             115.0%
</TABLE>

     In addition, at any time after the first anniversary date of the closing
date, the closing bid prices of the Company's common stock is greater than or
equal to 200% of the conversion price (as defined) then in effect for each 20
consecutive trading days immediately preceding the date of delivery of such
optional payment notice, then the Company may elect an optional payment amount
of 115%.

     The Note Payable may be converted, at the option of the holder, at any time
after December 23, 1999 with respect to one half of the principal amount of the
Note Payable and January 22, 2000, with respect to the full amount of the Note
Payable into the number of common shares equal to the lower of (i) $11.14, or
(ii) the average of the five lowest closing bid prices during the 15 consecutive
trading days immediately preceding the conversion date.  Based upon the initial
conversion price of $11.44, the Note Payable, had it been convertible, would
have been convertible into approximately 440,000 shares of the Company's common
stock.

     Due to the conversion feature associated with the Note Payable, the Company
must account for a beneficial conversion feature (a "Guaranteed Return") as
additional interest expense.  Based on current generally accepted accounting
principles, the computed value of the Guaranteed Return of $1,967,522 is
initially recorded as a reduction of the Note Payable and an increase to
additional paid-in capital on the date of issuance, even though the Note Payable
was not then convertible and was subject to redemption prior to the date that it
first becomes convertible.  The Guaranteed Return reduction to the Note Payable
is amortized as additional interest expense from the date of issuance to the
earliest date of conversion.  During the three months ended September 30, 1999,
the Company recorded $590,256 of additional interest expense as a result of
amortizing the Guaranteed Return and will record the remaining $1,377,268 during
the fourth quarter of 1999.

     In addition, the holder of the Note Payable was issued a five year warrant,
which may be exercised any time after August 25, 1999, to purchase 136,519
shares of the Company's common stock for a purchase price of

                                       11
<PAGE>

$11.44 per share. The warrant was valued at $1,072,325 using the Black-Scholes
option pricing model using the following assumptions:

<TABLE>
               <S>                                                    <C>
               Exercise price                                         $ 11.44
               Fair market value of common stock on grant date        $ 10.13
               Option life                                            5 years
               Volatility rate                                           104%
               Risk free rate of return                                  6.0%
               Dividend rate                                               0%
</TABLE>

     The fair value of the warrant was recorded as an additional discount to the
Note Payable and will be amortized as additional interest expense over the term
of the Note Payable.  During the three months ended September 30, 1999, the
Company recorded $35,255 of additional interest expense as a result of
amortizing the Note Payable discount related to the issuance of the warrant.

NOTE 9 - CONVERTIBLE NOTES PAYABLE

     Subsequent to the agreement to acquire DCI (See Note 3), the Company issued
convertible notes payable to DCI creditors totaling $942,885. The notes are
convertible at the election of the holder into the number of common shares at
conversion prices equal to $9.61 and the greater of $9.75 or the closing bid
price on the conversion date. During July and September 1999, holders of the
convertible notes payable had converted $593,045 of principal and accrued
interest payable into 52,834 shares of the Company's common stock at conversion
prices per share ranging from approximately $9.61 to $14.75 as summarized in the
following table:

<TABLE>
<CAPTION>
                                           Note Payable
                                            and Accrued             Common Stock             Common Stock
                                             Interest                  Shares                 Conversion
             Conversion Date                 Converted                 Issued              Price per Share
          ----------------------         ----------------         ---------------       --------------------
          <S>                            <C>                      <C>                   <C>
          July 15, 1999                      $    236,509                  16,034               $14.75
          September 27, 1999                      144,150                  15,000                 9.61
          September 28, 1999                       49,011                   5,100                 9.61
          September 28, 1999                      112,437                  11,700                 9.61
          September 30, 1999                       50,938                   5,000                10.19
                                         ----------------         ---------------
          Total                              $    593,045                  52,834
                                         ================         ===============
</TABLE>

     During October 1999, holders of the convertible notes payable converted
$301,574 of the principal and accrued interest payable into 29,568 shares of the
Company's common stock (See Note 17).

NOTE 10 - SERIES C PREFERRED STOCK

     On January 11, 1999, the Company completed a private placement of preferred
stock which resulted in gross proceeds of $3,000,000.  The Company sold 3,000
shares of Series C cumulative, convertible, redeemable preferred stock (the
"Series C Preferred Stock").  Net proceeds to the Company were $2,755,500 after
deducting $244,500 in offering costs.

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

     The Series C Preferred Stock entitled the holder to voting rights equal to
the number of shares of common stock into which the shares of the Series C
Preferred Stock were convertible.  The Series C Preferred Stock specified a 4%
per annum cumulative, non-compounding dividend based on the stated value of
$1,000 per share.  Each share

                                       12
<PAGE>

of Series C Preferred Stock was convertible, at the option of the holder, at any
time after February 1, 1999, into the number of shares of common stock equal to
$1,000 divided by the lesser of (i) 140% of the closing bid price of the common
stock on the date of the issuance of the Series C Preferred Stock being
converted (initially $20.65), or if less and if the conversion is occurring at
least 120 days after the issuance of the Series C Preferred Stock being
converted, 100% of the closing bid price of the Company's common stock on the
trading day closest to the date that is 120 days after the Series C Preferred
Stock that is being converted was issued or (ii) the average of the five lowest
closing bid prices of common stock during the 44 consecutive trading days
immediately preceding the conversion of the Series C Preferred Stock conversion
date.

     The beneficial conversion feature (a "Guaranteed Return") of the Series C
Preferred Stock is considered to be an additional preferred stock dividend.  The
computed value of the Guaranteed Return of $3,931,754 was initially recorded as
a reduction of the Series C Preferred Stock and an increase to additional paid-
in capital.  The Guaranteed Return reduction to preferred stock was accreted, as
additional dividends, by recording a charge to income available to common
stockholders from the date of issuance to the earliest date of conversion.  The
Company also recorded annual dividends of $40 per share as a reduction of income
available to common stockholders, whether or not declared by the Board of
Directors, which totaled $3,221 and $24,591 for the three and nine months ended
September 30, 1999, respectively.

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

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

     During the nine-month period ended September 30, 1999, the investor
converted all of the 5,000 shares of the Series C Preferred Stock, including
accrued dividends payable of $24,591 into 480,508 shares of the Company's common
stock at conversion prices per share ranging from approximately $8.59 to $11.13
as summarized in the following table:

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

                                       13
<PAGE>

NOTE 11 - CONVERSION OF SERIES A AND 10% PREFERRED STOCK AND EXERCISE OF
          COMMON STOCK WARRANT

     On January 13, 1999, all 1,400 outstanding shares of the Series A Preferred
Stock, including accrued dividends payable of $12,465, were converted into
247,366 shares of the Company's common stock at a conversion price per share of
$5.71.

     In connection with the issuance of the Series A Preferred Stock, the
Company issued a warrant to the investor to purchase 140,000 shares of the
Company's common stock for a purchase price of $5.71 per share.  During January
1999, the investor exercised the warrant for a total purchase price of $799,400.

     During January and February 1999, 160,000 shares of the 10% Preferred
Stock, including accrued dividends payable of $165,093, were converted into
177,106 shares of the Company's common stock at conversion prices ranging from
$9.46 to $10.00 as summarized in the following table:

<TABLE>
<CAPTION>
                                            Number of Shares
                               ----------------------------------------
                                     10%                                         Common Stock
                                  Preferred               Common                  Conversion
        Conversion Date             Stock                  Stock               Price per Share
       -----------------       --------------       -------------------     ---------------------
       <S>                     <C>                  <C>                     <C>
       January 5, 1999                 10,000                  11,590                  $ 9.46
       January 7, 1999                 10,000                  11,039                    9.98
       January 14, 1999                 5,000                   5,422                   10.00
       January 15, 1999                60,000                  66,248                   10.00
       January 19, 1999                10,000                  10,858                   10.00
       January 20, 1999                25,000                  27,636                   10.00
       January 28, 1999                10,000                  11,077                   10.00
       February 2, 1999                20,000                  22,083                   10.00
       February 25, 1999               10,000                  11,153                   10.00
                               --------------       -----------------
       Total                          160,000                 177,106
                               ==============       =================
</TABLE>

     At September 30, 1999, a total of 85,000 shares of the 10% Preferred Stock
remained outstanding.

NOTE 12 - COMMON STOCK

     In February 1999, the Company entered into a six-month agreement with an
individual to provide the Company consulting services in his capacity as the
Company's Chief Operating Officer.  Pursuant to the terms of the agreement, in
addition to a monthly cash fee of $15,000, the consultant earned shares of the
Company's common stock determined by dividing $15,000 by the fair market value
of the common stock on the last trading day of the month.  During the three and
nine months ended September 30, 1999, the Company issued 1,364 and 6,497 shares
of common stock under this agreement, respectively, valued in the aggregate at
$15,000 and $90,000, respectively.

NOTE 13 - EXERCISE OF COMMON STOCK WARRANTS-

     IPO Common Stock Warrants-

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

                                       14
<PAGE>

     In May 1999, the Company received $3,056,871 in net proceeds, after
deducting offering costs of $17,387 from the exercise of the IPO Warrants and
issued 341,578 shares of common stock.  In addition, the Company issued 131,614
shares of common stock as a result of holders of the IPO Warrants utilizing the
cashless exercise provision of the Agreement.  As of September 30, 1999, all of
the IPO Warrants have been exercised or have expired.

     Common Stock Warrant Issued To Placement Agent-

     In connection with the sale of the Company's Series A Preferred Stock in
November 1998, the Company issued the placement agent a warrant to purchase
20,000 shares of the Company's common stock at $5.61 per share.  On July 6,
1999, the placement agent exercised the warrant resulting in proceeds to the
Company of $114,200.

NOTE 14 - CUSTOMER ACQUISITION COSTS

     In June and July 1999, the Company granted warrants to three customers to
purchase in the aggregate 161,667 shares of the Company's common stock at
exercise prices ranging from $9.19 to $9.94 per share. The warrants may be
exercised from the date of issuance and expire in June 2000 and June 2002. The
Company recorded expense for deferred customer acquisition costs of $868,316 and
$941,684 for the three and nine months ended September 30, 1999, respectively.
The Company's policy with regard to customer acquisition costs is to capitalize
costs to acquire customers if the related customer contract contains guarantees
of minimum revenue which supports the amount paid. Because the agreements
entered into by the Company do not contain minimum guaranteed revenue and due to
the start-up nature of these services and other uncertainties regarding these
arrangements, the Company has expensed amounts during the 1999 periods. The
Company valued these options utilizing the Black-Scholes option pricing model
using the following assumptions:

<TABLE>
          <S>                                                   <C>
          Exercise prices                                         $9.19 to $9.9
          Fair market value of common stock on grant date       $8.81 to $15.50
          Option lives                                             1 to 3 Years
          Volatility rate                                                  104%
          Risk free rate of return                                         5.0%
          Dividend rate                                                      0%
</TABLE>

NOTE 15 - RELATED PARTY TRANSACTION

     A director of the Company is also the general partner and chief executive
officer for one of the Company's customers.  The Company entered into a contract
during August 1997, as amended, whereby the Company provides its products and
services to the customer for several markets.  The Company earns revenue from
the sale of computer hardware and third party software, engineering fees,
equipment installation fees, and royalties from subscriber Internet access and
content fees.  The Company recognized revenue from the customer totaling $6,000
and $16,180 for the three months ended September 30, 1999 and 1998,
respectively, and $116,120 and $164,580 for the nine months ended September 30,
1999 and 1998, respectively.  Included in accounts receivable at September 30,
1999 are amounts due from the customer totaling $15,807.

NOTE 16 - BUSINESS SEGMENT INFORMATION

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

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

                                       15
<PAGE>

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

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

<TABLE>
<CAPTION>
Net Revenues
------------------------------------------------------------------------------------------------------------------------
                                                         Three Months Ended                   Nine months Ended
                                                            September 30,                        September 30,
                                                  -------------------------------     ----------------------------------
                                                       1999             1998              1999                 1998
                                                  -------------     -------------     ------------        --------------
<S>                                               <C>               <C>               <C>                 <C>
Local directory/Enterprise                        $    452,385      $    157,883      $    849,594        $    1,093,001
Financial services                                     193,308            49,960           277,314               142,889
                                                  ------------      ------------      ------------        --------------
Total net revenues                                $    645,693      $    207,843      $  1,126,908        $    1,235,890
                                                  ============      ============      ============        ==============

<CAPTION>
Net Loss
------------------------------------------------------------------------------------------------------------------------
                                                         Three Months Ended                   Nine months Ended
                                                            September 30,                        September 30,
                                                  -------------------------------     ----------------------------------
                                                       1999             1998              1999                 1998
                                                  -------------     -------------     ------------        --------------
<S>                                               <C>               <C>               <C>                 <C>
Local directory/Enterprise                        $  (2,000,773)    $  (1,315,724)    $ (4,337,640)       $   (2,907,431)
Financial services                                       76,876           (84,486)            (675)             (247,434)
Corporate activities                                 (3,242,885)         (691,001)      (6,283,583)           (2,063,527)
                                                  -------------     -------------     ------------        --------------
Net loss                                          $  (5,166,782)    $  (2,091,211)    $(10,621,898)       $   (5,218,392)
                                                  =============     =============     ============        ==============
</TABLE>


<TABLE>
<CAPTION>
          Assets
          -----------------------------------------------------------------------------------------
                                                           September 30,              December 31,
                                                               1999                      1998
                                                          ---------------           ---------------
          <S>                                             <C>                       <C>
          Local directory/Enterprise                        $   1,720,812              $    696,219
          Financial services                                      603,105                   416,071
          Corporate activities                                 20,826,160                 2,272,986
                                                          ---------------           ---------------
          Total                                             $  23,150,079              $  3,385,276
                                                          ===============           ===============

<CAPTION>
          Property and Equipment
          -----------------------------------------------------------------------------------------
                                                            September 30,             December 31,
                                                               1999                      1998
                                                          ---------------           ---------------
          <S>                                             <C>                       <C>
          Local directory and Enterprise                     $  1,499,226              $    516,918
          Financial services                                      531,445                   397,721
          Corporate activities                                    220,055                   263,989
                                                          ---------------           ---------------
          Total                                              $  2,250,726              $  1,178,628
                                                          ===============           ===============
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
Depreciation and Amortization
------------------------------------------------------------------------------------------------------------------------------------
                                                            Three Months Ended                           Nine months Ended
                                                               September 30,                               September 30,
                                                 ---------------------------------------     ---------------------------------------
                                                      1999                    1998                  1999                  1998
                                                 --------------        -----------------     ----------------     ------------------
<S>                                              <C>                   <C>                   <C>                  <C>
Local directory/Enterprise                       $       77,199        $       47,784        $      171,052       $       131,898
Financial services                                       35,247                35,247               105,741               105,705
Corporate activities                                  1,306,948                28,447             1,389,999                75,222
                                                 --------------        --------------        --------------       ---------------
Total depreciation and amortization              $    1,419,394        $      111,478        $    1,666,792       $       312,825
                                                 ==============        ==============        ==============       ===============
</TABLE>


<TABLE>
<CAPTION>
          Property and Equipment Additions
          -----------------------------------------------------------------------------------------
                                                                     Nine months Ended
                                                                       September 30,
                                                      ---------------------------------------------
                                                              1999                      1998
                                                      -------------------       -------------------
          <S>                                         <C>                       <C>
          Local directory/Enterprise                   $        1,247,332       $            47,673
          Financial services                                      239,465                       652
          Corporate activities                                     47,150                   146,181
                                                       ------------------       -------------------
          Total                                        $        1,533,947       $           294,506
                                                       ==================       ===================
</TABLE>

NOTE 17 - SUBSEQUENT EVENTS

     During October 1999, holders of the convertible notes payable converted
$301,835 of the principal and accrued interest payable into 29,568 shares of the
Company's common stock at conversion prices per share ranging from approximately
$9.61 to $10.13 as summarized in the following table:

<TABLE>
<CAPTION>
                                           Note Payable                 Common
                                            and Accrued                  Stock                  Common Stock
                                             Interest                   Shares                   Conversion
             Conversion Date                 Converted                  Issued                Price per Share
          ----------------------       -------------------       -------------------       --------------------
          <S>                          <C>                       <C>                       <C>
          October 1, 1999                $   106,250                    10,000                     $10.63
          October 4, 1999                     78,501                     7,753                      10.13
          October 5, 1999                     15,685                     1,600              9.61 to 10.13
          October 7, 1999                     72,308                     7,231                      10.00
          October 15, 1999                    29,091                     2,984                       9.75
                                       -------------             -------------
          Total                          $   301,835                    29,568
                                       =============             =============
</TABLE>

NOTE 18 - UNAUDITED QUARTERLY INFORMATION

     In the fourth quarter of 1998, the Company revised certain factors used in
determining the amounts to be accreted related to issuances of its 10% and 5%
Preferred Stock.  These revisions and their impact on unaudited quarterly
amounts previously reported in 1998 are presented below.

<TABLE>
<CAPTION>
                                                                    Three Months Ended                 Nine months Ended
                                                                    September 30, 1998                 September 30, 1998
                                                              -----------------------------     -------------------------------
                                                                As Reported     As Revised         As Reported     As Revised
                                                                (Unaudited)    (Unaudited)         (Unaudited)     (Unaudited)
                                                              --------------- -------------     ---------------  --------------
<S>                                                           <C>             <C>               <C>              <C>
Net loss                                                         (2,091,211)   (2,091,211)        (5,218,392)      (5,218,392)

Preferred stock dividends                                           100,635       100,635            243,619          243,619
Accretion of preferred stock to
 redemption value                                                 1,691,209       472,800   (a)    2,685,189        2,710,060  (a)
                                                              -------------   -----------       ------------     ------------
</TABLE>


                                       17
<PAGE>

<TABLE>
<S>                                                           <C>             <C>               <C>              <C>
Net loss available to common
 stockholders                                                 $  (3,883,055)  $(2,664,646)      $ (8,147,200)    $ (8,172,071)
                                                              =============   ===========       ============     ============

Loss per share, basic and diluted                             $       (1.09)  $     (0.75)      $      (2.37)    $      (2.38)
                                                              =============   ===========       ============     ============

Weighted average shares outstanding                               3,566,951     3,566,951          3,436,922        3,436,922
                                                              =============   ===========       ============     ============
</TABLE>

     (a)  Increase in accretion of preferred stock to redemption value due to
          the revision of discounts applied to common stock and common stock
          warrants issued in connection with preferred stock private placements
          and the revision of the accretion period for the preferred stock.

                                       18
<PAGE>

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

General

     We develop next generation Internet applications for unlocking the
potential of local market e-commerce. We believe that two of the biggest
opportunities in the local online marketplace are simplifying the ability to
drive customers to local businesses' web sites and enabling customers to quickly
find what they want. We are developing XML-based technologies that facilitate
buyer-seller interaction and enable individuals and local businesses to easily
manage their web-based communications.

     To date, we have generated revenues through the sale of design and
consulting services for Web site development and network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and Web sites, license fees based on a percentage of revenues from our products
and services, training course fees, and monthly fees paid by customers for
Internet access which we have provided  We have incurred losses from operations
since inception.  At September 30, 1999, we had an accumulated deficit of
$35,816,498.  The reports of our independent public accountants for the years
ended December 31, 1998 and 1997 contained a paragraph noting substantial doubt
regarding our ability to continue as a going concern.

     Prior to the third quarter of 1997, our focus generally was on three
markets: general Web site development, maintenance and hosting; rural or small
market Internet service providers ("ISPs"); and healthcare information services
and continuing medical education.  Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized Web sites.  As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities and more recently, the development of Internet
applications that simplify and support e-commerce transactions in local markets.

     We are organized into two business units.  First, in the local commerce
segment, we target small and medium sized enterprises with our AccelX(TM)
product line supporting XML-based publishing and buyer-seller interaction.  This
business unit offers its services on a private-labeled, application services
basis through high volume distribution partners.  On June 30, 1999, we entered
into our first such agreement for the local commerce market with CBS
Switchboard, a leading online directory service. This agreement provides for
monthly revenues from each local business web site created by Switchboard
utilizing our technology.

     The Kelsey Group estimates that the number of U.S. based local businesses
that are active advertisers and have a web presence will increase to 5.2 million
in 2004.  According to Forrester Research, local online sales are projected to
grow from $680 million in 1998 to $6.1 billion in 2003 and local-only
advertising dollars spent in support of these web site activities are projected
to balloon from $135 million in 1998 to $1.7 billion in 2003.

     Our second business unit, electronic banking applications, targets credit
unions, community banks, and savings and loan institutions with a full line of
e-banking transaction processing and account management services.  We are
developing a tailored version of our merchant-based interaction services to
provide financial institutions with services that will allow them to market
their products and services as enhancements to other e-banking services.  In
addition to monthly recurring revenues from service and transaction fees, we
receive a one-time set-up fee from each financial institution.  We distribute
our e-banking services on a private label basis through distribution partners,
the most significant of which is the CU Cooperative Systems, Inc., a credit
union cooperative made up of more than 650 credit unions with over 8 million
members.

                                       19
<PAGE>

     International Data Corporation estimates that there were approximately 3.4
million users banking over the Internet in the United States at the end of 1998
and projects that that number will increase to over 37 million by 2003.  Our
primary market is financial institutions having less than $500 million in
assets.  It is estimated that in excess of 90% of the over 10,000 FDIC-insured
financial institutions and all but a few of the over 11,000 credit unions,
including both federally and state chartered credit unions, have less than $500
million in assets.

  Our strategy is to grow our local commerce and e-banking businesses by:

  .  Delivering first mover, expert technical solutions capitalizing on our
     expertise in online communities and communication;
  .  Securing additional distribution partnerships to rapidly expand the
     deployment of our technologies;
  .  Creating and innovating, value-added services to enhance buyer-seller
     interaction; and
  .  Developing strategic alliances in order to more rapidly gain market share.

     During the first nine months of 1999, we acquired privately held Durand
Communications, Inc. and NetIgnite, Inc. See Notes 3 and 4 of Notes to
Consolidated Financial Statements.

     On August 25, 1999, we issued a three-year convertible promissory note in
the amount of $5,000,000 and a five-year warrant representing the right to
acquire 136,519 shares of our common stock at an exercise price of $11.44 per
share in consideration for which the investor loaned us $5,000,000.  The note
becomes convertible on December 23, 1999 at a conversion price equal to the
lesser of $11.14 or the average of the five lowest closing bid prices for our
common stock during the 15 trading days prior to the date of conversion, if we
have not redeemed the note.

     Based on applicable current accounting standards, we recorded a non-
operating/non-cash expense of $4,316,254 during the first and second quarters of
1999 in connection with the private placement of $5,000,000 principal amount of
our Series C Preferred Stock. While these charges do not affect our operating
losses or working capital, they do result in an increase in our net loss
available to common stockholders. In addition, we recorded non-cash interest
expense of $638,495 during the third quarter of 1999 in connection with the sale
of our 10% convertible note payable and will be required to record additional
non-cash interest expenses of $1,498,558 in the forth quarter of 1999 and
$485,170 in 2000 and 2001 and $315,638 in 2002.

                                       20
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                                     Three Months Ended        Nine months Ended
                                                        September 30,            September 30,
                                                  ------------------------------------------------
                                                      1999        1998          1999       1998
                                                  ----------    ---------    ---------  ----------
<S>                                               <C>           <C>          <C>        <C>
Net revenues:
 Transaction fees                                      17.5%        41.4%        32.1%       12.7%
 Services                                              61.1%        16.5%        45.2%       13.1%
 Hardware and software                                    -         42.1%        10.4%       74.2%
 Other                                                 21.4%           -         12.3%          -
                                                  ---------     --------     --------   ---------
   Total net revenues                                 100.0%       100.0%       100.0%      100.0%
                                                  ---------     --------     --------   ---------
Cost of revenues:
 Cost of transaction fees                             235.4%        92.4%       172.3%      117.1%
 (as percentage of transaction fee revenues)
 Cost of services                                      63.2%        68.5%        65.9%       41.3%
 (as percentage of service revenues)
 Cost of hardware and software                            -         85.3%        80.1%       82.4%
 (as percentage of hardware and software revenues)
                                                  ---------     --------     --------   ---------
   Total cost of revenues                              93.2%        85.4%       101.5%       81.4%
                                                  ---------     --------     --------   ---------
Gross Margin                                            6.8%        14.6%       (1.5)%       18.6%
                                                  ---------     --------     --------   ---------
Operating expenses:
 Sales and marketing expenses                          57.4%       320.2%       107.0%      145.3%
 Product development expenses                         119.4%       232.9%       179.7%       67.8%
 General and administrative expenses                  178.1%       434.9%       363.0%      211.0%
 Customer acquisition costs                           134.5%           -         83.6%          -
 Depreciation and amortization expenses               219.8%        53.6%       147.9%       25.3%
                                                  ---------     --------     --------   ---------
       Total operating expenses                       709.2%      1041.6%       881.2%      449.4%
                                                  ---------     --------     --------   ---------
Loss from operations                                 (702.4)%    (1027.0)%     (882.7)%    (430.8)%
                                                  ---------     --------     --------   ---------
Net Loss                                             (800.2)%    (1006.1)%     (942.6)%    (422.2)%

Preferred stock dividends                              (4.5)%      (48.4)%       (9.2)%     (19.7)%
Accretion of preferred stock to redemption value          -       (227.5)%     (280.2)%    (219.3)%
Accretion of guaranteed return in excess of
redemption value                                          -            -       (102.8)%         -
                                                  ---------     --------     --------   ---------
Net loss available to common stockholders            (804.7)%    (1282.0)%    (1334.8)%    (661.2)%
                                                  =========     ========     ========   =========
</TABLE>

                                       21
<PAGE>

Three and Nine months Ended September 30, 1999 and 1998.

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

<TABLE>
<CAPTION>
                                                       Three Months Ended                             Nine months Ended
                                                          September 30,                                 September 30,
                                            ---------------------------------------     --------------------------------------------
                                                   1999                  1998                    1999                     1998
                                            -----------------     -----------------     --------------------      ------------------
<S>                                         <C>                   <C>                   <C>                       <C>
Net revenues:
 Transaction fees                               $ 112,800              $ 86,030               $  361,226              $  161,358
 Services                                         532,893                34,379                  648,173                 157,442
 Hardware and software                                  -                87,434                  117,509                 917,090
                                            -------------         -------------         ----------------          --------------
 Total net revenues                               645,693               207,843                1,126,908               1,235,890
                                            -------------         -------------         ----------------          --------------
Cost of revenues
  Cost of transaction fees                        265,513                79,475                  622,223                 183,629
  Cost of services                                336,566                23,558                  427,010                  66,843
  Cost of hardware and software                         -                74,541                   94,155                 755,476
                                            -------------         -------------         ----------------          --------------
  Total cost of revenues                          602,079               177,574                1,143,398               1,005,948
                                            -------------         -------------         ----------------          --------------
  Gross margin                                  $  43,614              $ 30,269               $  (16,489)             $  229,942
                                            =============         =============         ================          ==============
</TABLE>

     Revenues from transaction fees include e-banking service bureau fees,
online subscription fees, and Internet access and e-commerce royalties.  Our net
revenues from transaction fees were $112,800 and $361,226 for the three-and-
nine-month periods ended September 30, 1999, respectively, which represent
increases of 31.1% and 130.3%, for the three-and-nine-month periods,
respectively, when compared with the similar 1998 periods.  The increases are
primarily due to increases in the number of subscribers using our financial
services product; the implementation of our Re/Max Main Street product during
the second quarter of 1998 and the steady growth of subscribers through the
third quarter of 1999.

     Revenues from services include professional services for custom
programming, network engineering fees, equipment installation and Internet
connectivity fees. Our net revenues from services were $532,893 and $648,173 for
the three-and-nine-month periods ended September 30, 1999, respectively, which
represent increases of 1450.1% and 311.7% for the three-and-nine month periods,
respectively, when compared to the similar 1998 periods. The increases in the
1999 periods were primarily due to professional services we provided to four new
customers for customization and integration of our core local directory and
financial services software applications. In addition, during July 1999, we sold
two customer contracts to an unrelated third party, including related computer
hardware, for approximately $270,000. We provided services and equipment under
the terms of the original contracts enabling our customers to provide Internet
access to their end users. We recorded $138,504 of service revenue for the three
months ended September 30, 1999 related to providing services to the purchaser
of these two contracts. We recognized revenue from these contracts totaling
approximately $6,000 for the nine months ended September 30, 1999 (See Note 2 of
Notes to Consolidated Financial Statements).

     Revenues from hardware and software include the resale of computer hardware
and third party software to customers generally in connection with implementing
our local directory/enterprise products and services. During the fourth quarter
of 1998, we changed our pricing structure whereby we supply any required
equipment and the products and services. Consequently the customer is not
required to pay any significant fees upon the delivery of such items. As a
result, we did not resell any hardware or software during the three months ended
September 30, 1999 compared to $87,434 in revenues for the similar 1998 period.
Our net revenues from the resale of hardware and software was $117,509 for the
nine months ended September 30, 1999 compared to $917,090 for the similar 1998
period. During the 1999 nine-month period, we sold equipment to customers with
whom we have existing contracts to provide equipment. We do not anticipate
significant revenues from hardware and equipment sales in future periods.

     We had four customers representing 79% of revenues for the September 30,
1999 three-month period and three customers representing 71% of net revenues for
the similar 1998 period, comprised of the following customers:

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                    September 30,
                                                   --------------------------------------------
                          Customer                          1999                     1998
          ------------------------------------------------------------      -------------------
          <S>                                      <C>                      <C>
          Switchboard, Inc.                                    32%                          -
          High Speed Access Corporation                        21%                          -
          Rockwell Federal Credit Union                        19%                         24%
          Re/Max International, Inc.                            7%                         14%
</TABLE>

     We had five customers representing 76% of revenues for the September 30,
1999 nine-month period and four customers representing 76% of revenues for the
similar 1998 period, comprised of the following customers:

<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                    September 30,
                                                   --------------------------------------------
                          Customer                          1999                     1998
          ------------------------------------------------------------      -------------------
          <S>                                      <C>                      <C>
          Rockwell Federal Credit Union                        25%                         12%
          Switchboard, Inc.                                    18%                          -
          High Speed Access Corporation                        12%                          -
          Re/Max International, Inc.                           11%                          -
          Intermedia Partners                                  10%                         13%
</TABLE>

     As of September 30, 1999, we have revenue backlog totaling approximately
$1,394,000 which we expect to recognize as revenue over the next nine months.

     During the first quarter of 1999, Intermedia Partners, a related party (See
Note 15 of Notes to Consolidated Financial Statements) announced that it
intended to sell several of its cable systems in its Tennessee market and
elsewhere to TCI and Charter Communications, Inc. We currently provide services
to Intermedia in three Tennessee markets and have generated revenues from the
sale of computer hardware, network engineering services, and royalties from
Internet access revenue to their customers. Intermedia accounted for
approximately 1% and 10% of our revenue for the three and nine months ended
September 30, 1999, respectively.

     Cost of revenues as a percentage of net revenues was 93.2% for the three
months ended September 30, 1999 compared to 85.4% for the similar 1998 period.
Cost of revenues as a percentage of net revenues was 101.5% for the nine months
ended September 30, 1999 compared to 81.4% for the similar 1998 period.

     Transaction fee revenues - Cost of transaction fee revenues consist of
customer revenue sharing costs, expenses associated with operating our network
operating center, including Internet connection charges and depreciation
expense, employee costs associated with assisting our customers in delivering
our services to end users, third party content software license fees, and third
party transaction fees.  Cost of transaction fee revenues were $265,513 and
$622,233 for the three and nine months ended September 30, 1999, respectively,
or 235.4% and 172.3% of net transaction fee revenues, as compared to $79,475 and
$183,629, or 92.4% and 113.8% of net transaction fee revenues in the similar
1998 periods.  The absolute dollar increases in the 1999 periods were primarily
attributable to operating our network operating center, which we began operating
during the second quarter of 1999, as well as costs associated with delivering
Internet access and content to the customers of our cable operator distribution
partners.  We constructed the network operating center to accommodate our
current customer base, our contract backlog and our projected future growth.
Consequently, during the 1999 periods, the cost to operate the network operating
center out paced our current revenues resulting in a negative gross margin.
While we expect the operating costs of the network operating center to increase
in future periods, we also expect our revenue base to grow sufficiently to
reflect a positive gross margin in future periods.


                                       23
<PAGE>

     Service revenues - Cost of service revenues consist of compensation costs
and consulting fees associated with performing custom programming, installation
and integration services for our customers. Cost of service revenues were
$336,566 and $427,010 for the three and nine months ended September 30, 1999,
respectively, or 63.2% and 65.9% of net service revenues, as compared to $23,558
and $66,843, or 68.5% and 42.5% of net service revenues in the similar 1998
periods. The increases in costs during the 1999 periods were due to providing
professional services for four new customers at lower margins as the contracts
specify future revenue sharing arrangements and/or subscriber based fees or were
entered into to establish strategic alliances.

     Hardware and software revenues - Cost of hardware and software revenues
consist of computer and third party software purchased for resale to cable
operators. Cost of hardware and software revenue was 80.1% of net revenues for
the 1999 nine-month period compared to 82.4% of net revenues for the similar
1998 period.  Cost of hardware and software revenues as a percentage of net
revenues decreased slightly during the 1999 period because we sold equipment to
existing customers at somewhat lower margins during the 1998 period.  Due to the
change in our business model whereby we offer services to our customers,
equipment sales are not expected to be significant in future periods.

     Sales and marketing expenses consist primarily of salaries, advertising,
trade show expenses, and costs of marketing materials.  Sales and marketing
expenses were $370,660 for the three months ended September 30, 1999, or 57.4%
of net revenues as compared to $665,616, or 320.2% of net revenues for the
similar 1998 period.  For the nine months ended September 30, 1999, sales and
marketing expenses were $1,205,313, or 107.0% of net revenues as compared to
$1,796,134, or 145.3% of net revenues for the similar 1998 period.  The
decreases in absolute dollars in the 1999 periods were primarily attributable to
(i) a net decrease of six employees; (ii) the phase out of our international
marketing efforts; and (iii) a decrease in advertising dollars as a result of
our focus on distribution partners (rather than on consumers).  These decreases
were partially off-set by an increase in the 1999 periods for trade show
expenses, and new product support materials for our local directory/enterprise
products.  We expect sales and marketing expenses to increase on an absolute
dollar basis in future periods but decrease as a percentage of net revenues as
our revenues increase from current levels as we continue to market our products
and services.

     Product development expenses consist primarily of employee compensation and
programming fees relating to the development and enhancement of the features and
functionality of our online local directory/enterprise software. Product
development expenses were $771,345 for the three months ended September 30,
1999, or 119.7% of net revenues as compared to $484,017, or 232.9% of net
revenues for the similar 1998 period. For the nine months ended September 30,
1999, product development expenses were $2,025,443, or 179.7% of net revenues as
compared to $837,587, or 67.8% of net revenues for the similar 1998 period.
During 1999, all product development costs have been expensed as incurred. We
capitalized $85,484 and $281,775 of development costs during the 1998 three and
nine-month periods, respectively. The increases in absolute dollars in the 1999
periods were due primarily to (i) the an increase in technology personnel from
12 to 31 and an increase in contract labor to support the continued development
of our local directory/enterprise products, including deployment of our core
publishing software and integration of the XML technologies into our software;
and (ii) an increase in third party software maintenance and support costs. We
believe that significant investments in product development are critical to
attaining our strategic objectives and, as a result, we expect product
development expenses to increase in future periods.

     General and administrative expenses consist primarily of compensation,
consulting expenses, fees for professional services, and the non-cash expense of
stock and warrants issued for services.  General and administrative expenses
were $1,149,771 for the three months ended September 30, 1999, or 178.1% of net
revenues as compared to $903,710, or 434.9% of net revenues for the similar 1998
period.  For the nine months ended September 30, 1999, general and
administrative expenses were $4,091,104, or 363.0% of net revenues as compared
to $2,607,544, or 211.0% of net revenues for the similar 1998 period.  The
increases in absolute dollars in the 1999 periods were primarily attributable to
(i) operating the DCI office in California; (ii) an increase in non-cash
expenses recorded for the issuance of stock and warrants for services; (iii) an
increase in legal fees related to security filings and general corporate
matters; and (iv) an increase in investor relation expenses.  These increases
were partially offset by a decrease in the 1999 periods in fees we paid to
consultants.  We expect general and administrative expenses to increase on an
absolute dollar basis in future periods but decrease as a percentage of net
revenues as our revenues increase from current levels.

                                       24
<PAGE>

     Customer acquisition costs consist of the value of warrants to purchase our
common stock we issued to customers in connection with customer contracts for
our products and services. We expense the value of warrants on the date of
issuance unless the related contract specifies minimum guaranteed revenues.
Customer acquisition costs were $868,316 and $941,684 for the three-and-nine-
months ended September 30, 1999, respectively, or 134.5% and 83.6% of net
revenues, respectively. During the 1999 three-month period, we issued a warrant
to a customer to purchase 150,000 shares of our common stock and recorded
$868,316 of expense on the date of issuance. During the 1999 nine-month period,
we issued warrants to three customers to purchase an aggregate of 161,667 shares
of our common stock and recorded $941,864 of expenses.

     Depreciation and amortization was $1,419,394 for the three months ended
September 30, 1999, compared to $111,478 for the similar 1998 period.
Depreciation and amortization was $1,666,792 for the nine months ended September
30, 1999, compared to $312,825 for the similar 1998 period. We recorded more
depreciation expense in the 1999 periods as a result of an increase in fixed
assets primarily from construction of our network operating center and the
purchase of third party application server platform software for delivering XML-
based components with our software. We also began amortizing the intangible
assets and goodwill we acquired in the DCI and NetIgnite acquisitions and
recorded $1,274,471 and $1,298,396 of amortization expense in the 1999 three-
and-nine-month periods, respectively. As a result of these acquisitions, we
expect to record approximately $1,270,000 of amortization expense during the
remainder of 1999 and approximately $5,100,000 of such expenses in 2000 and 2001
and approximately $2,500,000 of such expenses in 2002.

     Interest expense was $713,493 for the three months ended September 30,
1999, compared to $2,107 for the similar 1998 period. Interest expense was
$721,324 for the nine months ended September 30, 1999, compared to $5,361 for
the similar 1998 period. During the 1999 three-month period, we recorded
$687,878 of interest expense related to the 10% convertible note payable we
issued in August 1999, including (i) $49,383 of accrued interest payable and
(ii) non-cash charges of $625,511 related to amortization of the beneficial
conversion feature the discount; and (iii) $12,984 related to the amortization
of financing fees. We will record non-cash interest expense related to the
beneficial conversion feature and the discount totaling $1,466,626 in the fourth
quarter of 1999, $357,422 in 2000 and 2001, and $232,826 in 2002.

     Loss from investment in subsidiary is our share of the net losses from
NetIgnite. NetIgnite was engaged primarily in product development activities.

     Interest income was $82,583 for the three months ended September 30, 1999,
compared to $45,449 for the similar 1998 period. Interest income was $173,331
for the nine months ended September 30, 1999, compared to $111,117 for the
similar 1998 period. During the 1999 period, we recorded $22,050 of interest
income from our note receivable from DCI.

     Net losses allocable to common stockholders were $5,195,955 for the three-
month period ended September 30, 1999 compared to $2,664,646 for the similar
1998 period. We recorded non-cash expenses for the following items:

<TABLE>
<CAPTION>
                                                                             Three Months Ended September 30,
                                                                      ----------------------------------------
                                                                              1999                   1998
                                                                      -------------------       --------------
          <S>                                                         <C>                       <C>
          Amortization of intangible assets and goodwill                  $  1,274,471             $         -
          Customer acquisition costs                                           868,316                       -
          Amortization of beneficial conversion, discount
             and placement fees to interest expense related to
             the 10% convertible note payable                                  638,495                       -
          Stock and warrants issued for services                                98,453                   7,361
          Preferred stock dividends                                             29,173                 100,635
          Accretion of preferred stock                                               -                 472,800
                                                                          ------------             -----------
          Total                                                           $  2,908,908             $   580,796
                                                                          ============             ===========
</TABLE>

                                       25
<PAGE>

     Net losses allocable to common stockholders were $15,042,369 for the nine-
month period ended September 30, 1999 compared to $8,172,071 for the similar
1998 period. We recorded non-cash expenses for the following items:

<TABLE>
<CAPTION>
                                                                              Nine Months Ended September 30,
                                                                      ---------------------------------------------
                                                                              1999                      1998
                                                                      -------------------       -------------------
          <S>                                                         <C>                       <C>
          Amortization of intangible assets and goodwill                  $  1,298,396               $          -
          Customer acquisition costs                                           941,684                          -
          Amortization of beneficial conversion, discount
              and placement fees to interest expense related to
              the 10% convertible note payable                                 638,495                          -
          Stock and warrants issued for services                               358,228                     33,541
          Preferred stock dividends                                            104,214                    243,619
          Accretion of preferred stock                                       4,316,254                  2,710,060
                                                                      ----------------          -----------------
          Total                                                           $  7,657,271               $  2,987,220
                                                                      ================          =================
</TABLE>

     The increase in losses reflect expenses in sales and marketing, product
development, and general and administrative areas that have increased at a
faster rate than revenues. This is due to the time lag associated with product
development and market introduction as well as the long sales cycle for most of
our products and services. We expect to continue to experience increased
operating expenses and investments during 1999, as we continue to develop new
product offerings and the infrastructure required to support our anticipated
growth. We expect to report operating and net losses for 1999 and for one or
more years thereafter.

Liquidity and Capital Resources

     As of September 30, 1999, we had cash and cash equivalents of $6,445,206
and working capital of $4,479,594. We have financed our operations and capital
expenditures and other investing activities during 1999 primarily through the
sale of securities (See Notes 8, 10, 11 and 13 of Notes to Consolidated
Financial Statements for information regarding these sales of securities):

     We used $5,943,598 in cash to fund our operations for the nine months ended
September 30, 1999, compared to $4,215,451 for the similar 1998 period. The
increase in net cash used resulted primarily from the following: (i) an increase
in costs paid for the continued development of our XML-based technologies and
e-banking core applications; (ii) higher compensation costs paid to employees;
(iii) payment of costs to operate the DCI California office; and (iv) payment of
1998 accounts payable and accrued liabilities in the first quarter of 1999.

     We used an additional $2,230,905 in cash for capital expenditures and other
investing activities during the nine months ended September 30, 1999, compared
to $1,827,623 during the similar 1998 period.  The increase between periods is
primarily a result of property and equipment we purchased in connection with
establishing our network operating center and our continuing development of the
e-banking system for CU Cooperative as well as our cash investment in NetIgnite
(See Note 4 of Notes to Consolidated Financial Statements). We anticipate that
we will continue to make significant capital expenditures and investments to
support the development of our technologies.

     We received $13,921,370 net cash from financing activities for the nine
months ended September 30, 1999, compared to $3,068,186 for the similar 1998
period.  During the 1999 nine-month period, we received cash from the following
financing transactions:

     .  During August 1999, we issued a 10% convertible note payable and
        received $4,616,816 in net proceeds;
     .  During January and June 1999, we sold 3,000 and 2,000 shares,
        respectively, of Series C Preferred Stock with a stated value of $1,000
        per share, which resulted in total net proceeds of $4,615,500;
     .  During May, 1999, we received net proceeds of $3,056,871 from the
        exercise of our warrants issued in connection with our public offering
        in 1996; and
     .  During the 1999 nine-month period we received $1,700,945 in cash from
        the issuance of our common stock as a result of the exercise of common
        stock options and warrants.

                                       26
<PAGE>

     We believe that our cash and cash equivalents and working capital at
September 30, 1999 will be adequate to sustain our operations through at least
February 2000. In order to continue to finance our operations, we are pursuing
several funding possibilities. These funding activities are intended to raise
the approximately $8 million of net proceeds we estimate will be required to
sustain operations for the next twelve months. There can be no assurance that we
will be successful in obtaining any additional equity or debt capital or that if
such capital is available, that it will be available on acceptable terms. If we
are unable to obtain the capital required to sustain our operations, we will be
required to reduce or terminate certain of our operations which could have a
material adverse affect on our operating results and financial condition. In its
reports accompanying the audited financial statements for the years ended
December 31, 1998 and 1997, our auditors, Arthur Andersen LLP, expressed
substantial doubt about our ability to continue as a going concern.

Year 2000

     The Year 2000 issue involves the potential for system and processing
failures of date-related data resulting from computer-controlled systems using
two digits rather than four to define the applicable year.  For example,
computer programs that contain time-sensitive software may recognize a date
using two digits of "00" as the year 1900 rather than the year 2000.  This could
result in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar ordinary business activities.

     We have reviewed our internal software and hardware systems and believe
they will function properly with respect to dates in the year 2000 and
thereafter. We expect to incur no significant costs in the future for Year 2000
problems. We have contacted our significant suppliers to determine the extent to
which our systems are vulnerable to those third parties' failure to make their
own systems Year 2000 compliant and believe our significant suppliers are Year
2000 compliant and that should any of them prove not to be Year 2000 compliant,
we could find a replacement vendor or supplier which is Year 2000 compliant
without significant delay or expense. While our review has not identified any
Year 2000 problems that will have a material effect on our business, due to the
general uncertainty inherent in the Year 2000 problem, resulting from the
uncertainty of the Year 2000 readiness of third-party suppliers and vendors and
of our customers, we are unable to determine at this time that the consequences
of Year 2000 failures will not have a material impact on our results of
operations, liquidity or financial condition.

     Of our product offerings, the one that may be most impacted by Year 2000
problems or peoples' concern about potential Year 2000 problems, is our
Financial Services product offering.  We have entered into an agreement with CU
Cooperative Systems, Inc., a national cooperative association representing over
650 credit unions. Our Financial Services products are Year 2000 compliant.
However, concerns about Year 2000 problems has caused individual cooperatives or
their members to be reluctant to offer or to engage in e-banking transactions
prior to the end of 1999.  While we have not anticipated any significant income
from the use of this system prior to 2000, this delay in the implementation of
the system by the Cooperative's members has resulted in a decrease in
anticipated revenues for the product offering in 2000, particularly during the
first nine months of the year.

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 - Note 1 to the Consolidated Financial Statements" and "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     Our limited operating history could affect our business. We were founded in
March 1994, commenced sales in February 1995, and were in the development stage
through December 31, 1995. Accordingly, we have a limited operating history upon
which you may evaluate us. Our business is subject to the risks, expenses and
difficulties frequently encountered by companies with a limited operating
history including:

     .  Limited ability to respond to competitive developments;
     .  Exaggerated effect of unfavorable changes in general economic and market
        conditions;

                                       27
<PAGE>

     .  Ability to attract qualified personnel; and
     .  Ability to develop and introduce new product and service offerings.

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

     We have accumulated losses since inception and we anticipate that we will
continue to accumulate losses for the foreseeable future. We have incurred net
losses since inception totaling $35,816,498 through September 30, 1999. In
addition, we expect to incur additional substantial operating and net losses for
the balance of 1999 and for one or more years thereafter. We expect to incur
these additional losses because:

     .  We currently intend to increase our capital expenditures and operating
        expenses to expand the functionality and performance of our products and
        services; and
     .  We recorded goodwill and other intangible assets in connection with the
        DCI and NetIgnite acquisitions which we will amortize over their
        estimated useful lives of approximately three years. We have allocated
        approximately $15 million to intangible assets and goodwill in
        connection with these acquisitions.

     Net losses since inception include approximately $14.6 million of non-cash
expenses related to the issuance of preferred stock and warrants in financing
transactions, stock and stock options issued for services, warrants issued to
four customers and interest expense on the 10% convertible note payable.  The
current competitive business environment may result in our issuance of similar
securities in future financing transactions or to other companies as an
inducement for them to enter into a business relationship with us.  While these
transactions represent non-cash charges, to the extent that we enter into
similar transaction in the future, they will increase our expenses and may
increase our net loss.

     If we are unable to raise additional working capital funds, we may not be
able to sustain our operations. We believe that our present cash and cash
equivalents, working capital and commitments for additional equity investments
will be adequate to sustain our current level of operations only through
February 2000. If we cannot raise additional funds when needed, we may be
required to curtail or scale back our operations. These actions could have a
material adverse effect on our business, financial condition, or results of
operations. We estimate that we will need to raise through equity, debt or other
external financing approximately $8 million to sustain operations throughout
2000. There is no assurance that we will be able to raise additional funds in
amounts required or upon acceptable terms. In addition, we may discover that we
have underestimated our working capital needs, and we may need to obtain
additional funds to sustain our operations. In its report accompanying the
audited financial statements for the years ended December 31, 1998 and 1997, our
auditor, Arthur Andersen LLP, expressed substantial doubt about our ability to
continue as a going concern. See "Item 2 - Management's Discussion of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

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

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

     Because of the new and evolving nature of the Internet, we cannot predict
whether our revenue model will prove to be viable, whether demand for our
products and services will materialize at the prices we expect to be charged, or
whether current or future pricing levels will be sustainable.

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

                                       28
<PAGE>

adversely effected. Numerous factors could prevent or inhibit the development of
the Internet in this manner, including:

     .  The failure of the Internet's infrastructure to support Internet usage
        or electronic commerce;
     .  The failure of businesses developing and promoting Internet commerce to
        adequately secure the confidential information, such as credit card
        numbers, needed to carry out Internet commerce; and
     .  Regulation of Internet activity.

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

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

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

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

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

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

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

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

                                       29
<PAGE>

     There is no assurance that we would be able to offset the effects of any
such price reductions or increases in spending through an increase in the number
of our customers, higher sales from premium services, cost reductions or
otherwise. Further, our financial condition may put us at a competitive
disadvantage relative to our competitors. If we fail to, or cannot, meet
competitive challenges, our business, operating results and financial condition
could be materially adversely affected.

     A limited number of our customers generate a significant portion of our
revenues. We had four customers representing 79% of revenues for the September
30, 1999 three-month period and three customers representing 71% of net revenues
for the similar 1998 period. We had five customers representing 76% of revenues
for the September 30, 1999 nine-month period and four customers representing 76%
of revenues for the similar 1998 period. There is no assurance that we will be
able to attract or retain major customers. The loss of, or reduction in demand
for products or related services from major customers could have a material
adverse effect on our business, operating results, cashflow, and financial
condition. See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."

     The sales cycle for our products and services is lengthy and unpredictable.
While our sales cycle varies from customer to customer, it typically has ranged
from one to nine months. Our pursuit of sales leads typically involves an
analysis of our prospective customer's needs, preparation of a written proposal,
one or more presentations and contract negotiations. We often provide
significant education to prospective customers regarding the use and benefits of
our Internet technologies and products. 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.

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

     We may be unable to retain our key executives and research and development
personnel. We are highly dependent on the technical and management skills of our
key employees, including in particular R. Steven Adams, our founder and Chief
Executive Officer and Perry Evans, our President and the founder of NetIgnite,
Inc.. The loss of either Mr. Adams' or Mr. Evans' services could have a material
adverse effect on our business and operating results. We do not maintain key
person insurance for either Mr. Adams or Mr. Evans or any other member of
management.

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

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

                                       30
<PAGE>

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

     We may be unable to protect our intellectual property rights. Intellectual
property rights are important to our success and our competitive position. There
is no assurance that the steps we take to protect our intellectual property
rights will be adequate to prevent the imitation or unauthorized use of our
intellectual property rights. Policing unauthorized use of proprietary systems
and products is difficult and, while we are unable to determine the extent to
which piracy of our software exists, we expect software piracy to be a
persistent problem. In addition, the laws of some foreign countries do not
protect software to the same extent as do the laws of the United States. Even if
the steps we take to protect our proprietary rights prove to be adequate, our
competitors may develop products or technologies that are both non-infringing
and substantially equivalent or superior to our products or technologies.

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

     .  Losses caused by the presence of a computer virus that causes us or
        third parties with whom we do business to interrupt, delay or cease
        service to our customers;
     .  Losses caused by the misappropriation of secured or confidential
        information by a third party who, in spite of our security measures,
        obtains illegal access to this information;
     .  Costs associated with efforts to protect against and remedy security
        breaches; or
     .  Lost potential revenue caused by the refusal of consumers to use our
        products and services due to concerns about the security of transactions
        and commerce that they conduct on the Internet.

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

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

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

     Our systems may not be year 2000 compliant.  We have reviewed our
internal software and hardware systems.  Based on this review, we believe that
our internal software and hardware systems will function properly with respect
to dates in the year 2000 and thereafter.  We expect to incur no significant
costs in the future for Year 2000 problems.  Nonetheless, there is no assurance
in this regard until our internal software and hardware systems are operational
in the year 2000.

     The failure to correct material Year 2000 problems by our suppliers and
vendors could result in an interruption in, or a failure of, certain of our
normal business activities or operations.  Due to the general uncertainty
inherent in the Year 2000 problem, resulting from the uncertainty of the Year
2000 readiness of third-party suppliers and vendors and of our customers, we are
unable to determine at this time that the consequences of

                                       31
<PAGE>

Year 2000 failures will not have a material impact on our results of operations,
liquidity or financial condition. See "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Compliance
Disclosure."

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

     The price of our common stock has been highly volatile due to factors that
will continue to effect the price of our stock.  Our common stock traded as high
as $19.38 per share and as low as $8.00 between January 1, 1999 and October 26,
1999.  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 operating results;
     .  Announcements of product releases by us or our competitors;
     .  Announcements of acquisitions and/or partnerships by us or our
        competitors; and
     .  Increases in outstanding shares of common stock upon exercise or
        conversion of derivative securities (See "We have issued numerous
        options, warrants and convertible securities to acquire our common stock
        that could have a dilutive effect on our shareholders.").

     The trading volume of our common stock may diminish significantly if our
common stock is prohibited from being traded on the Nasdaq SmallCap Market.
Although our shares are currently traded on The Nasdaq SmallCap Market, there is
no assurance that we will remain eligible to be included on Nasdaq.  If our
common stock was no longer eligible for quotation on Nasdaq, it could become
subject to rules adopted by the Securities and Exchange Commission regulating
broker-dealer practices in connection with transactions in "penny stocks."  If
our common stock became subject to the penny stock rules, many brokers may be
unwilling to engage in transactions in our common stock because of the added
regulation, thereby making it more difficult for purchasers of our common stock
to dispose of their shares.

     We have issued numerous options, warrants, and convertible securities to
acquire our common stock that could have a dilutive effect on our shareholders.
We have issued numerous options, warrants, and convertible securities to acquire
our common stock.  During the terms of these outstanding options, warrants, and
convertible securities, the holders of these securities will have the
opportunity to profit from an increase in the market price of our common stock
with resulting dilution to the holders of shares who purchased shares for a
price higher than the respective exercise or conversion price.  The existence of
such stock options, warrants and convertible securities may adversely affect the
terms on which we can obtain additional financing, and you should expect the
holders of such options or warrants to exercise or convert those securities at a
time when we, in all likelihood, would be able to obtain additional capital by
offering securities on terms more favorable to us than those provided by the
exercise or conversion of such options or warrants.

     As of October 26, 1999, we have issued warrants and options to acquire
2,929,984 shares of our common stock, exercisable at prices ranging from $10.50
to $18.25 per share, with a weighted average exercise price of approximately
$10.08 per share.

     In addition to these warrants and options, we have reserved an
indeterminate number of shares of common stock for issuance upon conversion of
outstanding shares of our 10% Preferred Stock and convertible notes.

     Based on the market value for the common stock as of October 26, 1999, the
then outstanding shares of 10% Preferred Stock were convertible into
approximately 125,970 shares of common stock.  The number of shares of common
stock issuable upon conversion of the 10% Preferred Stock could increase
significantly if the market value for our common stock decreases in the future.
See "The common stock issuable upon conversion of our

                                       32
<PAGE>

convertible notes may significantly increase the supply of our common stock in
the public market, which may cause our stock price to decline" below for
information regarding the convertible notes. Further, there could be issuances
of additional similar securities in connection with our need to raise additional
working capital.

     Future sales of our common stock in the public market could adversely
affect the price of our common stock.  Sales of substantial amounts of common
stock in the public market that is not currently freely tradable, or even the
potential for such sales, could have an adverse affect on the market price for
shares of our common stock and could impair the ability of purchasers of our
common stock to recoup their investment or make a profit.  As of October 26,
1999, these shares consist of:

     .  Approximately 770,000 shares owned by our officers and directors of our
        outstanding common stock ("Affiliate Shares");

     .  Approximately 1,582,000 shares issued to former shareholders and warrant
        and option holders of Durand Communications, Inc. and for services
        rendered offered pursuant to a registration statement to be declared
        effective by the SEC on September 27, 1999; and

     .  An indeterminate number of shares issuable upon conversion of the 10%
        convertible note payable

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

     The common stock issuable upon conversion of our convertible notes may
significantly increase the supply of our common stock in the public market,
which may cause our stock price to decline.  On August 25, 1999, we issued
$5,000,000 aggregate principal amount of convertible notes and a warrant to
purchase 136,519 shares of common stock.

     The convertible notes will become convertible on December 23, 1999, if not
redeemed earlier, into a number of shares of common stock as is determined by
dividing the principal amount of the convertible notes by the lesser of:

     . A fixed conversion price which is initially $11.44 per share, but will
       be increased under the terms of the convertible notes; and
     . The floating market price of our common stock at the time of conversion.

     The number of shares of common stock that may ultimately be issued upon
conversion is presently indeterminable and could fluctuate significantly.
Purchasers of common stock could therefore experience substantial dilution upon
conversion of the convertible notes.  To illustrate the potential dilution that
may occur upon conversion of the convertible notes, the following table sets
forth the number of shares of common stock that would be issued upon conversion
of the convertible notes if the conversion price is $11.44, which is the initial
conversion price, and also if the conversion price is $9.00 and $7.00 per share.

<TABLE>
<CAPTION>
                                                           Shares Issuable
                     Conversion Price                      Upon Conversion                 Percentage
          --------------------------------------       ------------------------       -------------------
          <S>                                          <C>                            <C>
          $11.44 (the initial conversion price)                    441,134                    5.8%
          $9.00                                                    580,731                    7.6%
          $7.00                                                    720,939                    9.4%
</TABLE>

The variable conversion price formula could affect the common stock as follows:

     .  If our common stock trades at a price less than the fixed conversion
        price, which is initially $11.44 per share, then the convertible notes
        will be convertible into shares of our common stock at variable rates
        based on future trading prices of the common stock and events that may
        occur in the future. The number of shares of common stock issuable upon
        conversion of the convertible notes will be inversely proportional to
        the market price of the common stock at the time of conversion;

                                       33
<PAGE>

     .  To the extent that the holders of the convertible notes convert a
        portion of the notes and then sell their common stock, the common stock
        price may decrease due to the additional shares in the market, allowing
        holders to convert the convertible notes into greater amounts of common
        stock, further depressing the stock price;
     .  The interest payable on the convertible notes may be paid in cash,
        additional convertible notes or common stock at our option. In this
        regard, the lower the common stock price, the more shares of common
        stock the holders of the convertible notes will receive in payment of
        interest; and
     .  The significant downward pressure on the price of the common stock as
        the selling stockholders convert and sell material amounts of common
        stock could encourage short sales by the holders or others, placing
        further downward pressure on the price of our common stock.

     The warrants are also subject to anti-dilution protection, which may result
in the issuance of more shares than originally anticipated if we issue
securities at less than market value or the applicable exercise price. These
factors may result in substantial future dilution to the holders of our common
stock.

     Future sales of our common stock in the public market could limit our
ability to raise capital. Sales of substantial amounts of common stock in the
public market pursuant to Rule 144, upon exercise or conversion of derivative
securities or otherwise, or even the potential for such sales, could affect our
ability to raise capital through the sale of equity securities. (See "We have
issued numerous options, warrants, and convertible securities to acquire our
common stock that could have a dilutive effect on our shareholders" and "Future
sales of our common stock in the public market could adversely affect the price
of our common stock.")

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

     Our issuance of our 10% convertible note payable will require us to record
a non-cash expense which will, in turn, increase our net loss available to
common shareholders'.   Based on current accounting standards, we recorded a
non-cash expense of $638,495 as additional interest expense for the quarter
ended September 30, 1999 as a result of the issuance of our 10% convertible note
payable.  We will record $1,498,558 in the forth quarter of 1999, $458,170 in
2000 and 2001, and $315,638 in 2002 related to this transaction.

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

                                       34
<PAGE>

                                    PART II

                               OTHER INFORMATION

Items 1, 3 and 5.  Not Applicable

Item 2.  Changes in Securities and Use of Proceeds

     On August 25, 1999, we sold a 10% Convertible Promissory Note in the
principal amount of $5,000,000 to an investor. In connection with this
investment, the investor was granted a warrant to purchase 136,519 shares of our
common stock at an exercise price of $11.44 per share. PaineWebber served as
the placement agent for the offering and received a $300,000 commission.
See Note 8 of the Notes to Consolidated Financial Statements for a
description of the terms of the securities.  The securities were not
registered under the Securities Act of 1933, as amended, based upon the
exemption provided in Section 4(2) of such act and Regulation D promulgated
thereunder.  The securities were "restricted" securities as defined
in Rule 144 promulgated by the Securities and Exchange Commission and were
acquired for investment purposes.  The certificates representing such securities
contained restrictive legends.  The securities are subject to demand
registration rights.

Item 4.  Submission of Matters to a Vote of Security Holders.

     The Company's 1999 Annual Meeting of Shareholders was concluded on August
30, 1999.  At the meeting the following six persons were elected to serve as
directors of the Company:

<TABLE>
<CAPTION>
                        Name                         Vote FOR               Vote Withheld
          -------------------------------------------------------------------------------------
          <S>                                        <C>                    <C>
          R. Steven Adams                            7,159,842                  51,293
          William R. Cullen                          7,159,842                  51,293
          Robert J. Lewis                            7,159,842                  51,293
          Perry Evans                                7,159,842                  51,293
          Richard C. Jennewine                       7,159,842                  51,293
</TABLE>

     Shareholders also approved the following items: (i) an amendment to the
Company's Articles of Incorporation to change the name of the Company from
Online System Services, Inc. to Webb Interactive Services, Inc.--7,085,841
shares voting FOR such amendment, 107,239 shares voting against and 18,055
shares abstaining; (ii) an increase from 2,800,000 shares to 3,500,000 shares in
the number of shares of common stock reserved for issuance pursuant to the
Company's Stock Option Plan of 1995--3,044,603 shares voting FOR approval,
354,836 shares voting against and 43,831 shares abstaining (a total of 3,767,865
shares represented at the meeting were not voted with respect to this item); and
(iii) the approval of Arthur Andersen LLP as the independent auditors of the
Company for the fiscal year ending December 31, 1999--7,152,071 shares voting
FOR, 30,538 voting against and 28,526 shares abstaining.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Listing of Exhibits:

<TABLE>
      <S>  <C>
      3.1  Articles of Incorporation, as amended, of Webb (5)
      3.2  Bylaws of Webb (1)
      4.1  Specimen form of Webb' Common Stock certificate (8)
      4.2  Stock Option Plan of 1995 (1)
      4.3  Form of Incentive Stock Option Agreement for Stock Option Plan of 1995 (1)
      4.4  Form of Nonstatutory Stock Option Agreement for Stock Option Plan of 1995 (1)
      4.5  Form of Warrant issued in 1996 to private investors (1)
      4.6  Form of Warrant Agreement issued in 1997 and 1998 to private investors (3)
      4.7  Form of Warrant Agreement issued in connection with issuance of 5% A Preferred Stock (4)
     10.1  Office Lease for Webb' principal offices (2)
</TABLE>

                                       35
<PAGE>

<TABLE>
     <S>   <C>
     10.2  Form of Change of Control Agreement between Webb and certain employees (6)
     10.3  Operating and Member Control Agreement dated March 10, 1999, among NetIgnite2, LLC, Webb
           and NetIgnite, Inc., Buy-Sell Agreement dated March 10, 1999, among NetIgnite2, LLC, Webb
           and NetIgnite, Inc. and Employment Agreement dated March 10, 1999, among Webb, NetIgnite2,
           LLC and Perry Evans (6)
     10.3a Agreement and Plan of Merger between Webb Interactive Services, Inc. and NetIgnite, Inc. dated
           June 1, 1999 (11)
     10.4  Electronic Banking Service Contract dated May 28, 1997 between Webb and Rockwell Federal
           Credit Union (6)
     10.5  Online Banking Service Agreement dated February 10, 1999 between Webb and CU Cooperative
           Systems, Inc. (6)
     10.6  Internet/Business Site Development & Host Agreement dated November 12, 1997 between Webb
           and ReMax International, Inc. (6)
     10.7  Equipment Sale and Software License Agreement dated August 4, 1997, as amended May 26,
           1998, between Webb and Intermedia Partners Southeast (6)
     10.8  Agreement and Plan of Merger between Webb., DCI Acquisition Corp. and Durand
           Communications, Inc. (7)
     10.9  Securities Purchase Agreement dated August 25, 1999 between Webb and Castle Creek
           Technology Partners LLC, including the Promissory Note dated August 25, 1999 the Form of
           Warrant and Registration Rights Agreement. (9)
     10.10 Form of Warrants, Form of Promissory Note issued in the aggregate principal amount of
           $558,161, Form of Promissory Note issued to two investors in the aggregate principal amount of
           $315,000, and Form of Warrant issued to finders in connection with the acquisition of Durand
           Communications, Inc. (8)
     10.11 Development, Access and License Agreement, as amended, effective June 30, 1999 between
           Webb and Switchboard, Inc. (10)
     10.12 Engineering Services Agreement effective June 30, 1999 between Webb and Switchboard, Inc.
           (10)
     10.13 Development, Access and License Agreement effective August 11, 1999 between Webb and
           NetShepherd, Inc. (10)
     27    Financial Data Schedule*
</TABLE>

-----------------------------
*    Filed herewith.

(1)  Filed with the initial Registration Statement on Form SB-2, filed April 5,
     1996, Commission File No. 333-3282-D.
(2)  Filed with Amendment No. 1 to the Registration Statement on Form SB-2,
     filed May 3,1996, Commission File No. 333-3282-D.
(3)  Filed with the Form 10-KSB Annual Report for the year ended December 31,
     1997, Commission File No. 0-28462.
(4)  Filed with the Registration Statement on Form S-3, filed July 7, 1998,
     Commission File No. 333-86465.
(5)  Filed with the Registration Statement on Form S-3, filed January 29, 1999,
     Commission File No. 333-71503.
(6)  Filed with the Form 10-KSB Annual Report for the year ended December 31,
     1998, Commission File No. 0-28462.
(7)  Filed with the Form 8-K Current Report dated June 30, 1999 Commission File
     No. 0-28462.
(8)  Filed with the Registration Statement on Form S-3, filed September 24,
     1999, Commission File No. 333-86465.
(9)  Filed with the current report on Form 8-K, filed September 2, 1999,
     Commission File No. 000-28462.
(10) Filed with the Registration Statement on Form S-3, filed September 2, 1999,
     Commission File No. 333-86465.
(11) Filed with the Form 10-QSB Quarterly Report for the period ended June
     30,1999, Commission file No. 0-28462.

                                       36
<PAGE>

(b)  Reports on Form 8-K.  The Company filed reports on Form 8-K during the
     quarter ended September 30, 1999 as follows:  (i).filed under Item 2 of
     From 8-K on July 15,999 and amended on September 13,1999; (ii) filed under
     Item 5 of from 8-k on September 2, 1999.

                                       37
<PAGE>

                                   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:  November 12, 1999           By  /s/ William R. Cullen
                                       --------------------------------
                                       Chief Financial Officer



                                       /s/ Stuart J. Lucko
                                       --------------------------------
                                       Controller

                                       38